[Congressional Record Volume 143, Number 90 (Tuesday, June 24, 1997)]
[House]
[Pages H4339-H4375]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                               AMENDMENTS

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

                               H.R. 2014

                         Offered by: Mr. Rangel

               (Amendment in the Nature of a Substitute)

       Amendment No. 1:
       Strike all after enacting clause, and insert the following:

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

       (a) Short Title.--This Act may be cited as the ``Revenue 
     Reconciliation Act of 1997''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--

Sec. 1. Short title; amendment of 1986 Code.
Sec. 2. Modifications of certain requirements.

              TITLE I--TAX INCENTIVES FOR HIGHER EDUCATION

Sec. 101. Hope scholarship credits.
Sec. 102. Employer-provided educational assistance programs.

            TITLE II--PUBLIC-PRIVATE EDUCATION PARTNERSHIPS

Sec. 201. Purpose.
Sec. 202. Incentives for education zones.

                      TITLE III--FAMILY TAX RELIEF

Sec. 301. Credit for families with young children.

                     TITLE IV--CAPITAL GAINS RELIEF

 Subtitle A--Exemption From Tax for Gain on Sale of Principal Residence

Sec. 401. Exemption from tax for gain on sale of principal residence.
Sec. 402. Capital loss deduction allowed with respect to sale or 
              exchange of principal residence.

   Subtitle B--Lifetime Capital Gains Rate Reduction for Nontradable 
                                Property

Sec. 411. Lifetime capital gains rate reduction for nontradable 
              property.

                       TITLE V--ESTATE TAX RELIEF

Sec. 501. Family-owned business exclusion.

               TITLE VI--EXTENSION OF EXPIRING PROVISIONS

Sec. 601. Research credit.
Sec. 602. Orphan drug credit made permanent.
Sec. 603. Contributions of appreciated stock.
Sec. 604. Extension and modification of work opportunity credit.

                   TITLE VII--EMPOWERMENT ZONES, ETC.

                     Subtitle A--Empowerment Zones

Sec. 701. Additional empowerment zones with current law benefits.
Sec. 702. Designation of additional empowerment zones and enterprise 
              communities.
Sec. 703. Volume cap not to apply to enterprise zone facility bonds 
              with respect to new empowerment zones.
Sec. 704. Modifications to enterprise zone facility bond rules for all 
              empowerment zones and enterprise communities.
Sec. 705. Modifications to enterprise zone business definition for all 
              empowerment zones and enterprise communities.

                        Subtitle B--Brownfields

Sec. 711. Expensing of environmental remediation costs.
Sec. 712. Use of redevelopment bonds for environmental remediation.

                   Subtitle C--Welfare to Work Credit

Sec. 721. Welfare to work credit.

        Subtitle D--Community Development Financial Institutions

Sec. 731. Credit for qualified equity investments in community 
              development financial institutions.

                      TITLE VIII--OTHER TAX RELIEF

Sec. 801. Suspension of statute of limitations on filing refund claims 
              during periods of disability.
Sec. 802. Modifications of Puerto Rico economic activity credit.
Sec. 803. Treatment of software as FSC export property.

           TITLE IX--INCENTIVES FOR THE DISTRICT OF COLUMBIA

Sec. 901. Tax incentives for revitalization of the District of 
              Columbia.

                           TITLE X--REVENUES

                     Subtitle A--Financial Products

Sec. 1001. Constructive sales treatment for appreciated financial 
              positions.
Sec. 1002. Limitation on exception for investment companies under 
              section 351.
Sec. 1003. Modification of rules for allocating interest expense to 
              tax-exempt interest.
Sec. 1004. Gains and losses from certain terminations with respect to 
              property.
Sec. 1005. Determination of original issue discount where pooled debt 
              obligations subject to acceleration.
Sec. 1006. Denial of interest deductions on certain debt instruments.

        Subtitle B--Corporate Organizations and Reorganizations

Sec. 1011. Tax treatment of certain extraordinary dividends.
Sec. 1012. Application of section 355 to distributions followed by 
              acquisitions and to intragroup transactions.
Sec. 1013. Tax treatment of redemptions involving related corporations.
Sec. 1014. Modification of holding period applicable to dividends 
              received deduction.

                 Subtitle C--Other Corporate Provisions

Sec. 1021. Registration and other provisions relating to confidential 
              corporate tax shelters.

[[Page H4340]]

Sec. 1022. Certain preferred stock treated as boot.

                 Subtitle D--Administrative Provisions

Sec. 1031. Reporting of certain payments made to attorneys.
Sec. 1032. Decrease of threshold for reporting payments to corporations 
              performing services for Federal agencies.
Sec. 1033. Disclosure of return information for administration of 
              certain veterans programs.
Sec. 1034. Continuous levy on certain payments.
Sec. 1035. Returns of beneficiaries of estates and trusts required to 
              file returns consistent with estate or trust return or to 
              notify Secretary of inconsistency.

            Subtitle E--Excise and Employment Tax Provisions

Sec. 1041. Extension and modification of Airport and Airway Trust Fund 
              taxes.
Sec. 1042. Credit for tire tax in lieu of exclusion of value of tires 
              in computing price.
Sec. 1043. Restoration of Leaking Underground Storage Tank Trust Fund 
              taxes.
Sec. 1044. Reinstatement of Oil Spill Liability Trust Fund tax.
Sec. 1045. Extension of Federal unemployment surtax.

         Subtitle F--Provisions Relating to Tax-Exempt Entities

Sec. 1051. Expansion of look-thru rule for interest, annuities, 
              royalties, and rents derived by subsidiaries of tax-
              exempt organizations.

                 Subtitle G--Foreign-Related Provisions

Sec. 1061. Definition of foreign personal holding company income.
Sec. 1062. Personal property used predominantly in the United States 
              treated as not property of a like kind with respect to 
              property used predominantly outside the United States.
Sec. 1063. Holding period requirement for certain foreign taxes.
Sec. 1064. Penalties for failure to disclose position that certain 
              international transportation income is not includible in 
              gross income.
Sec. 1065. Interest on underpayments not reduced by foreign tax credit 
              carrybacks.

                  Subtitle H--Other Revenue Provisions

Sec. 1071. Termination of suspense accounts for family corporations 
              required to use accrual method of accounting.
Sec. 1072. Allocation of basis among properties distributed by 
              partnership.
Sec. 1073. Repeal of requirement that inventory be substantially 
              appreciated.
Sec. 1074. Extension of time for taxing precontribution gain.
Sec. 1075. Limitation on property for which income forecast method may 
              be used.
Sec. 1076. Repeal of special rule for rental use of vacation homes, 
              etc., for less than 15 days.
Sec. 1077. Expansion of requirement that involuntarily converted 
              property be replaced with property acquired from an 
              unrelated person.
Sec. 1078. Treatment of exception from installment sales rules for 
              sales of property by a manufacturer to a dealer.

     SEC. 2. MODIFICATIONS OF CERTAIN REQUIREMENTS.

       (a) Modification of Deposit of Airline Ticket Tax 
     Revenues.--Deposits of taxes imposed by section 4261 of the 
     Internal Revenue Code of 1986 which (but for this subsection) 
     would be required to be made on or after July 1, 2001, and 
     before October 1, 2001, shall be made on October 10, 2001.
       (b) Modification of Estimated Tax Provisions.--Subparagraph 
     (C) of section 6654(d)(1) of the Internal Revenue Code of 
     1986 shall not apply in determining the amount of any 
     required installment for a taxable year beginning in calendar 
     year 2001.
              TITLE I--TAX INCENTIVES FOR HIGHER EDUCATION

     SEC. 101. HOPE SCHOLARSHIP CREDITS.

       (a) In General.--Subpart A of part IV of subchapter A of 
     chapter 1 (relating to nonrefundable personal credits) is 
     amended by inserting after section 23 the following new 
     section:

     ``SEC. 24. HOPE SCHOLARSHIP CREDITS.

       ``(a) Allowance of Credit.--In the case of an individual, 
     there shall be allowed as a credit against the tax imposed by 
     this chapter for the taxable year the amount equal to the sum 
     of--
       ``(1) the 100-Percent Hope Scholarship Credit, and
       ``(2) the 20-Percent Hope Scholarship Credit.
       ``(b) Amount of Credits.--For purposes of this section--
       ``(1) Hope credit.--
       ``(A) In general.--The 100-Percent Hope Scholarship Credit 
     is the amount of the qualified higher education expenses paid 
     by the taxpayer during the taxable year for education 
     furnished to an individual during any academic period 
     beginning in such taxable year, but only if this paragraph 
     applies to such individual for such taxable year.
       ``(B) Dollar limitation.--The amount of the 100-Percent 
     Hope Scholarship Credit determined under this paragraph with 
     respect to any individual shall not exceed--
       ``(i) $1,100 for taxable years beginning in 1997, 1998, or 
     1999,
       ``(ii) $1,200 for taxable years beginning in 2000, or
       ``(iii) $1,500 for taxable years beginning in 2001 or 
     thereafter.
       ``(C) 100-percent hope scholarship credit allowed for only 
     2 taxable years.--This paragraph shall apply for a taxable 
     year with respect to the qualified higher education expenses 
     of an individual only if the taxpayer elects to have this 
     section apply with respect to such individual for such year. 
     An election under this subparagraph shall not take effect 
     with respect to an individual for any taxable year if an 
     election under this subparagraph (by the taxpayer or any 
     other individual) is in effect with respect to such 
     individual for any 2 prior taxable years.
       ``(D) 100-percent hope scholarship credit allowed only for 
     first 2 years of postsecondary education.--This paragraph 
     shall not apply for a taxable year with respect to the 
     qualified higher education expenses of an individual if the 
     individual has completed (before the beginning of such 
     taxable year) the first 2 years of postsecondary education at 
     an institution of higher education.
       ``(2) 20-percent hope scholarship credit.--
       ``(A) In general.--The 20-Percent Hope Scholarship Credit 
     is 20 percent of the qualified higher education expenses paid 
     by the taxpayer during the taxable year for education 
     furnished to an individual during any academic period 
     beginning in such taxable year. Education expenses with 
     respect to an individual for whom a Hope credit is determined 
     for the taxable year shall not be taken into account under 
     this paragraph.
       ``(B) Dollar limitation.--The amount of qualified higher 
     education expenses taken into account under subparagraph (A) 
     for any taxable year shall not exceed--
       ``(i) $4,000 for taxable years beginning in 1997, 1998, or 
     1999,
       ``(ii) $5,000 for taxable years beginning in 2000,
       ``(iii) $7,500 for taxable years beginning in 2001, or
       ``(iv) $10,000 for taxable years beginning in 2002 or 
     thereafter.
       ``(3) Credit allowed for year only if individual is at 
     least \1/2\ time student for portion of year.--No credit 
     shall be allowed under subsection (a) for a taxable year with 
     respect to the qualified higher education expenses of an 
     individual unless such individual is an eligible student for 
     at least one academic period which begins during such year.
       ``(c) Limitation Based on Modified Adjusted Gross Income.--
       ``(1) In general.--The amount which would (but for this 
     section) be allowed as a credit under subsection (a) for the 
     taxable year shall be reduced (but not below zero) by the 
     amount determined under paragraph (2).
       ``(2) Amount of reduction.--The amount determined under 
     this paragraph is the amount which bears the same ratio to 
     the credit which would be so allowed as--
       ``(A) the excess of--
       ``(i) the taxpayer's modified adjusted gross income for 
     such taxable year, over
       ``(ii) $50,000 ($80,000 in the case of a joint return), 
     bears to
       ``(B) $20,000.
       ``(3) Modified adjusted gross income.--The term `modified 
     adjusted gross income' means the adjusted gross income of the 
     taxpayer for the taxable year increased by any amount 
     excluded from gross income under section 911, 931, or 933.
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified higher education expenses.--
       ``(A) In general.--The term `qualified higher education 
     expenses' means tuition and fees required for the enrollment 
     or attendance of--
       ``(i) the taxpayer,
       ``(ii) the taxpayer's spouse, or
       ``(iii) any dependent of the taxpayer with respect to whom 
     the taxpayer is allowed a deduction under section 151,

     at an institution of higher education.
       ``(B) Exception for education involving sports, etc.--Such 
     term does not include expenses with respect to any course or 
     other education involving sports, games, or hobbies, unless 
     such course or other education is part of the individual's 
     degree program.
       ``(C) Exception for nonacademic fees.--Such term does not 
     include student activity fees, athletic fees, insurance 
     expenses, or other expenses unrelated to an individual's 
     academic course of instruction.
       ``(2) Institution of higher education.--The term 
     `institution of higher education' means an institution--
       ``(A) which is described in section 481 of the Higher 
     Education Act of 1965 (20 U.S.C. 1088), as in effect on the 
     date of the enactment of this section, and
       ``(B) which is eligible to participate in a program under 
     title IV of such Act.
       ``(3) Eligible student.--The term `eligible student' means, 
     with respect to any academic period, a student who--
       ``(A) meets the requirements of section 484(a)(1) of the 
     Higher Education Act of 1965 (20 U.S.C. 1091(a)(1)), as in 
     effect on the date of the enactment of this section, and
       ``(B) is carrying at least \1/2\ the normal full-time work 
     load for the course of study the student is pursuing.

[[Page H4341]]

       ``(e) Treatment of Expenses Paid by Dependent.--If a 
     deduction under section 151 with respect to an individual is 
     allowed to another taxpayer for a taxable year beginning in 
     the calendar year in which such individual's taxable year 
     begins--
       ``(1) no credit shall be allowed under subsection (a) to 
     such individual for such individual's taxable year, and
       ``(2) qualified higher education expenses paid by such 
     individual during such individual's taxable year shall be 
     treated for purposes of this section as paid by such other 
     taxpayer.
       ``(f) Treatment of Certain Prepayments.--If qualified 
     higher education expenses are paid by the taxpayer during a 
     taxable year for an academic period which begins during the 
     first 3 months following such taxable year, such academic 
     period shall be treated for purposes of this section as 
     beginning during such taxable year.
       ``(g) Special Rules.--
       ``(1) Denial of credit if individual convicted of drug 
     offense.--No credit shall be allowed under subsection (a) 
     with respect to the qualified higher education expenses of an 
     individual for any taxable year if the individual has been 
     convicted before the end of such year of a Federal or State 
     felony offense consisting of the possession or distribution 
     of a controlled substance.
       ``(2) Denial of credit if individual fails to make 
     satisfactory academic progress.--If--
       ``(A) if a credit is allowable under this section with 
     respect to the qualified higher education expenses of an 
     individual for any taxable year, and
       ``(B) such individual failed to make satisfactory academic 
     progress described in section 484(c) of the Higher Education 
     Act of 1965 during such year,

     no credit shall be allowed under subsection (a) with respect 
     to qualified higher education expenses of such individual for 
     a succeeding taxable year.
       ``(3) No double benefit.--No credit shall be allowed under 
     subsection (a) for any taxable year for any expense for which 
     a deduction is allowed under any other provision of this 
     chapter.
       ``(4) Identification requirement.--No credit shall be 
     allowed under subsection (a) to a taxpayer with respect to 
     the qualified higher education expenses of an individual 
     unless the taxpayer includes the name and taxpayer 
     identification number of such individual on the return of tax 
     for the taxable year.
       ``(5) Adjustment for certain scholarships.--The amount of 
     qualified higher education expenses otherwise taken into 
     account under subsection (b) with respect to an individual 
     for an academic period shall be reduced (before the 
     application of any dollar limitation under this section) by 
     the sum of--
       ``(A) any amounts paid for the benefit of such individual 
     which are allocable to such period as--
       ``(i) a qualified scholarship which is excludable from 
     gross income under section 117,
       ``(ii) an educational assistance allowance under chapter 
     30, 31, 32, 34, or 35 of title 38, United States Code, or 
     under chapter 1606 of title 10, United States Code,
       ``(iii) a payment which is excludable from gross income 
     under section 127, or
       ``(iv) a payment (other than a gift, bequest, devise, or 
     inheritance within the meaning of section 102(a)) for such 
     individual's educational expenses, or attributable to such 
     individual's enrollment at an institution of higher 
     education, which is excludable from gross income under any 
     law of the United States, and
       ``(B) the amount excludable from gross income under section 
     135 which is allocable to such expenses with respect to such 
     individual for such period.
       ``(6) No credit for married individuals filing separate 
     returns.--If the taxpayer is a married individual (within the 
     meaning of section 7703), this section shall apply only if 
     the taxpayer and the taxpayer's spouse file a joint return 
     for the taxable year.
       ``(7) Nonresident aliens.--If the taxpayer is a nonresident 
     alien individual for any portion of the taxable year, this 
     section shall apply only if such individual is treated as a 
     resident alien of the United States for purposes of this 
     chapter by reason of an election under subsection (g) or (h) 
     of section 6013.
       ``(h) Inflation Adjustments.--
       ``(1) Dollar limitation on amount of credit.--
       ``(A) In general.--In the case of a taxable year beginning 
     after 2001, each applicable dollar amount contained in 
     subsection (b) shall be increased by an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 2000' 
     for `calendar year 1992' in subparagraph (B) thereof.
       ``(B) Rounding.--If any amount as adjusted under 
     subparagraph (A) is not a multiple of $50, such amount shall 
     be rounded to the next lowest multiple of $50.
       ``(2) Income limits.--
       ``(A) In general.--In the case of a taxable year beginning 
     after 2000, the $50,000 and $80,000 amounts in subsection 
     (c)(2) shall each be increased by an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 1999' 
     for `calendar year 1992' in subparagraph (B) thereof.
       ``(B) Rounding.--If any amount as adjusted under 
     subparagraph (A) is not a multiple of $5,000, such amount 
     shall be rounded to the next lowest multiple of $5,000.
       ``(i) Regulations.--The Secretary may prescribe such 
     regulations as may be necessary or appropriate to carry out 
     this section, including regulations providing for a recapture 
     of credit allowed under this section in cases where there is 
     a refund in a subsequent taxable year of any amount which was 
     taken into account in determining the amount of such 
     credit.''
       (b) Extension of Procedures Applicable to Mathematical or 
     Clerical Errors.--Paragraph (2) of section 6213(g) (relating 
     to the definition of mathematical or clerical errors) is 
     amended by striking ``and'' at the end of subparagraph (G), 
     by striking the period at the end of subparagraph (H) and 
     inserting ``, and'', and by inserting after subparagraph (H) 
     the following new subparagraph:
       ``(I) an omission of a correct TIN required under section 
     24(g)(4) (relating to higher education tuition and fees) to 
     be included on a return.''
       (c) Returns Relating to Higher Education Expenses.--
       (1) In general.--Subpart B of part III of subchapter A of 
     chapter 61 (relating to information concerning transactions 
     with other persons) is amended by inserting after section 
     6050R the following new section:

     ``SEC. 6050S. RETURNS RELATING TO HIGHER EDUCATION EXPENSES.

       ``(a) In General.--Any person--
       ``(1) which is an institution of higher education which 
     receives payments for qualified higher education expenses 
     with respect to any individual for any calendar year, or
       ``(2) which is engaged in a trade or business which, in the 
     course of such trade or business makes payments during any 
     calendar year to any individual which constitute 
     reimbursements or refunds (or similar amounts) of qualified 
     higher education expenses of such individual,

     shall make the return described in subsection (b) with 
     respect to the individual at such time as the Secretary may 
     by regulations prescribe.
       ``(b) Form and Manner of Returns.--A return is described in 
     this subsection if such return--
       ``(1) is in such form as the Secretary may prescribe,
       ``(2) contains--
       ``(A) the name, address, and TIN of the individual with 
     respect to whom payments described in subsection (a) were 
     received from (or were paid to),
       ``(B) the name, address, and TIN of any individual 
     certified by the individual described in subparagraph (A) as 
     the taxpayer who will claim the individual as a dependent for 
     purposes of the deduction allowable under section 151 for any 
     taxable year ending with or within the calendar year,
       ``(C) the--
       ``(i) aggregate amount of payments for qualified higher 
     education expenses received with respect to the individual 
     described in subparagraph (A) during the calendar year, and
       ``(ii) aggregate amount of reimbursements or refunds (or 
     similar amounts) paid to such individual during the calendar 
     year, and
       ``(D) such other information as the Secretary may 
     prescribe.
       ``(c) Application to Governmental Units.--For purposes of 
     this section--
       ``(1) a governmental unit or any agency or instrumentality 
     thereof shall be treated as a person, and
       ``(2) any return required under subsection (a) by such 
     governmental entity shall be made by the officer or employee 
     appropriately designated for the purpose of making such 
     return.
       ``(d) Statements To Be Furnished to Individuals With 
     Respect to Whom Information Is Required.--Every person 
     required to make a return under subsection (a) shall furnish 
     to each individual whose name is required to be set forth in 
     such return under subparagraph (A) or (B) of subsection 
     (b)(2) a written statement showing--
       ``(1) the name, address, and phone number of the 
     information contact of the person required to make such 
     return, and
       ``(2) the aggregate amounts described in subparagraph (C) 
     of subsection (b)(2).

     The written statement required under the preceding sentence 
     shall be furnished on or before January 31 of the year 
     following the calendar year for which the return under 
     subsection (a) was required to be made.
       ``(e) Definitions.--For purposes of this section, the terms 
     `institution of higher education' and `qualified higher 
     education expenses' have the respective meanings given such 
     terms by section 24.
       ``(f) Returns Which Would Be Required To Be Made by 2 or 
     More Persons.--Except to the extent provided in regulations 
     prescribed by the Secretary, in the case of any amount 
     received by any person on behalf of another person, only the 
     person first receiving such amount shall be required to make 
     the return under subsection (a).
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the provisions 
     of this section. No penalties shall be imposed under section 
     6724 with respect to any return or statement required under 
     this section until such time as such regulations are 
     issued.''

[[Page H4342]]

       (2) Assessable penalties.--Section 6724(d) (relating to 
     definitions) is amended--
       (A) in paragraph (1)(B) by redesignating clauses (x) 
     through (xv) as clauses (xi) through (xvi), respectively, and 
     by inserting after clause (ix) of such paragraph the 
     following new clause:
       ``(x) section 6050S (relating to returns relating to 
     payments for qualified higher education expenses),'', and
       (B) in paragraph (2) by striking ``or'' at the end of the 
     next to last subparagraph, by striking the period at the end 
     of the last subparagraph and inserting ``, or'', and by 
     adding at the end the following new subparagraph:
       ``(Z) section 6050S(d) (relating to returns relating to 
     qualified higher education expenses).''
       (3) Clerical amendment.--The table of sections for subpart 
     B of part III of subchapter A of chapter 61 is amended by 
     inserting after the item relating to section 6050R the 
     following new item:
``Sec. 6050S. Returns relating to higher education expenses.''

       (d) Conforming Amendment.--The table of sections for 
     subpart A of part IV of subchapter A of chapter 1 is amended 
     by inserting after the item relating to section 23 the 
     following new item:
``Sec. 24. Hope scholarship credits.''

       (e) Credit Allowed Against Minimum Tax.--Section 26 is 
     amended by adding at the end the following new subsection:
       ``(c) Scholarship Credits Allowed Against Minimum Tax.--
     Subsection (a) shall not apply to the credit allowable under 
     section 24, but the amount of the credit allowed by that 
     section shall not exceed the sum of--
       ``(1) the regular tax liability for the taxable year 
     reduced by the sum of the credits allowable under this 
     subpart (other than section 24), and
       ``(2) the minimum tax imposed by section 55.''
       (f) Effective Date.--The amendments made by this section 
     shall apply to expenses paid after December 31, 1996 (in 
     taxable years ending after such date), for education 
     furnished in academic periods beginning after June 30, 1997.

     SEC. 102. EMPLOYER-PROVIDED EDUCATIONAL ASSISTANCE PROGRAMS.

       (a) Permanent Extension.--Section 127 (relating to 
     exclusion for educational assistance programs) is amended by 
     striking subsection (d) and by redesignating subsection (e) 
     as subsection (d).
       (b) Repeal of Limitation on Graduate Education.--The last 
     sentence of section 127(c)(1) is amended by striking ``, and 
     such term also does not include any payment for, or the 
     provision of any benefits with respect to, any graduate level 
     course of a kind normally taken by an individual pursuing a 
     program leading to a law, business, medical, or other 
     advanced academic or professional degree''.
       (c) Effective Dates.--
       (1) Extension.--The amendment made by subsection (a) shall 
     apply to taxable years beginning after December 31, 1996.
       (2) Graduate education.--The amendment made by subsection 
     (b) shall apply with respect to expenses relating to courses 
     beginning after June 30, 1997.
            TITLE II--PUBLIC-PRIVATE EDUCATION PARTNERSHIPS

     SEC. 201. PURPOSE.

       The purpose of this title is to facilitate the 
     establishment of working partnerships of public school 
     educators, businesses, labor, and community groups to--
       (1) enhance the academic curriculum for education and 
     training below the postsecondary level,
       (2) increase graduation and employment rates,
       (3) better prepare students for the rigors of college and 
     the increasingly complex workforce, and
       (4) promote the global leadership position of the United 
     States economy,
     by providing a no-cost source of capital to eligible local 
     education agencies for the cost of establishing specialized 
     academies in distressed areas (referred to as ``education 
     zones'').

     SEC. 202. INCENTIVES FOR EDUCATION ZONES.

       (a) In General.--Part III of subchapter U of chapter 1 
     (relating to additional incentives for empowerment zones), as 
     amended by subsection (b), is amended by inserting after 
     subpart B the following new subpart:

              ``Subpart C--Incentives for Education Zones

``Sec. 1397B. Credit to holders of qualified zone academy bonds.''

     ``SEC. 1397B. CREDIT TO HOLDERS OF QUALIFIED ZONE ACADEMY 
                   BONDS.

       ``(a) Allowance of Credit.--In the case of a taxpayer who 
     holds a qualified zone academy bond on the credit allowance 
     date of such bond which occurs during the taxable year, there 
     shall be allowed as a credit against the tax imposed by this 
     chapter for such taxable year the amount determined under 
     subsection (b).
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any qualified zone 
     academy bond is the amount equal to the product of--
       ``(A) the credit rate determined by the Secretary under 
     paragraph (2) for the month in which such bond was issued, 
     multiplied by
       ``(B) the face amount of the bond held by the taxpayer on 
     the credit allowance date.
       ``(2) Determination.--During each calendar month, the 
     Secretary shall determine a credit rate which shall apply to 
     bonds issued during the following calendar month. The credit 
     rate for any month is the percentage which the Secretary 
     estimates will permit the issuance of qualified zone academy 
     bonds without discount and without interest cost to the 
     issuer.
       ``(c) Limitation Based on Amount of Tax.--The credit 
     allowed under subsection (a) for any taxable year shall not 
     exceed the excess of--
       ``(1) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(2) the sum of the credits allowable under part IV of 
     subchapter A (other than subpart C thereof, relating to 
     refundable credits).
       ``(d) Qualified Zone Academy Bond.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified zone academy bond' 
     means any bond issued as part of an issue if--
       ``(A) 95 percent or more of the proceeds of such issue are 
     to be used for a qualified purpose with respect to a 
     qualified zone academy established by an eligible local 
     education agency,
       ``(B) the bond is issued by a State or local government 
     within the jurisdiction of which such academy is located,
       ``(C) the issuer--
       ``(i) designates such bond for purposes of this section,
       ``(ii) certifies that it has written assurances that the 
     private business contribution requirement of paragraph (2) 
     will be met with respect to such academy, and
       ``(iii) certifies that it has the written approval of the 
     eligible local education agency for such bond issuance, and
       ``(D) the term of each bond which is part of such issue 
     does not exceed the maximum term permitted under paragraph 
     (3).
       ``(2) Private business contribution requirement.--
       ``(A) In general.--For purposes of paragraph (1), the 
     private business contribution requirement of this paragraph 
     is met with respect to any issue if the eligible local 
     education agency that established the qualified zone academy 
     has written commitments from private entities to make 
     qualified contributions having a present value (as of the 
     date of issuance of the issue) of not less than 10 percent of 
     the proceeds of the issue.
       ``(B) Qualified contributions.--For purposes of 
     subparagraph (A), the term `qualified contribution' means any 
     contribution (of a type and quality acceptable to the 
     eligible local education agency) of--
       ``(i) equipment for use in the qualified zone academy 
     (including state-of-the-art technology and vocational 
     equipment),
       ``(ii) technical assistance in developing curriculum or in 
     training teachers in order to promote appropriate market 
     driven technology in the classroom,
       ``(iii) services of employees as volunteer mentors,
       ``(iv) internships, field trips, or other educational 
     opportunities outside the academy for students, or
       ``(v) any other property or service specified by the 
     eligible local education agency.
       ``(3) Term requirement.--During each calendar month, the 
     Secretary shall determine the maximum term permitted under 
     this paragraph for bonds issued during the following calendar 
     month. Such maximum term shall be the term which the 
     Secretary estimates will result in the present value of the 
     obligation to repay the principal on the bond being equal to 
     50 percent of the face amount of the bond. Such present value 
     shall be determined using as a discount rate the average 
     annual interest rate of tax-exempt obligations having a term 
     of 10 years or more which are issued during the month. If the 
     term as so determined is not a multiple of a whole year, such 
     term shall be rounded to the next highest whole year.
       ``(4) Qualified zone academy.--
       ``(A) In general.--The term `qualified zone academy' means 
     any public school (or academic program within a public 
     school) which is established by and operated under the 
     supervision of an eligible local education agency to provide 
     education or training below the postsecondary level if--
       ``(i) such public school or program (as the case may be) is 
     designed in cooperation with business to enhance the academic 
     curriculum, increase graduation and employment rates, and 
     better prepare students for the rigors of college and the 
     increasingly complex workforce,
       ``(ii) students in such public school or program (as the 
     case may be) will be subject to the same academic standards 
     and assessments as other students educated by the eligible 
     local education agency,
       ``(iii) the comprehensive education plan of such public 
     school or program is approved by the eligible local education 
     agency, and
       ``(iv)(I) such public school is located in an empowerment 
     zone or enterprise community (including any such zone or 
     community designated after the date of the enactment of this 
     section), or
       ``(II) there is a reasonable expectation (as of the date of 
     issuance of the bonds) that at least 35 percent of the 
     students attending such school or participating in such 
     program (as the case may be) will be eligible for free or 
     reduced-cost lunches under the school lunch program 
     established under the National School Lunch Act.
       ``(B) Eligible local education agency.--The term `eligible 
     local education agency' means any local education agency as 
     defined in section 14101 of the Elementary and Secondary 
     Education Act of 1965.

[[Page H4343]]

       ``(5) Qualified purpose.--The term `qualified purpose' 
     means, with respect to any qualified zone academy--
       ``(A) constructing or renovating the public school facility 
     in which the academy is established,
       ``(B) providing equipment for use at such academy,
       ``(C) developing course materials for education to be 
     provided at such academy, and
       ``(D) training teachers and other school personnel in such 
     academy.
       ``(e) Limitation on Amount of Bonds Designated.--
       ``(1) National limitation.--There is a national zone 
     academy bond limitation for each calendar year. Such 
     limitation is $10,000,000,000 for 1998, 1999, 2000, 2001, and 
     2002, and zero thereafter.
       ``(2) Allocation of limitation.--The national zone academy 
     bond limitation for a calendar year shall be allocated by the 
     Secretary among the States on the basis of their respective 
     populations of individuals below the poverty line (as defined 
     by the Office of Management and Budget). The limitation 
     amount allocated to a State under the preceding sentence 
     shall be allocated by the State education agency to qualified 
     zone academies within such State.
       ``(3) Designation subject to limitation amount.--The 
     maximum aggregate face amount of bonds issued during any 
     calendar year which may be designated under subsection (d)(1) 
     with respect to any qualified zone academy shall not exceed 
     the limitation amount allocated to such academy under 
     paragraph (2) for such calendar year.
       ``(4) Carryover of used limitation.--If for any calendar 
     year--
       ``(A) the limitation amount for any State, exceeds
       ``(B) the amount of bonds issued during such year which are 
     designated under subsection (d)(1) with respect to qualified 
     zone academies within such State,

     the limitation amount for such State for the following 
     calendar year shall be increased by the amount of such 
     excess.
       ``(f) Other Definitions.--For purposes of this section--
       ``(1) Credit allowance date.--The term `credit allowance 
     date' means, with respect to any issue, the last day of the 
     1-year period beginning on the date of issuance of such issue 
     and the last day of each successive 1-year period thereafter.
       ``(2) Bond.--The term `bond' includes any obligation.
       ``(3) State.--The term `State' includes the District of 
     Columbia and any possession of the United States.
       ``(g) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this section.''
       (b) Conforming Amendments.--
       (1) Subchapter U of chapter 1 (as in effect before the 
     amendment made by subsection (a)) is amended by redesignating 
     subpart C as subpart D, and by redesignating sections 1397B, 
     1397C, and 1397D as sections 1397D, 1397E, and 1397F, 
     respectively.
       (2) Subsection (b) of section 1394 is amended--
       (A) by striking ``section 1397C'' in paragraph (2) and 
     inserting ``section 1397E'', and
       (B) by striking ``section 1397B'' in paragraph (3) and 
     inserting ``section 1397D''.
       (3) The table of subparts for part III of subchapter U of 
     chapter 1 is amended by striking the last item and inserting 
     the following:

``Subpart C. Incentives for education zones.
``Subpart D. General provisions.''

       (4) The table of sections for subpart D of such part III, 
     as so redesignated, is amended to read as follows:

``Sec. 1397D. Enterprise zone business defined.
``Sec. 1397E. Qualified zone property defined.''

       (5) The table of sections for part IV of subchapter U of 
     chapter 1 is amended to read as follows:

``Sec. 1397F. Regulations.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after December 31, 1997.
                      TITLE III--FAMILY TAX RELIEF

     SEC. 301. CREDIT FOR FAMILIES WITH YOUNG CHILDREN.

       (a) In General.--Subpart C of part IV of subchapter A of 
     chapter 1 (relating to refundable credits) is amended by 
     inserting after section 34 the following new section:

     ``SEC. 34A. FAMILIES WITH YOUNG CHILDREN.

       ``(a) Allowance of Credit.--
       ``(1) In general.--In the case of an individual, there 
     shall be allowed as a credit against the tax imposed by this 
     subtitle for the taxable year an amount equal to $500 
     multiplied by the number of eligible children of the taxpayer 
     for the taxable year.
       ``(2) Phase-in of credit.--In the case of taxable years 
     beginning before January 1, 2001, paragraph (1) shall be 
     applied by substituting `$300' for `$500'.
       ``(b) Phaseout of Credit.--
       ``(1) In general.--The amount of the credit allowed under 
     subsection (a) shall be reduced (but not below zero) by the 
     amount determined under paragraph (2).
       ``(2) Amount of reduction.--The amount determined under 
     this paragraph equals the amount which bears the same ratio 
     to the credit (determined without regard to this subsection) 
     as--
       ``(A) the excess of--
       ``(i) the taxpayer's adjusted gross income for such taxable 
     year, over
       ``(ii) $60,000, bears to
       ``(B) $15,000.
     Any amount determined under this paragraph which is not a 
     multiple of $10 shall be rounded to the next lowest $10.
       ``(3) Adjusted gross income.--For purposes of this 
     subsection, adjusted gross income of any taxpayer shall be 
     increased by any amount excluded from gross income under 
     section 911, 931, or 933.
       ``(c) Eligible Child.--For purposes of this section, the 
     term `eligible child' means any child (as defined in section 
     151(c)(3)) of the taxpayer--
       ``(1) who has not attained age 18 as of the close of the 
     calendar year in which the taxable year of the taxpayer 
     begins,
       ``(2) who is a dependent of the taxpayer with respect to 
     whom the taxpayer is allowed a deduction under section 151 
     for such taxable year, and
       ``(3) whose TIN is included on the taxpayer's return for 
     such taxable year.
       ``(d) Limitation Based on Amount of Tax.--
       ``(1) In general.--The credit allowed by subsection (a) for 
     the taxable year shall not exceed the sum of--
       ``(A) the tax imposed by this chapter for the taxable year 
     (reduced by the sum of the other credits allowable under this 
     part against such tax other than under this subpart, relating 
     to refundable credits), and
       ``(B) the taxpayer's social security taxes for such taxable 
     year.
       ``(2) Social security taxes.--For purposes of paragraph 
     (1)--
       ``(A) In general.--The term `social security taxes' means, 
     with respect to any taxpayer for any taxable year--
       ``(i) the amount of the taxes imposed by sections 3101 and 
     3201(a) on amounts received by the taxpayer during the 
     calendar year in which the taxable year begins,
       ``(ii) \1/2\ of the amount of the taxes imposed by section 
     1401 on the self-employment income of the taxpayer for the 
     taxable year, and
       ``(iii) \1/2\ of the amount of the taxes imposed by section 
     3211(a)(1) on amounts received by the taxpayer during the 
     calendar year in which the taxable year begins.
       ``(B) Coordination with special refund of social security 
     taxes.--The term `social security taxes' shall not include 
     any taxes to the extent the taxpayer is entitled to a special 
     refund of such taxes under section 6413(c).
       ``(C) Special rule.--Any amounts paid pursuant to an 
     agreement under section 3121(l) (relating to agreements 
     entered into by American employers with respect to foreign 
     affiliates) which are equivalent to the taxes referred to in 
     subparagraph (A)(i) shall be treated as taxes referred to in 
     such subparagraph.
       ``(e) Inflation Adjustments.--In the case of a taxable year 
     beginning in a calendar year after 2000--
       ``(1) In general.--The $500 and $60,000 amounts contained 
     in subsections (a)(1) and (b)(2) shall each be increased by 
     an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 1999' 
     for `calendar year 1992' in subparagraph (B) thereof.
       ``(2) Increase in phaseout range.--If the dollar amount in 
     effect under subsection (a)(1) for any taxable year exceeds 
     $500, subsection (b)(2)(B) shall be applied by substituting 
     an amount equal to 30 times such dollar amount for `$15,000'.
       ``(3) Rounding.--If any amount as adjusted under paragraph 
     (1) is not a multiple of $100, such amount shall be rounded 
     to the next lowest multiple of $100.
       ``(f) Special Rules.--
       ``(1) Amount of credit may be determined under tables.--The 
     amount of the credit allowed by this section may be 
     determined under tables prescribed by the Secretary.
       ``(2) Certain other rules apply.--Rules similar to the 
     rules of subsections (c)(1)(E) and (F), (d), and (e) of 
     section 32 shall apply for purposes of this section.''
       (b) Clerical Amendment.--The table of sections for subpart 
     C of part IV of subchapter A of chapter 1 is amended by 
     inserting after the item relating to section 34 the following 
     new item:

``Sec. 34A. Families with young children.''

       (c) Conforming Amendment.--Paragraph (2) of section 1324(b) 
     of title 31, United States Code, is amended by inserting 
     before the period ``, or from section 34A of such Code''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
                     TITLE IV--CAPITAL GAINS RELIEF
 Subtitle A--Exemption From Tax for Gain on Sale of Principal Residence

     SEC. 401. EXEMPTION FROM TAX FOR GAIN ON SALE OF PRINCIPAL 
                   RESIDENCE.

       (a) In General.--Section 121 (relating to one-time 
     exclusion of gain from sale of principal residence by 
     individual who has attained age 55) is amended to read as 
     follows:

     ``SEC. 121. EXCLUSION OF GAIN FROM SALE OF PRINCIPAL 
                   RESIDENCE.

       ``(a) Exclusion.--Gross income shall not include gain from 
     the sale or exchange of property if, during the 5-year period 
     ending on the date of the sale or exchange, such property has 
     been owned and used by the

[[Page H4344]]

     taxpayer as the taxpayer's principal residence for periods 
     aggregating 2 years or more.
       ``(b) Limitations.--
       ``(1) Dollar limitation.--The amount of gain excluded from 
     gross income under subsection (a) with respect to any sale or 
     exchange shall not exceed $250,000 ($500,000 in the case of a 
     joint return where both spouses meet the use requirement of 
     subsection (a)).
       ``(2) Application to only 1 sale or exchange every 2 
     years.--
       ``(A) In general.--Subsection (a) shall not apply to any 
     sale or exchange by the taxpayer if, during the 2-year period 
     ending on the date of such sale or exchange, there was any 
     other sale or exchange by the taxpayer to which subsection 
     (a) applied.
       ``(B) Prior sales by spouse not taken into account.--If, 
     but for this subparagraph, subsection (a) would not apply to 
     a sale or exchange by a married individual filing a joint 
     return solely by reason of a prior sale or exchange by such 
     individual's spouse--
       ``(i) subparagraph (A) shall be applied without regard to 
     the sale or exchange by such individual's spouse or any 
     ownership or use by such spouse, but
       ``(ii) the amount of gain excluded from gross income under 
     subsection (a) with respect to the sale or exchange by such 
     individual shall not exceed $250,000.
       ``(C) Pre-effective date sales not taken into account.--
     Subparagraph (A) shall be applied without regard to any sale 
     or exchange before May 7, 1997.
       ``(c) Exclusion for Taxpayers Failing To Meet Certain 
     Requirements.--
       ``(1) In general.--In the case of a sale or exchange to 
     which this subsection applies, the ownership and use 
     requirements of subsection (a) shall not apply and subsection 
     (b)(2) shall not apply; but the amount of gain excluded from 
     gross income under subsection (a) with respect to such sale 
     of exchange shall not exceed--
       ``(A) the amount which bears the same ratio to the amount 
     which would be so excluded if such requirements had been met, 
     as
       ``(B) the shorter of--
       ``(i) the aggregate periods, during the 5-year period 
     ending on the date of such sale or exchange, such property 
     has been owned and used by the taxpayer as the taxpayer's 
     principal residence, or
       ``(ii) the period after the date of the most recent prior 
     sale or exchange by the taxpayer or his spouse to which 
     subsection (a) applied and before the date of such sale or 
     exchange,

     bears to 2 years.
       ``(2) Sales and exchanges to which subsection applies.--
     This subsection shall apply to any sale or exchange if--
       ``(A) subsection (a) would not (but for this subsection) 
     apply to such sale or exchange by reason of--
       ``(i) a failure to meet the ownership and use requirements 
     of subsection (a), or
       ``(ii) subsection (b)(2), and
       ``(B) such sale or exchange is by reason of a change in 
     place of employment, health, or other unforeseen 
     circumstances.
       ``(d) Special Rules.--
       ``(1) Joint returns.--For purposes of this section, if a 
     husband and wife make a joint return for the taxable year of 
     the sale or exchange of property, both spouses shall be 
     treated as meeting the ownership requirement of subsection 
     (a) with respect to such property if either spouse meets such 
     requirement.
       ``(2) Property of deceased spouse.--For purposes of this 
     section, in the case of an unmarried individual whose spouse 
     is deceased on the date of the sale or exchange of property, 
     the period such unmarried individual owned such property 
     shall include the period such deceased spouse held such 
     property before death.
       ``(3) Tenant-stockholder in cooperative housing 
     corporation.--For purposes of this section, if the taxpayer 
     holds stock as a tenant-stockholder (as defined in section 
     216) in a cooperative housing corporation (as defined in such 
     section), then--
       ``(A) the holding requirements of subsection (a) shall be 
     applied to the holding of such stock, and
       ``(B) the use requirements of subsection (a) shall be 
     applied to the house or apartment which the taxpayer was 
     entitled to occupy as such stockholder.
       ``(4) Involuntary conversions.--
       ``(A) In general.--For purposes of this section, the 
     destruction, theft, seizure, requisition, or condemnation of 
     property shall be treated as the sale of such property.
       ``(B) Application of section 1033.--In applying section 
     1033 (relating to involuntary conversions), the amount 
     realized from the sale or exchange of property shall be 
     treated as being the amount determined without regard to this 
     section, reduced by the amount of gain not included in gross 
     income pursuant to this section.
       ``(C) Property acquired after involuntary conversion.--If 
     the basis of the property sold or exchanged is determined (in 
     whole or in part) under section 1033(b) (relating to basis of 
     property acquired through involuntary conversion), then the 
     holding and use by the taxpayer of the converted property 
     shall be treated for purposes of this section as holding and 
     use by the taxpayer of the property sold or exchanged.
       ``(5) Recognition of gain attributable to depreciation.--
     Subsection (a) shall not apply to so much of the gain from 
     the sale of any property as does not exceed the portion of 
     the depreciation adjustments (as defined in section 
     1250(b)(3)) attributable to periods after December 31, 1996, 
     in respect of such property.
       ``(6) Determination of use during periods of out-of-
     residence care.--In the case of a taxpayer who--
       ``(A) becomes physically or mentally incapable of self-
     care, and
       ``(B) owns property and uses such property as the 
     taxpayer's principal residence during the 5-year period 
     described in subsection (a) for periods aggregating at least 
     1 year,

     then the taxpayer shall be treated as using such property as 
     the taxpayer's principal residence during any time during 
     such 5-year period in which the taxpayer owns the property 
     and resides in any facility (including a nursing home) 
     licensed by a State or political subdivision to care for an 
     individual in the taxpayer's condition.
       ``(7) Determination of marital status.--In the case of any 
     sale or exchange, for purposes of this section--
       ``(A) the determination of whether an individual is married 
     shall be made as of the date of the sale or exchange, and
       ``(B) an individual legally separated from his spouse under 
     a decree of divorce or of separate maintenance shall not be 
     considered as married.
       ``(e) Election To Have Section Not Apply.--This section 
     shall not apply to any sale or exchange with respect to which 
     the taxpayer elects not to have this section apply.
       ``(f) Residences Acquired in Rollovers Under Section 
     1034.--For purposes of this section, in the case of property 
     the acquisition of which by the taxpayer resulted under 
     section 1034 (as in effect on the day before the date of the 
     enactment of this sentence) in the nonrecognition of any part 
     of the gain realized on the sale or exchange of another 
     residence, in determining the period for which the taxpayer 
     has owned and used such property as the taxpayer's principal 
     residence, there shall be included the aggregate periods for 
     which such other residence (and each prior residence taken 
     into account under section 1223(7) in determining the holding 
     period of such property) had been so owned and used.''
       (b) Repeal of Nonrecognition of Gain on Rollover of 
     Principal Residence.--Section 1034 (relating to rollover of 
     gain on sale of principal residence) is hereby repealed.
       (c) Conforming Amendments.--
       (1) The following provisions of the Internal Revenue Code 
     of 1986 are each amended by striking ``section 1034'' and 
     inserting ``section 121'': sections 25(e)(7), 56(e)(1)(A), 
     56(e)(3)(B)(i), 143(i)(1)(C)(i)(I), 163(h)(4)(A)(i)(I), 
     280A(d)(4)(A), 464(f)(3)(B)(i), 1033(k)(3), 1274(c)(3)(B), 
     6334(a)(13), and 7872(f)(11)(A).
       (2) Paragraph (4) of section 32(c) is amended by striking 
     ``(as defined in section 1034(h)(3))'' and by adding at the 
     end the following new sentence: ``For purposes of the 
     preceding sentence, the term `extended active duty' means any 
     period of active duty pursuant to a call or order to such 
     duty for a period in excess of 90 days or for an indefinite 
     period.''
       (3) Subparagraph (A) of 143(m)(6) is amended by inserting 
     ``(as in effect on the day before the date of the enactment 
     of the Revenue Reconciliation Act of 1997)'' after 
     ``1034(e)''.
       (4) Subsection (e) of section 216 is amended by striking 
     ``such exchange qualifies for nonrecognition of gain under 
     section 1034(f)'' and inserting ``such dwelling unit is used 
     as his principal residence (within the meaning of section 
     121)''.
       (5) Section 512(a)(3)(D) is amended by inserting ``(as in 
     effect on the day before the date of the enactment of the 
     Revenue Reconciliation Act of 1997)'' after ``1034''.
       (6) Paragraph (7) of section 1016(a) is amended by 
     inserting ``(as in effect on the day before the date of the 
     enactment of the Revenue Reconciliation Act of 1997)'' after 
     ``1034'' and by inserting ``(as so in effect)'' after 
     ``1034(e)''.
       (7) Paragraph (3) of section 1033(k) is amended to read as 
     follows:
       ``(3) For exclusion from gross income of gain from 
     involuntary conversion of principal residence, see section 
     121.''
       (8) Subsection (e) of section 1038 is amended to read as 
     follows:
       ``(e) Principal residences.--If--
       ``(1) subsection (a) applies to a reacquisition of real 
     property with respect to the sale of which gain was not 
     recognized under section 121 (relating to gain on sale of 
     principal residence), and
       ``(2) within 1 year after the date of the reacquisition of 
     such property by the seller, such property is resold by him,

     then, under regulations prescribed by the Secretary, 
     subsections (b), (c), and (d) of this section shall not apply 
     to the reacquisition of such property and, for purposes of 
     applying section 121, the resale of such property shall be 
     treated as a part of the transaction constituting the 
     original sale of such property.''
       (9) Paragraph (7) of section 1223 is amended by inserting 
     ``(as in effect on the day before the date of the enactment 
     of the Revenue Reconciliation Act of 1997)'' after ``1034''.
       (10) Section 1250(d)(7) is amended to read as follows:
       ``(7) Principal residence.--Subsection (a) shall not apply 
     to a disposition to the extent that gain from the disposition 
     is excluded from gross income under section 121.''
       (11) Paragraph (2) of section 6212(c) is amended by 
     striking subparagraph (C) and

[[Page H4345]]

     by redesignating the succeeding subparagraphs accordingly.
       (12) Section 6504 is amended by striking paragraph (4) and 
     by redesignating the succeeding paragraphs accordingly.
       (13) The item relating to section 121 in the table of 
     sections for part III of subchapter B of chapter 1 is amended 
     to read as follows:

``Sec. 121. Exclusion of gain from sale of principal residence.''

       (14) The table of sections for part III of subchapter O of 
     chapter 1 is amended by striking the item relating to section 
     1034.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to sales and exchanges on or after May 7, 1997.
       (2) Transitional rule.--At the election of the taxpayer, 
     the amendments made by this section shall not apply to--
       (A) a sale or exchange on or before the date of the 
     enactment of this Act, or
       (B) a sale or exchange after such date of enactment, if--
       (i) such sale or exchange is pursuant to a contract which 
     was binding on such date, and at all times thereafter before 
     such sale or exchange, or
       (ii) without regard to such amendments, gain would not be 
     recognized under section 1034 of the Internal Revenue Code of 
     1986 (as in effect on the day before the date of the 
     enactment of this Act) on such sale or exchange by reason of 
     a new residence acquired on or before such date.

     SEC. 402. CAPITAL LOSS DEDUCTION ALLOWED WITH RESPECT TO SALE 
                   OR EXCHANGE OF PRINCIPAL RESIDENCE.

       (a) In General.--Subsection (c) of section 165 (relating to 
     limitation on losses of individuals) is amended by striking 
     ``and'' at the end of paragraph (2), by striking the period 
     at the end of paragraph (3) and inserting ``; and'', and by 
     adding at the end the following new paragraph:
       ``(4) losses (not in excess of $250,000) arising from the 
     sale or exchange of the principal residence (within the 
     meaning of section 121) of the taxpayer.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to sales and exchanges on or after May 7, 1997, 
     in taxable years ending after such date.
   Subtitle B--Lifetime Capital Gains Rate Reduction for Nontradable 
                                Property

     SEC. 411. LIFETIME CAPITAL GAINS RATE REDUCTION FOR 
                   NONTRADABLE PROPERTY.

       (a) In General.--Subsection (h) of section 1 (relating to 
     maximum capital gains rate) is amended to read as follows:
       ``(h) Maximum Capital Gains Rate.--If a taxpayer has a net 
     capital gain for any taxable year, the tax imposed by this 
     section for such taxable year shall not exceed the sum of--
       ``(1) a tax computed at the rates and in the manner as if 
     this subsection had not been enacted on the greater of--
       ``(A) taxable income reduced by the amount of the net 
     capital gain, or
       ``(B) the amount of taxable income taxed at a rate below 18 
     percent, plus
       ``(2) the sum of--
       ``(A) 18 percent of the lifetime qualified net capital gain 
     (or if lesser, the amount of taxable income in excess of the 
     amount taxed under paragraph (1)), plus
       ``(B) 28 percent of the excess of the net capital gain (or 
     if lesser, the amount of taxable income in excess of the 
     amount taxed under paragraph (1)) over the lifetime qualified 
     net capital gain for the taxable year.

     For purposes of the preceding sentence, the net capital gain 
     for any taxable year shall be reduced (but not below zero) by 
     the amount which the taxpayer elects to take into account as 
     investment income for the taxable year under section 
     163(d)(4)(B)(iii). In the case of a taxpayer only subject to 
     tax under this section at the 15 percent rate, the amount of 
     the tax under paragraph (1)(B) on net capital gain shall be 
     determined at a rate of 7.5 percent.''
       (b) Definition.--Section 1 is amended by adding at the end 
     thereof the following new subsection:
       ``(i) Lifetime Qualified Net Capital Gain
       ``(1) In general.--For purposes of subsection (h), the 
     lifetime qualified net capital gain is the qualified net gain 
     for the taxable year.
       ``(2) Limitation.--
       ``(A) In general.--The amount of the qualified net gain 
     taken into account under paragraph (1) for any taxable year 
     shall not exceed $600,000 reduced by the aggregate amount of 
     the qualified net gain taken into account under this 
     subsection by the taxpayer for prior taxable years.
       ``(B) Special rule for joint returns.--The amount of the 
     qualified net gain taken into account under this subsection 
     on a joint return for any taxable year shall be allocated 
     equally between the spouses for purposes of determining the 
     limitation under subparagraph (A) for any succeeding taxable 
     year.
       ``(3) Qualified net gain.--For purposes of paragraph (1), 
     the term `qualified net gain' means the lesser of--
       ``(A) the net capital gain for the taxable year, or
       ``(B) the net capital gain for the taxable year determined 
     by only taking into account gains and losses from sales and 
     exchanges on or after May 7, 1997, of qualified assets.

     A taxpayer may elect for any taxable year not to take into 
     account under this subsection all (or any portion) of the 
     qualified net gain for such taxable year. Such an election, 
     once made, shall be irrevocable.
       ``(4) Qualified assets.--For purposes of this subsection, 
     the term `qualified assets' means any property held for more 
     than 3 years other than--
       ``(A) stock or securities for which there is a market on an 
     established securities market or otherwise, and
       ``(B) property (other than stock or securities) of a kind 
     regularly traded on an established market.

     Such term shall not include any qualified small business 
     stock (as defined in section 1202) nor the principal 
     residence of the taxpayer.
       ``(5) Subsection not to apply to certain individuals.--This 
     subsection shall not apply to any individual who has not 
     attained age 25 before the close of the taxable year.
       ``(6) Subsection Not to Apply to Certain Taxpayers.--This 
     subsection shall not apply to--
       ``(A) a married individual (within the meaning of section 
     7703) filing a separate return for the taxable year, or
       ``(B) an estate or trust.
       ``(7) Special Rules.--
       ``(A) Treatment of certain sales of interests in 
     partnerships, etc.--For purposes of this subsection, any gain 
     from the sale or exchange of a qualified asset which is an 
     interest in a partnership, S corporation, or trust shall not 
     be treated as gain from the sale or exchange of a qualified 
     asset to the extent such gain is attributable to unrealized 
     appreciation in the value of property described in 
     subparagraph (A) or (B) of paragraph (4) which is held by 
     such entity. Rules similar to the rules of section 751(f) 
     shall apply for purposes of the preceding sentence.
       ``(B) Special rule for pass-thru entities.--
       ``(i) In general.--In applying this subsection with respect 
     to any pass-thru entity--

       ``(I) the determination of when the sale or exchange occurs 
     shall be made at the entity level, and
       ``(II) any gain attributable to such entity shall in no 
     event be treated as gain from sale or exchange of a qualified 
     asset if interests in such entity are described in 
     subparagraph (A) or (B) of paragraph (4).

       ``(ii) Pass-thru entity defined.--For purposes of clause 
     (i), the term `pass-thru-entity' means--

       ``(I) a regulated investment company,
       ``(II) a real estate investment trust,
       ``(III) an S corporation,
       ``(IV) a partnership,
       ``(V) an estate or trust, and
       ``(VI) a common trust fund.''

       (c) Treatment of Collectibles.--
       (1) In general.--Section 1222 is amended by inserting after 
     paragraph (11) the following new paragraph:
       ``(12) Special rule for collectibles.--
       ``(A) In general.--Any gain or loss from the sale or 
     exchange of a collectible shall be treated as a short-term 
     capital gain or loss (as the case may be), without regard to 
     the period such asset was held. The preceding sentence shall 
     apply only to the extent the gain or loss is taken into 
     account in computing taxable income.
       ``(B) Treatment of certain sales of interests in 
     partnerships, etc.--For purposes of subparagraph (A), any 
     gain from the sale or exchange of an interest in a 
     partnership, S corporation, or trust which is attributable to 
     unrealized appreciation in the value of collectibles held by 
     such entity shall be treated as gain from the sale or 
     exchange of a collectible. Rules similar to the rules of 
     section 751(f) shall apply for purposes of the preceding 
     sentence.
       ``(C) Collectible.--For purposes of this paragraph, the 
     term `collectible' means any capital asset which is a 
     collectible (as defined in section 408(m) without regard to 
     paragraph (3) thereof).''
       (2) Charitable deduction not affected.--
       (A) Paragraph (1) of section 170(e) is amended by adding at 
     the end thereof the following new sentence: ``For purposes of 
     this paragraph, section 1222 shall be applied without regard 
     to paragraph (12) thereof (relating to special rule for 
     collectibles).''
       (B) Clause (iv) of section 170(b)(1)(C) is amended by 
     inserting before the period at the end thereof the following: 
     ``and section 1222 shall be applied without regard to 
     paragraph (12) thereof (relating to special rule for 
     collectibles)''.
       (d) Minimum Tax Treatment.--Clause (i) of section 
     55(b)(1)(A) is amended to read as follows:
       ``(i) In general.--In the case of a taxpayer other than a 
     corporation, the tentative minimum tax for the taxable year 
     is the sum of--

       ``(I) 18 percent of so much of the taxable excess as does 
     not exceed the lifetime qualified net capital gain for the 
     taxable year,
       ``(II) 26 percent of so much of the ordinary taxable excess 
     as does not exceed $175,000, plus
       ``(III) 28 percent of so much of the ordinary taxable 
     excess as exceeds $175,000.

     For purposes of the preceding sentence, the term `ordinary 
     taxable excess' means the taxable excess reduced by the 
     lifetime qualified net capital gain. The amount determined 
     under this clause shall be reduced by the alternative minimum 
     tax foreign tax credit for the taxable year.''
       (e) Effective Date.--Except as provided in paragraph (2), 
     the amendments made by this section shall apply to taxable 
     years ending on or after May 7, 1997.

[[Page H4346]]

                       TITLE V--ESTATE TAX RELIEF

     SEC. 501. FAMILY-OWNED BUSINESS EXCLUSION.

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

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

       ``(a) In General.--In the case of an estate of a decedent 
     to which this section applies, the value of the gross estate 
     shall not include the lesser of--
       ``(1) the adjusted value of the qualified family-owned 
     business interests of the decedent otherwise includible in 
     the estate, or
       ``(2) $400,000, increased by the amount (if any) of the 
     limitation under this paragraph not claimed by the estate of 
     a previously deceased spouse of the decedent.
       ``(b) Estates to Which Section Applies.--
       ``(1) In general.--This section shall apply to an estate 
     if--
       ``(A) the decedent was (at the date of the decedent's 
     death) a citizen or resident of the United States,
       ``(B) the sum of--
       ``(i) the adjusted value of the qualified family-owned 
     business interests described in paragraph (2), plus
       ``(ii) the amount of the gifts of such interests determined 
     under paragraph (3),

     exceeds 50 percent of the adjusted gross estate, and
       ``(C) during the 8-year period ending on the date of the 
     decedent's death there have been periods aggregating 5 years 
     or more during which--
       ``(i) such interests were owned by the decedent or a member 
     of the decedent's family, and
       ``(ii) there was material participation (within the meaning 
     of section 2032A(e)(6)) by the decedent or a member of the 
     decedent's family in the operation of the business to which 
     such interests relate.
       ``(2) Includible qualified family-owned business 
     interests.--The qualified family-owned business interests 
     described in this paragraph are the interests which--
       ``(A) are included in determining the value of the gross 
     estate (without regard to this section), and
       ``(B) are acquired by any qualified heir from, or passed to 
     any qualified heir from, the decedent (within the meaning of 
     section 2032A(e)(9)).
       ``(3) Includible gifts of interests.--The amount of the 
     gifts of qualified family-owned business interests determined 
     under this paragraph is the excess of--
       ``(A) the sum of--
       ``(i) the amount of such gifts from the decedent to members 
     of the decedent's family taken into account under subsection 
     2001(b)(1)(B), plus
       ``(ii) the amount of such gifts otherwise excluded under 
     section 2503(b),

     to the extent such interests are continuously held by members 
     of such family (other than the decedent's spouse) between the 
     date of the gift and the date of the decedent's death, over
       ``(B) the amount of such gifts from the decedent to members 
     of the decedent's family otherwise included in the gross 
     estate.
       ``(c) Adjusted Gross Estate.--For purposes of this section, 
     the term `adjusted gross estate' means the value of the gross 
     estate (determined without regard to this section)--
       ``(1) reduced by any amount deductible under paragraph (3) 
     or (4) of section 2053(a), and
       ``(2) increased by the excess of--
       ``(A) the sum of--
       ``(i) the amount of gifts determined under subsection 
     (b)(3),
       ``(ii) the amount (if more than de minimis) of other 
     transfers from the decedent to the decedent's spouse (at the 
     time of the transfer) within 10 years of the date of the 
     decedent's death, plus
       ``(iii) the amount of other gifts (not included under 
     clause (i) or (ii)) from the decedent within 3 years of such 
     date, other than gifts to members of the decedent's family 
     otherwise excluded under section 2503(b), over
       ``(B) the sum of the amounts described in clauses (i), 
     (ii), and (iii) of subparagraph (A) which are otherwise 
     includible in the gross estate.

     For purposes of the preceding sentence, the Secretary may 
     provide that de minimis gifts to persons other than members 
     of the decedent's family shall not be taken into account.
       ``(d) Adjusted Value of the Qualified Family-Owned Business 
     Interests.--For purposes of this section, the adjusted value 
     of any qualified family-owned business interest is the value 
     of such interest for purposes of this chapter (determined 
     without regard to this section), reduced by the excess of--
       ``(1) any amount deductible under paragraph (3) or (4) of 
     section 2053(a), over
       ``(2) the sum of--
       ``(A) any indebtedness on any qualified residence of the 
     decedent the interest on which is deductible under section 
     163(h)(3),
       ``(B) any indebtedness to the extent the taxpayer 
     establishes that the proceeds of such indebtedness were used 
     for the payment of educational and medical expenses of the 
     decedent, the decedent's spouse, or the decedent's dependents 
     (within the meaning of section 152), plus
       ``(C) any indebtedness not described in clause (i) or (ii), 
     to the extent such indebtedness does not exceed $10,000.
       ``(e) Qualified Family-Owned Business Interest.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified family-owned business interest' means--
       ``(A) an interest as a proprietor in a trade or business 
     carried on as a proprietorship, or
       ``(B) an interest in an entity carrying on a trade or 
     business, if--
       ``(i) at least--

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

       ``(ii) for purposes of subclause (II) or (III) of clause 
     (i), at least 30 percent of such entity is so owned by the 
     decedent and members of the decedent's family.
       ``(2) Limitation.--Such term shall not include--
       ``(A) any interest in a trade or business the principal 
     place of business of which is not located in the United 
     States,
       ``(B) any interest in an entity, if the stock or debt of 
     such entity or a controlled group (as defined in section 
     267(f)(1)) of which such entity was a member was readily 
     tradable on an established securities market or secondary 
     market (as defined by the Secretary) at any time within 3 
     years of the date of the decedent's death,
       ``(C) any interest in a trade or business not described in 
     section 542(c)(2), if more than 35 percent of the adjusted 
     ordinary gross income of such trade or business for the 
     taxable year which includes the date of the decedent's death 
     would qualify as personal holding company income (as defined 
     in section 543(a)), or
       ``(D) that portion of an interest in a trade or business 
     that is attributable to--
       ``(i) cash or marketable securities, or both, in excess of 
     the reasonably expected day-to-day working capital needs of 
     such trade or business, and
       ``(ii) any other assets of the trade or business (other 
     than assets used in the active conduct of a trade or business 
     described in section 542(c)(2)), the income of which is 
     described in section 543(a) or in subparagraph (B), (C), (D), 
     or (E) of section 954(c)(1) (determined by substituting 
     `trade or business' for `controlled foreign corporation').
       ``(3) Rules regarding ownership.--
       ``(A) Ownership of entities.--For purposes of paragraph 
     (1)(B)--
       ``(i) Corporations.--Ownership of a corporation shall be 
     determined by the holding of stock possessing the appropriate 
     percentage of the total combined voting power of all classes 
     of stock entitled to vote and the appropriate percentage of 
     the total value of shares of all classes of stock.
       ``(ii) Partnerships.--Ownership of a partnership shall be 
     determined by the owning of the appropriate percentage of the 
     capital interest in such partnership.
       ``(B) Ownership of tiered entities.--For purposes of this 
     section, if by reason of holding an interest in a trade or 
     business, a decedent, any member of the decedent's family, 
     any qualified heir, or any member of any qualified heir's 
     family is treated as holding an interest in any other trade 
     or business--
       ``(i) such ownership interest in the other trade or 
     business shall be disregarded in determining if the ownership 
     interest in the first trade or business is a qualified 
     family-owned business interest, and
       ``(ii) this section shall be applied separately in 
     determining if such interest in any other trade or business 
     is a qualified family-owned business interest.
       ``(C) Individual ownership rules.--For purposes of this 
     section, an interest owned, directly or indirectly, by or for 
     an entity described in paragraph (1)(B) shall be considered 
     as being owned proportionately by or for the entity's 
     shareholders, partners, or beneficiaries. A person shall be 
     treated as a beneficiary of any trust only if such person has 
     a present interest in such trust.
       ``(f) Tax Treatment of Failure To Materially Participate in 
     Business or Dispositions of Interests.--
       ``(1) In general.--There is imposed an additional estate 
     tax if, within 10 years after the date of the decedent's 
     death and before the date of the qualified heir's death--
       ``(A) the material participation requirements described in 
     section 2032A(c)(6)(B) are not met with respect to the 
     qualified family-owned business interest which was acquired 
     (or passed) from the decedent,
       ``(B) the qualified heir disposes of any portion of a 
     qualified family-owned business interest (other than by a 
     disposition to a member of the qualified heir's family or 
     through a qualified conservation contribution under section 
     170(h)),
       ``(C) the qualified heir loses United States citizenship 
     (within the meaning of section 877) or with respect to whom 
     an event described in subparagraph (A) or (B) of section 
     877(e)(1) occurs, and such heir does not comply with the 
     requirements of subsection (g), or
       ``(D) the principal place of business of a trade or 
     business of the qualified family-owned business interest 
     ceases to be located in the United States.
       ``(2) Additional estate tax.--
       ``(A) In general.--The amount of the additional estate tax 
     imposed by paragraph (1) shall be equal to--
       ``(i) the applicable percentage of the adjusted tax 
     difference attributable to the qualified family-owned 
     business interest (as

[[Page H4347]]

     determined under rules similar to the rules of section 
     2032A(c)(2)(B)), plus
       ``(ii) interest on the amount determined under clause (i) 
     at the underpayment rate established under section 6621 for 
     the period beginning on the date the estate tax liability was 
     due under this chapter and ending on the date such additional 
     estate tax is due.
       ``(B) Applicable percentage.--For purposes of this 
     paragraph, the applicable percentage shall be determined 
     under the following table:

                                            ``If the event described in
                                                paragraph (1) occurs in
                                                  the folThe applicable
                                                material percentage is:
  1 through 6..................................................100 ....

  7.............................................................80 ....

  8.............................................................60 ....

  9.............................................................40 ....

  10............................................................20.....

       ``(g) Security Requirements for Noncitizen Qualified 
     Heirs.--
       ``(1) In general.--Except upon the application of 
     subparagraph (F) or (M) of subsection (h)(3), if a qualified 
     heir is not a citizen of the United States, any interest 
     under this section passing to or acquired by such heir 
     (including any interest held by such heir at a time described 
     in subsection (f)(1)(C)) shall be treated as a qualified 
     family-owned business interest only if the interest passes or 
     is acquired (or is held) in a qualified trust.
       ``(2) Qualified trust.--The term `qualified trust' means a 
     trust--
       ``(A) which is organized under, and governed by, the laws 
     of the United States or a State, and
       ``(B) except as otherwise provided in regulations, 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.
       ``(h) Other Definitions and Applicable Rules.--For purposes 
     of this section--
       ``(1) Qualified heir.--The term `qualified heir'--
       ``(A) has the meaning given to such term by section 
     2032A(e)(1), and
       ``(B) includes any active employee of the trade or business 
     to which the qualified family-owned business interest relates 
     if such employee has been employed by such trade or business 
     for a period of at least 10 years before the date of the 
     decedent's death.
       ``(2) Member of the family.--The term `member of the 
     family' has the meaning given to such term by section 
     2032A(e)(2).
       ``(3) Applicable rules.--Rules similar to the following 
     rules shall apply:
       ``(A) Section 2032A(b)(4) (relating to decedents who are 
     retired or disabled).
       ``(B) Section 2032A(b)(5) (relating to special rules for 
     surviving spouses).
       ``(C) Section 2032A(c)(2)(D) (relating to partial 
     dispositions).
       ``(D) Section 2032A(c)(3) (relating to only 1 additional 
     tax imposed with respect to any 1 portion).
       ``(E) Section 2032A(c)(4) (relating to due date).
       ``(F) Section 2032A(c)(5) (relating to liability for tax; 
     furnishing of bond).
       ``(G) Section 2032A(c)(7) (relating to no tax if use begins 
     within 2 years; active management by eligible qualified heir 
     treated as material participation).
       ``(H) Section 2032A(e)(10) (relating to community 
     property).
       ``(I) Section 2032A(e)(14) (relating to treatment of 
     replacement property acquired in section 1031 or 1033 
     transactions).
       ``(J) Section 2032A(f) (relating to statute of 
     limitations).
       ``(K) Section 6166(b)(3) (relating to farmhouses and 
     certain other structures taken into account).
       ``(L) Subparagraphs (B), (C), and (D) of section 6166(g)(1) 
     (relating to acceleration of payment).
       ``(M) Section 6324B (relating to special lien for 
     additional estate tax).''
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter A of chapter 11 is amended by inserting after 
     the item relating to section 2033 the following new item:

``Sec. 2033A. Family-owned business exclusion.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     1997.
               TITLE VI--EXTENSION OF EXPIRING PROVISIONS

     SEC. 601. RESEARCH CREDIT.

       (a) In General.--Section 41(h)(1) is amended--
       (1) by striking ``May 31, 1997'' and inserting ``May 31, 
     1998'', and
       (2) by striking the last sentence.
       (b) Conforming Amendment.--Section 45C(b)(1)(D) is amended 
     by striking ``1997'' and inserting ``1998''.
       (c) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years ending after May 31, 1997.

     SEC. 602. ORPHAN DRUG CREDIT MADE PERMANENT.

       (a) In General.--Subsection (e) of section 45C is hereby 
     repealed.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to amounts paid or incurred in taxable years 
     ending after May 31, 1997.

     SEC. 603. CONTRIBUTIONS OF APPRECIATED STOCK.

       (a) In General.--Clause (ii) of section 170(e)(5)(D) is 
     amended by striking ``May 31, 1997'' and inserting ``May 31, 
     1998''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to contributions made after May 31, 1997.

     SEC. 604. EXTENSION AND MODIFICATION OF WORK OPPORTUNITY 
                   CREDIT.

       (a) Extension of Credit.--Subparagraph (B) of section 
     51(c)(4) (relating to termination) is amended by striking 
     ``September 30, 1997'' and inserting ``September 30, 1998''.
       (b) Percentage of Wages Allowed as Credit.--
       (1) In general.--Subsection (a) of section 51 (relating to 
     determination of amount) is amended by striking ``35 
     percent'' and inserting ``40 percent''.
       (2) Application of credit for individuals performing fewer 
     than 400 hours of services.--Paragraph (3) of section 51(i) 
     is amended to read as follows:
       ``(3) Individuals not meeting minimum employment periods.--
       ``(A) Reduction of credit for individuals performing fewer 
     than 400 hours of services.--In the case of an individual who 
     has completed at least 120 hours, but less than 400 hours, of 
     services performed for the employer, subsection (a) shall be 
     applied by substituting `25 percent' for `40 percent'.
       ``(B) Denial of credit for individuals performing fewer 
     than 120 hours of services.--No wages shall be taken into 
     account under subsection (a) with respect to any individual 
     unless such individual has completed at least 120 hours of 
     services performed for the employer.''
       (c) Modification of Eligibility Requirement Based on Period 
     on Welfare.--Subparagraph (A) of section 51(d)(2) (defining 
     qualified IV-A recipient) is amended by striking all that 
     follows ``a IV-A program'' and inserting ``for any 9 months 
     during the 18-month period ending on the hiring date.''
       (d) Certain Older Food Stamp Recipients Treated as Members 
     of Targeted Group.--Paragraph (8) of section 51(d) (defining 
     qualified food stamp recipient) is amended to read as 
     follows:
       ``(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 6-month period ending on the hiring date.
       ``(B) Certain older recipients.--The term `qualified food 
     stamp recipient' includes any individual who is certified by 
     the designated local agency--
       ``(i) as having attained age 18 but not age 50 on the 
     hiring date,
       ``(ii) as being a recipient of benefits under the food 
     stamp program who is affected by section 6(o) of the Food 
     Stamp Act of 1977 but who has not been made ineligible for 
     refusing to work in accordance with section 6(o)(2)(A) of 
     such Act, or failing to comply with the requirements of a 
     work program under subparagraph (B), (C), or (D) of section 
     6(o)(2)(A) of such Act, and
       ``(iii) as having a hiring date which is not more than 1 
     year after the date of such cessation.
       ``(C) Termination.--In lieu of applying subsection (c)(4), 
     this subsection shall not apply to amounts paid or incurred 
     with respect to an individual who begins work for the 
     employer after September 30, 2000.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after the date of the enactment of this Act.
                   TITLE VII--EMPOWERMENT ZONES, ETC.
                     Subtitle A--Empowerment Zones

     SEC. 701. ADDITIONAL EMPOWERMENT ZONES WITH CURRENT LAW 
                   BENEFITS.

       (a) In General.--Paragraph (2) of section 1391(b) (relating 
     to designations of empowerment zones and enterprise 
     communities) is amended--
       (1) by striking ``9'' and inserting ``11'',
       (2) by striking ``6'' and inserting ``8'', and
       (3) by striking ``750,000'' and inserting ``1,000,000''.
       (b) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act, 
     except that designations of new empowerment zones made 
     pursuant to such amendments shall be made during the 180-day 
     period beginning on the date of the enactment of this Act.

     SEC. 702. DESIGNATION OF ADDITIONAL EMPOWERMENT ZONES AND 
                   ENTERPRISE COMMUNITIES.

       (a) In General.--Section 1391 (relating to designation 
     procedure for empowerment zones and enterprise communities) 
     is amended by adding at the end the following new subsection:
       ``(g) Additional Designations Permitted.--
       ``(1) In general.--In addition to the areas designated 
     under subsection (a)--
       ``(A) Enterprise communities.--The appropriate Secretaries 
     may designate in the aggregate an additional 80 nominated 
     areas as enterprise communities under this section, subject 
     to the availability of eligible nominated areas. Of that 
     number, not more than 50 may be designated in urban areas and 
     not more than 30 may be designated in rural areas.
       ``(B) Empowerment zones.--The appropriate Secretaries may 
     designate in the aggregate an additional 20 nominated areas 
     as

[[Page H4348]]

     empowerment zones under this section, subject to the 
     availability of eligible nominated areas. Of that number, not 
     more than 15 may be designated in urban areas and not more 
     than 5 may be designated in rural areas.
       ``(2) Period designations may be made.--A designation may 
     be made under this subsection after the date of the enactment 
     of this subsection and before January 1, 1999.
       ``(3) Modifications to eligibility criteria, etc.--
       ``(A) Poverty rate requirement.--
       ``(i) In general.--A nominated area shall be eligible for 
     designation under this subsection only if the poverty rate 
     for each population census tract within the nominated area is 
     not less than 20 percent and the poverty rate for at least 90 
     percent of the population census tracts within the nominated 
     area is not less than 25 percent.
       ``(ii) Treatment of census tracts with small populations.--
     A population census tract with a population of less than 
     2,000 shall be treated as having a poverty rate of not less 
     than 25 percent if--

       ``(I) more than 75 percent of such tract is zoned for 
     commercial or industrial use, and
       ``(II) such tract is contiguous to 1 or more other 
     population census tracts which have a poverty rate of not 
     less than 25 percent (determined without regard to this 
     clause).

       ``(iii) Exception for developable sites.--Clause (i) shall 
     not apply to up to 3 noncontiguous parcels in a nominated 
     area which may be developed for commercial or industrial 
     purposes. The aggregate area of noncontiguous parcels to 
     which the preceding sentence applies with respect to any 
     nominated area shall not exceed 1,000 acres (2,000 acres in 
     the case of an empowerment zone).
       ``(iv) Certain provisions not to apply.--Section 1392(a)(4) 
     (and so much of paragraphs (1) and (2) of section 1392(b) as 
     relate to section 1392(a)(4)) shall not apply to an area 
     nominated for designation under this subsection.
       ``(v) Special rule for rural empowerment zones and 
     enterprise communities.--The Secretary of Agriculture may 
     designate not more than 1 empowerment zone, and not more than 
     5 enterprise communities, in rural areas without regard to 
     clause (i) if such areas satisfy emigration criteria 
     specified by the Secretary of Agriculture.
       ``(B) Size limitation.--
       ``(i) In general.--The parcels described in subparagraph 
     (A)(iii) shall not be taken into account in determining 
     whether the requirement of subparagraph (A) or (B) of section 
     1392(a)(3) is met.
       ``(ii) Special rule for rural areas.--If a population 
     census tract (or equivalent division under section 
     1392(b)(4)) in a rural area exceeds 1,000 square miles or 
     includes a substantial amount of land owned by the Federal, 
     State, or local government, the nominated area may exclude 
     such excess square mileage or governmentally owned land and 
     the exclusion of that area will not be treated as violating 
     the continuous boundary requirement of section 1392(a)(3)(B).
       ``(C) Aggregate population limitation.--The aggregate 
     population limitation under the last sentence of subsection 
     (b)(2) shall not apply to a designation under paragraph 
     (1)(B).
       ``(D) Previously designated enterprise communities may be 
     included.--Subsection (e)(5) shall not apply to any 
     enterprise community designated under subsection (a) that is 
     also nominated for designation under this subsection.
       ``(E) Indian reservations may be nominated.--
       ``(i) In general.--Section 1393(a)(4) shall not apply to an 
     area nominated for designation under this subsection.
       ``(ii) Special rule.--An area in an Indian reservation 
     shall be treated as nominated by a State and a local 
     government if it is nominated by the reservation governing 
     body (as determined by the Secretary of Interior).''
       (b) Employment Credit Not To Apply to New Empowerment 
     Zones.--Section 1396 (relating to empowerment zone employment 
     credit) is amended by adding at the end the following new 
     subsection:
       ``(e) Credit Not To Apply to Empowerment Zones Designated 
     Under Section 1391(g).--This section shall be applied without 
     regard to any empowerment zone designated under section 
     1391(g).''
       (c) Increased Expensing Under Section 179 Not To Apply in 
     Developable Sites.--Section 1397A (relating to increase in 
     expensing under section 179) is amended by adding at the end 
     the following new subsection:
       ``(c) Limitation.--For purposes of this section, qualified 
     zone property shall not include any property substantially 
     all of the use of which is in any parcel described in section 
     1391(g)(3)(A)(iii).''
       (d) Set Aside for Areas With Employment Losses in Financial 
     Service Industries.--Section 1391 is amended by adding at the 
     end the following new subsection:
       ``(g) Set Aside for Areas With Employment Losses in 
     Financial Service Industries.--
       ``(1) In general.--At least 3 of the additional empowerment 
     zones authorized under this section by reason of the 
     enactment of the Revenue Reconciliation Act of 1997 shall be 
     nominated areas described in paragraph (2).
       ``(2) Description.--A nominated area is described in this 
     paragraph if--
       ``(A) at least 12 percent of the wages attributable to 
     private, nonagricultural employment in the area during 1989, 
     and subject to tax under section 3301 during such year, were 
     in the financial institution and real estate sectors, and
       ``(B) the employment in such area in such sectors for the 
     calendar year preceding the calendar year in which such area 
     is nominated for designation is 10 percent (or, if lesser, 
     5,000 full-time equivalent jobs) less than such employment 
     during 1989.

     The requirement of subparagraph (B) shall not be met if 
     substantially all of such decline in employment is 
     attributable to 1 employer. Data for the labor market area 
     which includes the nominated area may be used for purposes of 
     this paragraph if data is not separately available for the 
     nominated area.
       ``(3) Central business district eligible.--Subparagraph (D) 
     of section 1392(a)(3) shall not apply to a nominated area 
     described in paragraph (2).
       ``(4) Financial services businesses eligible.--For purposes 
     of this part, the term `enterprise zone business' includes 
     any entity (or portion of an entity) if substantially all the 
     activities of such entity (or portion thereof) consists of 
     engaging in a banking, insurance, financing, or similar 
     business in an empowerment zone designated by reason of this 
     subsection.''
       (e) Conforming Amendments.--
       (1) Subsections (e) and (f) of section 1391 are each 
     amended by striking ``subsection (a)'' and inserting ``this 
     section''.
       (2) Section 1391(c) is amended by striking ``this section'' 
     and inserting ``subsection (a)''.

     SEC. 703. VOLUME CAP NOT TO APPLY TO ENTERPRISE ZONE FACILITY 
                   BONDS WITH RESPECT TO NEW EMPOWERMENT ZONES.

       (a) In General.--Section 1394 (relating to tax-exempt 
     enterprise zone facility bonds) is amended by adding at the 
     end the following new subsection:
       ``(f) Bonds for Empowerment Zones Designated Under Section 
     1391(g).--
       ``(1) In general.--In the case of a new empowerment zone 
     facility bond--
       ``(A) such bond shall not be treated as a private activity 
     bond for purposes of section 146, and
       ``(B) subsection (c) of this section shall not apply.
       ``(2) Limitation on amount of bonds.--
       ``(A) In general.--Paragraph (1) shall apply to a new 
     empowerment zone facility bond only if such bond is 
     designated for purposes of this subsection by the local 
     government which nominated the area to which such bond 
     relates.
       ``(B) Limitation on bonds designated.--The aggregate face 
     amount of bonds which may be designated under subparagraph 
     (A) with respect to any empowerment zone shall not exceed--
       ``(i) $60,000,000 if such zone is in a rural area,
       ``(ii) $130,000,000 if such zone is in an urban area and 
     the zone has a population of less than 100,000, and
       ``(iii) $230,000,000 if such zone is in an urban area and 
     the zone has a population of at least 100,000.
       ``(C) Special rules.--
       ``(i) Coordination with limitation in subsection (c).--
     Bonds to which paragraph (1) applies shall not be taken into 
     account in applying the limitation of subsection (c) to other 
     bonds.
       ``(ii) Current refunding not taken into account.--In the 
     case of a refunding (or series of refundings) of a bond 
     designated under this paragraph, the refunding obligation 
     shall be treated as designated under this paragraph (and 
     shall not be taken into account in applying subparagraph (B)) 
     if--

       ``(I) the amount of the refunding bond does not exceed the 
     outstanding amount of the refunded bond, and
       ``(II) the refunded bond is redeemed not later than 90 days 
     after the date of issuance of the refunding bond.

       ``(3) New empowerment zone facility bond.--For purposes of 
     this subsection, the term `new empowerment zone facility 
     bond' means any bond which would be described in subsection 
     (a) if only empowerment zones designated under section 
     1391(g) were taken into account under sections 1397B and 
     1397C.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to obligations issued after the date of the 
     enactment of this Act.

     SEC. 704. MODIFICATIONS TO ENTERPRISE ZONE FACILITY BOND 
                   RULES FOR ALL EMPOWERMENT ZONES AND ENTERPRISE 
                   COMMUNITIES.

       (a) Modifications Relating to Enterprise Zone Business.--
     Paragraph (3) of section 1394(b) (defining enterprise zone 
     business) is amended to read as follows:
       ``(3) Enterprise zone business.--
       ``(A) In general.--Except as modified in this paragraph, 
     the term `enterprise zone business' has the meaning given 
     such term by section 1397B.
       ``(B) Modifications.--In applying section 1397B for 
     purposes of this section--
       ``(i) Businesses in enterprise communities eligible.--
     References in section 1397B to empowerment zones shall be 
     treated as including references to enterprise communities.
       ``(ii) Waiver of requirements during startup period.--A 
     business shall not fail to be treated as an enterprise zone 
     business during the startup period if--

       ``(I) as of the beginning of the startup period, it is 
     reasonably expected that such

[[Page H4349]]

     business will be an enterprise zone business (as defined in 
     section 1397B as modified by this paragraph) at the end of 
     such period, and
       ``(II) such business makes bona fide efforts to be such a 
     business.

       ``(iii) Reduced requirements after testing period.--A 
     business shall not fail to be treated as an enterprise zone 
     business for any taxable year beginning after the testing 
     period by reason of failing to meet any requirement of 
     subsection (b) or (c) of section 1397B if at least 35 percent 
     of the employees of such business for such year are residents 
     of an empowerment zone or an enterprise community. The 
     preceding sentence shall not apply to any business which is 
     not a qualified business by reason of paragraph (1), (4), or 
     (5) of section 1397B(d).
       ``(C) Definitions relating to subparagraph (b).--For 
     purposes of subparagraph (B)--
       ``(i) Startup period.--The term `startup period' means, 
     with respect to any property being provided for any business, 
     the period before the first taxable year beginning more than 
     2 years after the later of--

       ``(I) the date of issuance of the issue providing such 
     property, or
       ``(II) the date such property is first placed in service 
     after such issuance (or, if earlier, the date which is 3 
     years after the date described in subclause (I)).

       ``(ii) Testing period.--The term `testing period' means the 
     first 3 taxable years beginning after the startup period.
       ``(D) Portions of business may be enterprise zone 
     business.--The term `enterprise zone business' includes any 
     trades or businesses which would qualify as an enterprise 
     zone business (determined after the modifications of 
     subparagraph (B)) if such trades or businesses were 
     separately incorporated.''
       (b) Modifications Relating to Qualified Zone Property.--
     Paragraph (2) of section 1394(b) (defining qualified zone 
     property) is amended to read as follows:
       ``(2) Qualified zone property.--The term `qualified zone 
     property' has the meaning given such term by section 1397C; 
     except that--
       ``(A) the references to empowerment zones shall be treated 
     as including references to enterprise communities, and
       ``(B) section 1397C(a)(2) shall be applied by substituting 
     `an amount equal to 15 percent of the adjusted basis' for `an 
     amount equal to the adjusted basis'.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after the date of the 
     enactment of this Act.

     SEC. 705. MODIFICATIONS TO ENTERPRISE ZONE BUSINESS 
                   DEFINITION FOR ALL EMPOWERMENT ZONES AND 
                   ENTERPRISE COMMUNITIES.

       (a) In General.--Section 1397B (defining enterprise zone 
     business) is amended--
       (1) by striking ``80 percent'' in subsections (b)(2) and 
     (c)(1) and inserting ``50 percent'',
       (2) by striking ``substantially all'' each place it appears 
     in subsections (b) and (c) and inserting ``a substantial 
     portion'',
       (3) by striking ``, and exclusively related to,'' in 
     subsections (b)(4) and (c)(3),
       (4) by adding at the end of subsection (d)(2) the following 
     new flush sentence:

     ``For purposes of subparagraph (B), the lessor of the 
     property may rely on a lessee's certification that such 
     lessee is an enterprise zone business.'',
       (5) by striking ``substantially all'' in subsection (d)(3) 
     and inserting ``at least 50 percent'', and
       (6) by adding at the end the following new subsection:
       ``(f) Treatment of Businesses Straddling Census Tract 
     Lines.--For purposes of this section, if--
       ``(1) a business entity or proprietorship uses real 
     property located within an empowerment zone,
       ``(2) the business entity or proprietorship also uses real 
     property located outside the empowerment zone,
       ``(3) the amount of real property described in paragraph 
     (1) is substantial compared to the amount of real property 
     described in paragraph (2), and
       ``(4) the real property described in paragraph (2) is 
     contiguous to part or all of the real property described in 
     paragraph (1),

     then all the services performed by employees, all business 
     activities, all tangible property, and all intangible 
     property of the business entity or proprietorship that occur 
     in or is located on the real property described in paragraphs 
     (1) and (2) shall be treated as occurring or situated in an 
     empowerment zone.''
       (b) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years beginning on or after the date of the 
     enactment of this Act.
       (2) Special rule for enterprise zone facility bonds.--For 
     purposes of section 1394(b) of the Internal Revenue Code of 
     1986, the amendments made by this section shall apply to 
     obligations issued after the date of the enactment of this 
     Act.
                        Subtitle B--Brownfields

     SEC. 711. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

       (a) In General.--Part VI of subchapter B of chapter 1 is 
     amended by adding at the end the following new section:

     ``SEC. 198. EXPENSING OF ENVIRONMENTAL REMEDIATION COSTS.

       ``(a) In General.--A taxpayer may elect to treat any 
     qualified environmental remediation expenditure which is paid 
     or incurred by the taxpayer as an expense which is not 
     chargeable to capital account. Any expenditure which is so 
     treated shall be allowed as a deduction for the taxable year 
     in which it is paid or incurred.
       ``(b) Qualified Environmental Remediation Expenditure.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified environmental 
     remediation expenditure' means any expenditure--
       ``(A) which is otherwise chargeable to capital account, and
       ``(B) which is paid or incurred in connection with the 
     abatement or control of hazardous substances at a qualified 
     contaminated site.
       ``(2) Special rule for expenditures for depreciable 
     property.--Such term shall not include any expenditure for 
     the acquisition of property of a character subject to the 
     allowance for depreciation which is used in connection with 
     the abatement or control of hazardous substances at a 
     qualified contaminated site; except that the portion of the 
     allowance under section 167 for such property which is 
     otherwise allocated to such site shall be treated as a 
     qualified environmental remediation expenditure.
       ``(c) Qualified Contaminated Site.--For purposes of this 
     section--
       ``(1) Qualified contaminated site.--
       ``(A) In general.--The term `qualified contaminated site' 
     means any area--
       ``(i) which is held by the taxpayer for use in a trade or 
     business or for the production of income, or which is 
     property described in section 1221(1) in the hands of the 
     taxpayer,
       ``(ii) which is within a targeted area, and
       ``(iii) at or on which there has been a release (or threat 
     of release) or disposal of any hazardous substance.
       ``(B) Taxpayer must receive statement from state 
     environmental agency.--An area shall be treated as a 
     qualified contaminated site with respect to expenditures paid 
     or incurred during any taxable year only if the taxpayer 
     receives a statement from the appropriate agency of the State 
     in which such area is located that such area meets the 
     requirements of clauses (ii) and (iii) of subparagraph (A).
       ``(C) Appropriate state agency.-- For purposes of 
     subparagraph (B), the appropriate agency of a State is the 
     agency designated by the Administrator of the Environmental 
     Protection Agency for purposes of this section. If no agency 
     of a State is designated under the preceding sentence, the 
     appropriate agency for such State shall be the Environmental 
     Protection Agency.
       ``(2) Targeted area.--
       ``(A) In general.--The term `targeted area' means--
       ``(i) any population census tract with a poverty rate of 
     not less than 20 percent,
       ``(ii) a population census tract with a population of less 
     than 2,000 if--

       ``(I) more than 75 percent of such tract is zoned for 
     commercial or industrial use, and
       ``(II) such tract is contiguous to 1 or more other 
     population census tracts which meet the requirement of clause 
     (i) without regard to this clause,

       ``(iii) any empowerment zone or enterprise community (and 
     any supplemental zone designated on December 21, 1994), and
       ``(iv) any site announced before February 1, 1997, as being 
     included as a brownfields pilot project of the Environmental 
     Protection Agency.
       ``(B) National priorities listed sites not included.--Such 
     term shall not include any site which is on, or proposed for, 
     the national priorities list under section 105(a)(8)(B) of 
     the Comprehensive Environmental Response, Compensation, and 
     Liability Act of 1980 (as in effect on the date of the 
     enactment of this section).
       ``(C) Certain rules to apply.--For purposes of this 
     paragraph the rules of sections 1392(b)(4) and 1393(a)(9) 
     shall apply.
       ``(d) Hazardous Substance.--For purposes of this section--
       ``(1) In general.--The term `hazardous substance' means--
       ``(A) any substance which is a hazardous substance as 
     defined in section 101(14) of the Comprehensive Environmental 
     Response, Compensation, and Liability Act of 1980, and
       ``(B) any substance which is designated as a hazardous 
     substance under section 102 of such Act.
       ``(2) Exception.--Such term shall not include any substance 
     with respect to which a removal or remedial action is not 
     permitted under section 104 of such Act by reason of 
     subsection (a)(3) thereof.
       ``(e) Deduction Recaptured as Ordinary Income on Sale, 
     Etc.--Solely for purposes of section 1245, in the case of 
     property to which a qualified environmental remediation 
     expenditure would have been capitalized but for this 
     section--
       ``(1) the deduction allowed by this section for such 
     expenditure shall be treated as a deduction for depreciation, 
     and
       ``(2) such property (if not otherwise section 1245 
     property) shall be treated as section 1245 property solely 
     for purposes of applying section 1245 to such deduction.
       ``(f) Coordination With Other Provisions.--Sections 280B 
     and 468 shall not apply to amounts which are treated as 
     expenses under this section.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''

[[Page H4350]]

       (b) Clerical Amendment.--The table of sections for part VI 
     of subchapter B of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 198. Expensing of environmental remediation costs.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenditures paid or incurred after the date 
     of the enactment of this Act, in taxable years ending after 
     such date.

     SEC. 712. USE OF REDEVELOPMENT BONDS FOR ENVIRONMENTAL 
                   REMEDIATION.

       (a) Environmental Remediation Included as Redevelopment 
     Purpose.--Subparagraph (A) of section 144(c)(3) (relating to 
     redevelopment purposes) is amended by striking ``and'' at the 
     end of clause (iii), by striking the period at the end of 
     clause (iv) and inserting ``, and'', and by adding at the end 
     the following new clause:
       ``(v) costs incurred in connection with abatement or 
     control of hazardous substances at a qualified contaminated 
     site (as defined in section 198(c)) if such costs are 
     incurred pursuant to an environmental remediation plan which 
     was approved by the Administrator of the Environmental 
     Protection Agency or by the head of any State or local 
     government agency designated by the Administrator to carry 
     out the Administrator's functions under this clause.''
       (b) Certain Requirements Not To Apply To Redevelopment 
     Bonds for Environmental Remediation.--Subsection (c) of 
     section 144 is amended by adding at the end the following new 
     paragraph:
       ``(9) Certain requirements not to apply to redevelopment 
     bonds for environmental remediation.--In the case of any bond 
     issued as part of an issue 95 percent or more of the proceeds 
     of which are to finance costs referred to in paragraph 
     (3)(A)(v)--
       ``(A) paragraph (2)(A)(i) shall not apply,
       ``(B) paragraph (2)(A)(ii) shall not apply to any issue 
     issued by the governing body described in paragraph (4)(A) 
     with respect to the area which includes the site,
       ``(C) the requirement of paragraph (2)(B)(ii) shall be 
     treated as met if--
       ``(i) the payment of the principal and interest on such 
     issue is secured by taxes imposed by a governmental unit, or
       ``(ii) such issue is approved by the applicable elected 
     representative (as defined in section 147(f)(2)(E)) of the 
     governmental unit which issued such issue (or on behalf of 
     which such issue was issued),
       ``(D) subparagraphs (C) and (D) of paragraph (2) shall not 
     apply,
       ``(E) subparagraphs (C) and (D) of paragraph (4) shall not 
     apply, and
       ``(F) if the real property referred to in clause (iii) of 
     paragraph (3)(A) is 1 or more dwelling units, such clause 
     shall apply only if the requirements of section 142(d) or 143 
     (as the case may be) are met with respect to such units.''
       (c) Penalty for Failure To Satisfactorily Complete 
     Remediation Plan.--Subsection (b) of section 150 is amended 
     by adding at the end thereof the following new paragraph:
       ``(7) Qualified contaminated site remediation bonds.--In 
     the case of financing provided for costs described in section 
     144(c)(3)(A)(v), no deduction shall be allowed under this 
     chapter for interest on such financing during any period 
     during which there is a determination by the Administrator of 
     the Environmental Protection Agency (or by the head of any 
     State or local government agency designated by the 
     Administrator to carry out the Administrator's functions 
     under this paragraph) that the remediation plan under which 
     such costs were incurred was not satisfactorily completed.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after the date of the enactment 
     of this Act.
                   Subtitle C--Welfare to Work Credit

     SEC. 721. WELFARE TO WORK CREDIT.

       (a) Additional Temporary Incentives for Employing Long-Term 
     Family Assistance Recipients.--Section 51 (relating to amount 
     of work opportunity credit) is amended by inserting after 
     subsection (d) the following new subsection:
       ``(e) Additional Temporary Incentives for Employing Long-
     Term Family Assistance Recipients.--
       ``(1) Treatment as member of targeted group.--A long-term 
     family assistance recipient shall be treated for purposes of 
     this section as a member of a targeted group.
       ``(2) Modification to percentage and years of credit.--In 
     the case of a long-term family assistance recipient, the 
     amount of the work opportunity credit determined under this 
     section for the taxable year shall be equal to the sum of--
       ``(A) 50 percent of the qualified first-year wages, and
       ``(B) 50 percent of the qualified second-year wages.
       ``(3) Modification to amount of wages taken into account.--
     In the case of a long-term family assistance recipient--
       ``(A) $10,000 of wages may be taken into account.--In lieu 
     of applying subsection (b)(3), the amount of the qualified 
     first-year wages, and the amount of qualified second-year 
     wages, which may be taken into account with respect to any 
     individual shall not exceed $10,000 per year.
       ``(B) Certain amounts treated as wages.--The term `wages' 
     includes amounts paid or incurred by the employer which are 
     excludable from such recipient's gross income under--
       ``(i) section 105 (relating to amounts received under 
     accident and health plans),
       ``(ii) section 106 (relating to contributions by employer 
     to accident and health plans),
       ``(iii) section 127 (relating to educational assistance 
     programs) or would be so excludable but for section 127(d), 
     but only to the extent paid or incurred to a person not 
     related to the employer, or
       ``(iv) section 129 (relating to dependent care assistance 
     programs).
     The amount treated as wages by clause (i) or (ii) for any 
     period shall be based on the reasonable cost of coverage for 
     the period, but shall not exceed the applicable premium for 
     the period under section 4980B(f)(4).
       ``(C) Special rules for agricultural and railway labor.--If 
     such recipient is an employee to which subparagraph (A) or 
     (B) of subsection (h)(1) applies--
       ``(i) such subparagraph (A) shall be applied by 
     substituting `$10,000' for `$6,000', and
       ``(ii) such subparagraph (B) shall be applied by 
     substituting `$825' for `$500'.
       ``(D) Termination.--In lieu of applying subsection (c)(4), 
     this subsection shall not apply to amounts paid or incurred 
     with respect to an individual who begins work for the 
     employer after September 30, 2000.
       ``(4) Long-term family assistance recipient.--For purposes 
     of this subsection, the term `long-term family assistance 
     recipient' means any individual who is certified by the 
     designated local agency--
       ``(A) as being a member of a family receiving assistance 
     under a IV-A program (as defined in subsection (d)(2)(B)) for 
     at least the 18-month period ending on the hiring date,
       ``(B)(i) as being a member of a family receiving such 
     assistance for any 18-month period beginning after the date 
     of the enactment of this subsection, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the end of the earliest such 18-month period, or
       ``(C)(i) as being a member of a family which ceased to be 
     eligible after the date of the enactment of this subsection 
     for such assistance by reason of any limitation imposed by 
     Federal or State law on the maximum period such assistance is 
     payable to a family, and
       ``(ii) as having a hiring date which is not more than 2 
     years after the date of such cessation.
       ``(5) Qualified second-year wages.--For purposes of this 
     subsection, the term `qualified second-year wages' means, 
     with respect to any individual, the qualified wages 
     attributable to service rendered during the 1-year period 
     beginning on the day after the last day of the 1-year period 
     with respect to such individual determined under subsection 
     (b)(2).''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply with respect to individuals who begin work for 
     the employer after the date of the enactment of this Act.
        Subtitle D--Community Development Financial Institutions

     SEC. 731. CREDIT FOR QUALIFIED EQUITY INVESTMENTS IN 
                   COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS.

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

     ``SEC. 45E. QUALIFIED EQUITY INVESTMENTS IN COMMUNITY 
                   DEVELOPMENT FINANCIAL INSTITUTIONS.

       ``(a) General Rule.--For purposes of section 38, the 
     community development financial institution investment credit 
     for any taxable year is an amount equal to the applicable 
     percentage of the qualified equity investment made by the 
     taxpayer during the taxable year.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the term `applicable percentage' means, with respect to 
     any investment, 25 percent, or, if the CDFI Fund establishes 
     a lower percentage with respect to such investment for 
     purposes of this section, such lower percentage.
       ``(c) Qualified Equity Investment.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified equity investment' 
     means any stock or partnership interest in a community 
     development financial institution (as defined in section 103 
     of the Community Development Banking and Financial 
     Institutions Act of 1994 (12 U.S.C. 4702))--
       ``(A) if such institution is designated for purposes of 
     this section by the CDFI Fund,
       ``(B) if such stock or partnership interest is acquired by 
     the taxpayer at its original issue from the institution 
     (directly or through an underwriter) in exchange for money or 
     other property, and
       ``(C) to the extent the amount of such investment is 
     designated for such purposes by such Fund.
     Rules similar to the rules of section 1202(c)(3) shall apply 
     for purposes of subparagraph (B).
       ``(2) Criteria for designating institutions.--Designations 
     under paragraph (1)(A) shall be made in accordance with 
     criteria established by the CDFI Fund. In establishing such 
     criteria, the CDFI Fund shall take into account the 
     requirements and criteria set forth in sections 105(b) and 
     107 of such Act.
       ``(3) CDFI fund.--The term `CDFI Fund' means the Community 
     Development Financial Institutions Fund established by 
     section 104 of such Act.
       ``(d) Limitation on Amount of Credit.--
       ``(1) In general.--The amount of credit determined under 
     this section for any qualified

[[Page H4351]]

     equity investment shall not exceed the credit amount 
     allocated to such investment by the CDFI Fund.
       ``(2) Overall limitation.--The aggregate credit amount 
     which may be allocated by the CDFI Fund under this section 
     shall not exceed $100,000,000.
       ``(e) Recapture of Credit Where Disposition of Equity 
     Investment Within 5 Years.--
       ``(1) In general.--If the taxpayer disposes of any 
     investment with respect to which a credit was determined 
     under subsection (a) (or any other property the basis of 
     which is determined in whole or in part by reference to the 
     adjusted basis of such investment) before the end of the 5-
     year period beginning on the date such investment was made, 
     the tax imposed by this chapter for the taxable year in which 
     such disposition occurs shall be increased by the aggregate 
     decrease in tax of the taxpayer resulting from the credit 
     determined under this subsection (a) with respect to such 
     investment.
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     gift, transfer, or transaction described in paragraph (1), 
     (2), or (3) of section 1245(b).
       ``(3) Special rule.--Any increase in tax under paragraph 
     (1) shall not be treated as a tax imposed by this chapter for 
     purposes of--
       ``(A) determining the amount of any credit allowable under 
     this chapter, and
       ``(B) determining the amount of the tax imposed by section 
     55.
       ``(f) Basis Reduction.--The basis of any qualified equity 
     investment shall be reduced by the amount of any credit 
     determined under this section with respect to such 
     investment.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section. 
     Such regulations may provide for the recapture of the credit 
     under this section with respect to investments in 
     institutions which cease to satisfy the criteria established 
     by the CDFI Fund for designation under subsection (c)(1)(A).
       ``(h) Termination.--This section shall not apply to any 
     investment made after December 31, 2006.''
       (b) Credit Made Part of General Business Credit.--
     Subsection (b) of section 38 is amended by striking ``plus'' 
     at the end of paragraph (11), by striking the period at the 
     end of paragraph (12) and inserting ``, plus'', and by adding 
     at the end the following new paragraph:
       ``(13) the community development financial institution 
     investment credit determined under section 45E(a).''
       (c) Credit Allowed Against Regular and Minimum Tax.--
       (1) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Special rules for community development financial 
     institution investment credit.--
       ``(A) In general.--In the case of the community development 
     financial institution investment credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) 75 percent of the tentative minimum tax shall be 
     substituted for the tentative minimum tax under subparagraph 
     (A) thereof, and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the community 
     development financial institution investment credit).

       ``(B) Community development financial institution 
     investment credit.--For purposes of this subsection, the term 
     `community development financial institution investment 
     credit' means the credit allowable under subsection (a) by 
     reason of section 45E(a).''
       (2) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) is amended by inserting ``and the community 
     development financial institution investment credit'' after 
     ``employment credit''.
       (d) Limitation on Carryback.--Subsection (d) of section 39 
     is amended by adding at the end the following new paragraph:
       ``(9) No carryback of community development financial 
     institution investment credit before effective date.--No 
     portion of the unused business credit for any taxable year 
     which is attributable to the credit under section 45E may be 
     carried back to a taxable year ending before the date of the 
     enactment of section 45E.''
       (e) Deduction for Unused Credit.--Subsection (c) of section 
     196 is amended by striking ``and'' at the end of paragraph 
     (6), by striking the period at the end of paragraph (7) and 
     inserting ``, and'', and by adding at the end the following 
     new paragraph:
       ``(8) the community development financial institution 
     investment credit determined under section 45E(a).''
       (f) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following new item:

``Sec. 45E. Qualified equity investments in community development 
              financial institutions.''

       (g) Effective Date.--The amendments made by this section 
     shall apply to investments made after the date of the 
     enactment of this Act.
                      TITLE VIII--OTHER TAX RELIEF

     SEC. 801. SUSPENSION OF STATUTE OF LIMITATIONS ON FILING 
                   REFUND CLAIMS DURING PERIODS OF DISABILITY.

       (a) In General.--Section 6511 (relating to limitations on 
     credit or refund) is amended by redesignating subsection (h) 
     as subsection (i) and by inserting after subsection (g) the 
     following new subsection:
       ``(h) Running of Periods of Limitation Suspended While 
     Taxpayer Is Financially Disabled.--
       ``(1) In general.--In the case of an individual, the 
     running of the periods specified in subsections (a), (b), and 
     (c) shall be suspended during any period of such individual's 
     life that such individual is financially disabled.
       ``(2) Financially disabled.--
       ``(A) In general.--For purposes of paragraph (1), an 
     individual is financially disabled if such individual is 
     unable to manage his financial affairs by reason of any 
     medically determinable physical or mental impairment which 
     can be expected to result in death or which has lasted or can 
     be expected to last for a continuous period of not less than 
     12 months. An individual shall not be considered to have such 
     an impairment unless proof of the existence thereof is 
     furnished in such form and manner as the Secretary may 
     require.
       ``(B) Exception where individual has guardian, etc.--An 
     individual shall not be treated as financially disabled 
     during any period that such individual's spouse or any other 
     person is authorized to act on behalf of such individual in 
     financial matters.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to claims for credit or refund for periods ending 
     after the date of the enactment of this Act.

     SEC. 802. MODIFICATIONS OF PUERTO RICO ECONOMIC ACTIVITY 
                   CREDIT.

       (a) Extension of Credit.--Section 30A(g) (relating to 
     application of credit) is amended by striking ``, and before 
     January 1, 2006''.
       (b) Taxpayers Other Than Existing Claimants Eligible for 
     Credit.--Section 30A(a)(2) (defining qualified domestic 
     corporation) is amended to read as follows:
       ``(2) Qualified domestic corporation.--For purposes of 
     paragraph (1), the term `qualified domestic corporation' 
     means a domestic corporation with respect to which section 
     936(a)(4)(B) does not apply for the taxable year.''
       (c) Repeal of Base Period Cap.--Section 30A(a)(1) is 
     amended by striking the last sentence.
       (d) Conforming Amendments.--
       (1) Section 30A(a)(3) is amended to read as follows:
       ``(3) Separate application.--For purposes of determining 
     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.''
       (2) Section 30A(e)(1) is amended by inserting ``but not 
     including subsection (j) thereof'' after ``thereunder''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 803. TREATMENT OF SOFTWARE AS FSC EXPORT PROPERTY.

       (a) In General.--Section 927(a)(2)(B) (relating to excluded 
     property) is amended by inserting ``computer software,'' 
     after ``other than''.
       (b) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendment made by this section shall apply to software 
     licenses granted after the date of the enactment of this Act 
     in taxable years ending after such date.
       (2) Exception for existing licenses.--The amendment made by 
     this section shall not apply to software licenses granted by 
     a licensor after the date of the enactment of this Act if, on 
     such date, the person to whom the license is granted (or any 
     related person) held a substantially similar license granted 
     by the licensor (or any related person).
           TITLE IX--INCENTIVES FOR THE DISTRICT OF COLUMBIA

     SEC. 901. TAX INCENTIVES FOR REVITALIZATION OF THE DISTRICT 
                   OF COLUMBIA.

       (a) In General.--Chapter 1 is amended by adding at the end 
     the following new subchapter:

   ``Subchapter W--Incentives for Revitalization of the District of 
                                Columbia

``Sec. 1400A. Employment credit.
``Sec. 1400B. Additional expensing.
``Sec. 1400C. Tax-exempt economic development bonds.
``Sec. 1400D. Credit for equity investments in and loans to District of 
              Columbia businesses.
``Sec. 1400E. Definitions.
``Sec. 1400F. Status of Economic Development Corporation for District 
              of Columbia.

     ``SEC. 1400A. EMPLOYMENT CREDIT.

       ``(a) Amount of Credit.--For purposes of section 38, the 
     amount of the District of Columbia employment credit 
     determined under this section for the taxable year shall be 
     equal to 40 percent of the qualified first-year wages for 
     such year.
       ``(b) Qualified First-Year Wages.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified first-year wages' 
     means wages paid or incurred by

[[Page H4352]]

     the employer during the taxable year which are attributable 
     to services rendered by an employee of the employer--
       ``(A) during the 1-year period beginning on the day the 
     employee begins work for the employer, and
       ``(B) while the employee is a qualified District employee.
       ``(2) Only first $10,000 of wages taken into account.--The 
     amount of the qualified first-year wages which may be taken 
     into account with respect to any individual for all taxable 
     years of an employer shall not exceed $10,000.
       ``(3) Coordination with work opportunity credit.--The 
     amount of the credit determined under this section with 
     respect to qualified first-year wages of an individual shall 
     be reduced by the amount of the work opportunity credit 
     determined under section 51 with respect to such wages.
       ``(c) Qualified District Employee.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the term `qualified District employee' means any 
     employee of an employer if--
       ``(A) the principal place of abode of such employee 
     throughout the 1-year period described in subsection 
     (b)(1)(A)--
       ``(i) is within the District of Columbia, and
       ``(ii) in the case of an individual who is not a member of 
     a targeted group (within the meaning of section 51(d)), is 
     within a population census tract having a poverty rate of at 
     least 15 percent,
       ``(B)(i) substantially all of the services performed during 
     such period by such employee for such employer are performed 
     within the District of Columbia in a trade or business of the 
     employer, or
       ``(ii) the principal place of business of the employer is 
     within the District of Columbia, and
       ``(C) in the case of an individual who is not a member of a 
     targeted group (within the meaning of section 51(d)), as of 
     the beginning of such period it is reasonable to expect that 
     the compensation to be paid to such individual for services 
     performed during such period for the employer will be less 
     than $28,500.
       ``(2) Certain persons not eligible.--The term `qualified 
     District employee' shall not include--
       ``(A) any individual described in subparagraph (A), (B), or 
     (C) of section 51(i)(1) (relating to related individuals),
       ``(B) any individual described in section 51(i)(2) 
     (relating to nonqualifying rehires), determined by treating 
     qualified District employees as members of a targeted group,
       ``(C) any 5-percent owner (as defined in section 
     416(i)(1)(B)),
       ``(D) any individual employed by the employer unless such 
     individual--
       ``(i) is employed by the employer for at least 180 days, or
       ``(ii) has completed at least 400 hours of services 
     performed for the employer, and
       ``(E) any individual employed by the employer at any 
     facility described in section 144(c)(6)(B).
     Rules similar to the rules of section 1396(d)(3) shall apply 
     for purposes of subparagraph (D).
       ``(d) Definition and Special Rules.--For purposes of this 
     section--
       ``(1) Wages.--The term `wages' has the same meaning as when 
     used in section 51, including amounts treated as wages by 
     section 51(e)(3)(B); except that subsections (c)(4) and 
     (e)(3)(D) shall not apply.
       ``(2) Controlled groups.--All employers treated as a single 
     employer under subsection (a) or (b) of section 52 shall be 
     treated as a single employer, and the credit (if any) 
     determined under this section with respect to each such 
     employer shall be its proportionate share of the wages giving 
     rise to such credit.
       ``(3) Certain other rules made applicable.--Rules similar 
     to the rules of subsections (j) and (k) of section 51, and 
     subsections (c), (d), and (e) of section 52, shall apply.
       ``(4) Certification of principal place of abode.--An 
     individual shall not be treated as meeting the requirement of 
     subsection (c)(1)(A) unless requirements similar to the 
     requirements of section 51(d)(11) are met.
       ``(5) Cost-of-living adjustment of $28,500 limit.--In the 
     case of any period during a calendar year after 1997, the 
     dollar amount contained in subsection (c)(1)(C) shall be 
     increased by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 1996' for `calendar year 1992' in subparagraph 
     (B) thereof.
       ``(6) Other incentives.--
       ``(A) Extension of additional temporary incentive for 
     employing long-term family assistance recipients residing in 
     the district of columbia.--In the case of a long-term family 
     assistance recipient (as defined in section 51(e)(4)), 
     section 51(e)(3)(D) shall be applied by substituting 
     `September 30, 2002' for `September 30, 2000' if--
       ``(i) such individual's principal place of abode is within 
     the District of Columbia during the period described in 
     section 51(e)(3), and
       ``(ii) the requirement of clause (i) or (ii) of subsection 
     (c)(1)(B) is met during such period with respect to such 
     individual.
       ``(B) Extension of work opportunity credit.--In the case of 
     wages paid to a member of a targeted group (within the 
     meaning of section 51(d)) while such member's principal place 
     of abode is within the District of Columbia, section 
     51(c)(4)(B) shall be applied by substituting `September 30, 
     2002' for `September 30, 1998'.
       ``(e) Application of Section.--This section shall apply 
     with respect to individuals who begin work for the employer 
     on and after the date of the enactment of this section and 
     before October 1, 2002.

     ``SEC. 1400B. ADDITIONAL EXPENSING.

       ``(a) General Rule.--In the case of a qualified District 
     business, for purposes of section 179--
       ``(1) the limitation under section 179(b)(1) shall be 
     increased by the lesser of--
       ``(A) $20,000, or
       ``(B) the cost of section 179 property which is qualified 
     District property placed in service during the taxable year, 
     and
       ``(2) the amount taken into account under section 179(b)(2) 
     with respect to any section 179 property which is qualified 
     District property shall be 50 percent of the cost thereof.
       ``(b) Recapture.--Rules similar to the rules under section 
     179(d)(10) shall apply with respect to any qualified District 
     property which ceases to be used in the District of Columbia 
     by a District business.
       ``(c) Coordination With Section 1397A.--In no event shall 
     qualified District property be treated as qualified zone 
     property for purposes of section 1397A.
       ``(d) Application of Section.--This section shall apply to 
     property placed in service after December 31, 1997, and 
     before January 1, 2002.

     ``SEC. 1400C. TAX-EXEMPT ECONOMIC DEVELOPMENT BONDS.

       ``(a) In General.--For purposes of part IV of subchapter B 
     of this chapter (relating to tax exemption requirements for 
     State and local bonds), the term `exempt facility bond' 
     includes any bond issued as part of an issue 95 percent or 
     more of the net proceeds (as defined in section 150(a)(3)) of 
     which are to be used to provide any District facility.
       ``(b) District Facility.--For purposes of this section, the 
     term `District facility' means any District property the 
     principal user of which is a qualified District business, and 
     any land which is functionally related and subordinate to 
     such property.
       ``(c) Limitation on Amount of Bonds.--Subsection (a) shall 
     not apply to any issue if the aggregate amount of outstanding 
     District facility bonds allocable to any person (taking into 
     account such issue) exceeds $15,000,000.
       ``(d) Certain Rules To Apply.--
       ``(1) In general.--Rules similar to the rules of 
     subsections (c)(2), (d), and (e) of section 1394, and 
     subparagraphs (B)(ii), (C), and (D) of section 1394(b)(3), 
     shall apply for purposes of this section.
       ``(2) Requirements after testing period.--A business shall 
     not fail to be treated as a qualified District business for 
     purposes of this section for any taxable year beginning after 
     the testing period (as defined in section 1394(b)(3)(C)) by 
     reason of failing to meet any requirement of subsection (b) 
     or (c) of section 1397B. The preceding sentence shall not 
     apply to any business which is not a qualified business by 
     reason of paragraph (1), (4), or (5) of section 1397B(d).
       ``(e) Application of Section.--This section shall apply to 
     bonds issued after the date of the enactment of this section 
     and before January 1, 2003.

     ``SEC. 1400D. CREDIT FOR EQUITY INVESTMENTS IN AND LOANS TO 
                   DISTRICT OF COLUMBIA BUSINESSES.

       ``(a) General Rule.--For purposes of section 38, the 
     District investment credit determined under this section for 
     any taxable year is--
       ``(1) the qualified lender credit for such year, and
       ``(2) the qualified equity investment credit for such year.
       ``(b) Qualified Lender Credit.--For purposes of this 
     section--
       ``(1) In general.--The qualified lender credit for any 
     taxable year is the amount of credit specified for such year 
     by the Economic Development Corporation with respect to 
     qualified District loans made by the taxpayer.
       ``(2) Limitation.--In no event may the qualified lender 
     credit with respect to any loan exceed 25 percent of the cost 
     of the property purchased with the proceeds of the loan.
       ``(3) Qualified district loan.--For purposes of paragraph 
     (1), the term `qualified district loan' means any loan for 
     the purchase (as defined in section 179(d)(2)) of property to 
     which section 168 applies (or would apply but for section 
     179) (or land which is functionally related and subordinate 
     to such property) and substantially all of the use of which 
     is in the District of Columbia and is in the active conduct 
     of a trade or business in the District of Columbia. A rule 
     similar to the rule of section 1397C(a)(2) shall apply for 
     purposes of the preceding sentence.
       ``(c) Qualified Equity Investment Credit.--
       ``(1) In general.--For purposes of this section, the 
     qualified equity investment credit determined under this 
     section for any taxable year is an amount equal to the 
     percentage specified by the Economic Development Corporation 
     (but not greater than 25 percent) of the aggregate amount 
     paid in cash by the taxpayer during the taxable year for the 
     purchase of District business investments.
       ``(2) District business investment.--For purposes of this 
     subsection, the term `District business investment' means--
       ``(A) any District business stock, and
       ``(B) any District partnership interest.

[[Page H4353]]

       ``(3) District business stock.--For purposes of this 
     subsection--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `District business stock' means any stock in a 
     domestic corporation if--
       ``(i) such stock is acquired by the taxpayer at its 
     original issue (directly or through an underwriter) in 
     exchange for cash, and
       ``(ii) as of the time such stock was issued, such 
     corporation was engaged in a trade or business in the 
     District of Columbia (or, in the case of a new corporation, 
     such corporation was being organized for purposes of engaging 
     in such a trade or business).
       ``(B) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this paragraph.
       ``(4) Qualified district partnership interest.--For 
     purposes of this subsection, the term `qualified District 
     partnership interest' means any interest in a partnership 
     if--
       ``(A) such interest is acquired by the taxpayer from the 
     partnership solely in exchange for cash, and
       ``(B) as of the time such interest was acquired, such 
     partnership was engaging in a trade or business in the 
     District of Columbia (or, in the case of a new partnership, 
     such partnership was being organized for purposes of engaging 
     in such a trade or business).
       ``(5) Dispositions of district business investments.--
       ``(A) In general.--If a taxpayer disposes of any District 
     business investment (or any other property the basis of which 
     is determined in whole or in part by reference to the 
     adjusted basis of such investment) before the end of the 5-
     year period beginning on the date such investment was 
     acquired by the taxpayer, the taxpayer's tax imposed by this 
     chapter for the taxable year in which such distribution 
     occurs shall be increased by the aggregate decrease in the 
     credits allowed under section 38 for all prior taxable years 
     which would have resulted solely from reducing to zero any 
     credit determined under this section with respect to such 
     investment.
       ``(B) Exceptions.--Subparagraph (A) shall not apply to any 
     gift, transfer, or transaction described in paragraph (1), 
     (2), or (3) of section 1245(b).
       ``(C) Special rule.--Any increase in tax under subparagraph 
     (A) shall not be treated as a tax imposed by this chapter for 
     purposes of--
       ``(i) determining the amount of any credit allowable under 
     this chapter, and
       ``(ii) determining the amount of the tax imposed by section 
     55.
       ``(6) Basis reduction.--For purposes of this title, the 
     basis of any District business investment shall be reduced by 
     the amount of the credit determined under this section with 
     respect to such investment.
       ``(d) Limitation on Amount of Credit.--
       ``(1) In general.--The amount of the District investment 
     credit determined under this section with respect to any 
     taxpayer for any taxable year shall not exceed the credit 
     amount allocated to such taxpayer for such taxable year by 
     the Economic Development Corporation.
       ``(2) Overall limitation.--The aggregate credit amount 
     which may be allocated by the Economic Development 
     Corporation under this section shall not exceed $95,000,000.
       ``(3) Criteria for allocating credit amounts.--The 
     allocation of credit amounts under this section shall be made 
     in accordance with criteria established by the Economic 
     Development Corporation. In establishing such criteria, such 
     Corporation shall take into account--
       ``(A) the degree to which the business receiving the loan 
     or investment will provide job opportunities for low and 
     moderate income residents of the District of Columbia, and
       ``(B) whether such business is within a population census 
     tract in the District of Columbia having a poverty rate of at 
     least 15 percent.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section.
       ``(f) Application of Section.--This section shall apply to 
     any credit amount allocated for taxable years beginning after 
     December 31, 1997, and before January 1, 2003.

     ``SEC. 1400E. DEFINITIONS.

       ``(a) Qualified District Business.--For purposes of this 
     subchapter, the term `qualified District business' means a 
     corporation, partnership, or proprietorship which would be a 
     qualified business entity (as defined in section 1397B) or a 
     qualified proprietorship (as defined in such section) if--
       ``(1) the District of Columbia were an empowerment zone 
     (and there were no other empowerment zones or enterprise 
     communities), and
       ``(2) section 1397B(b)(1) did not apply.
       ``(b) Qualified District Property.--For purposes of this 
     subchapter, the term `qualified District property' means any 
     property which would be qualified zone property (as defined 
     in section 1397C) if--
       ``(1) the District of Columbia were an empowerment zone 
     (and there were no other empowerment zones or enterprise 
     communities),
       ``(2) paragraph (1)(A) of section 1397C(a) referred to the 
     date of the enactment of this section,
       ``(3) paragraph (1)(B) of section 1397C(a) did not apply, 
     and
       ``(4) paragraph (2) of section 1397C(a) were applied by 
     substituting `an amount equal to 15 percent of the adjusted 
     basis' for `an amount equal to the adjusted basis'.
       ``(c) Economic Development Corporation.--For purposes of 
     this subchapter, the term `Economic Development Corporation' 
     means the Economic Development Corporation hereafter 
     established by law for the District of Columbia.

     ``SEC. 1400F. STATUS OF ECONOMIC DEVELOPMENT CORPORATION FOR 
                   DISTRICT OF COLUMBIA.

       ``(a) In General.--For purposes of this title and the 
     Social Security Act, the Economic Development Corporation is 
     an agency of the District of Columbia.
       ``(b) Bond Authority.--The Economic Development Corporation 
     shall be allocated 50 percent of the private activity bond 
     volume cap allocated to the District of Columbia under 
     section 146. Notwithstanding section 146(e), the District of 
     Columbia may not alter the allocation under the preceding 
     sentence.''
       (b) Credits Made Part of General Business Credit.--
       (1) Subsection (b) of section 38 is amended by striking 
     ``plus'' at the end of paragraph (12), by striking the period 
     at the end of paragraph (13) and inserting a comma, and by 
     adding at the end the following new paragraphs:
       ``(14) the District of Columbia employment credit 
     determined under section 1400A(a), plus
       ``(15) the District investment credit determined under 
     section 1400D(a).''
       (2) Subsection (d) of section 39 is amended by adding at 
     the end the following new paragraph:
       ``(10) No carryback of district of columbia employment and 
     investment credits before effective date.--No portion of the 
     unused business credit for any taxable year which is 
     attributable to the credit under section 1400A or 1400D may 
     be carried back to a taxable year ending before the date of 
     the enactment of such sections.''
       (3) Subsection (c) of section 196 is amended by striking 
     ``and'' at the end of paragraph (7), by striking the period 
     at the end of paragraph (8) and inserting a comma, and by 
     adding at the end the following new paragraphs:
       ``(9) the District of Columbia employment credit determined 
     under section 1400A(a), and
       ``(10) the District investment credit determined under 
     section 1400D(a).''
       (c) Clerical Amendment.--The table of subchapters for 
     chapter 1 is amended by adding at the end the following new 
     item:

``Subchapter W. Incentives for revitalization of the District of 
              Columbia.''

       (d) Effective Date.--This section shall take effect on the 
     date of the enactment of this Act.
                           TITLE X--REVENUES
                     Subtitle A--Financial Products

     SEC. 1001. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED 
                   FINANCIAL POSITIONS.

       (a) In General.--Part IV of subchapter P of chapter 1 is 
     amended by adding at the end the following new section:

     ``SEC. 1259. CONSTRUCTIVE SALES TREATMENT FOR APPRECIATED 
                   FINANCIAL POSITIONS.

       ``(a) In General.--If there is a constructive sale of an 
     appreciated financial position--
       ``(1) the taxpayer shall recognize gain as if such position 
     were sold, assigned, or otherwise terminated at its fair 
     market value on the date of such constructive sale (and any 
     gain shall be taken into account for the taxable year which 
     includes such date), and
       ``(2) for purposes of applying this title for periods after 
     the constructive sale--
       ``(A) proper adjustment shall be made in the amount of any 
     gain or loss subsequently realized with respect to such 
     position for any gain taken into account by reason of 
     paragraph (1), and
       ``(B) the holding period of such position shall be 
     determined as if such position were originally acquired on 
     the date of such constructive sale.
       ``(b) Appreciated Financial Position.--For purposes of this 
     section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `appreciated financial position' means any position with 
     respect to any stock, debt instrument, or partnership 
     interest if there would be gain were such position sold, 
     assigned, or otherwise terminated at its fair market value.
       ``(2) Exceptions.--The term `appreciated financial 
     position' shall not include--
       ``(A) any position with respect to straight debt (as 
     defined in section 1361(c)(5)(B) without regard to clause 
     (iii) thereof), and
       ``(B) any position which is marked to market under any 
     provision of this title or the regulations thereunder.
       ``(3) Position.--The term `position' means an interest, 
     including a futures or forward contract, short sale, or 
     option.
       ``(c) Constructive Sale.--For purposes of this section--
       ``(1) In general.--A taxpayer shall be treated as having 
     made a constructive sale of an appreciated financial position 
     if the taxpayer (or a related person)--
       ``(A) enters into a short sale of the same or substantially 
     identical property,
       ``(B) enters into an offsetting notional principal contract 
     with respect to the same or substantially identical property,
       ``(C) enters into a futures or forward contract to deliver 
     the same or substantially identical property,

[[Page H4354]]

       ``(D) in the case of an appreciated financial position that 
     is a short sale or a contract described in subparagraph (B) 
     or (C) with respect to any property, acquires the same or 
     substantially identical property, or
       ``(E) to the extent prescribed by the Secretary in 
     regulations, enters into 1 or more other transactions (or 
     acquires 1 or more positions) that have substantially the 
     same effect as a transaction described in any of the 
     preceding subparagraphs.
       ``(2) Exception for sales of nonpublicly traded property.--
     The term `constructive sale' shall not include any contract 
     for sale of any stock, debt instrument, or partnership 
     interest which is not a marketable security (as defined in 
     section 453(f)) if the contract settles within 1 year after 
     the date such contract is entered into.
       ``(3) Exception for certain closed transactions.--In 
     applying this section, there shall be disregarded any 
     transaction (which would otherwise be treated as a 
     constructive sale) during the taxable year if--
       ``(A) such transaction is closed before the end of the 30th 
     day after the close of such taxable year, and
       ``(B) in the case of a transaction which is closed during 
     the 90-day period ending on such 30th day--
       ``(i) the taxpayer holds the appreciated financial position 
     throughout the 60-day period beginning on the date such 
     transaction is closed, and
       ``(ii) at no time during such 60-day period is the 
     taxpayer's risk of loss with respect to such position reduced 
     by reason of a circumstance which would be described in 
     section 246(c)(4) if references to stock included references 
     to such position.
       ``(4) Related person.--A person is related to another 
     person with respect to a transaction if--
       ``(A) the relationship is described in section 267 or 
     707(b), and
       ``(B) such transaction is entered into with a view toward 
     avoiding the purposes of this section.
       ``(d) Other Definitions.--For purposes of this section--
       ``(1) Forward contract.--The term `forward contract' means 
     a contract to deliver a substantially fixed amount of 
     property for a substantially fixed price.
       ``(2) Offsetting notional principal contract.--The term 
     `offsetting notional principal contract' means, with respect 
     to any property, an agreement which includes--
       ``(A) a requirement to pay (or provide credit for) all or 
     substantially all of the investment yield (including 
     appreciation) on such property for a specified period, and
       ``(B) a right to be reimbursed for (or receive credit for) 
     all or substantially all of any decline in the value of such 
     property.
       ``(e) Special Rules.--
       ``(1) Treatment of subsequent sale of position which was 
     deemed sold.--If--
       ``(A) there is a constructive sale of any appreciated 
     financial position,
       ``(B) such position is subsequently disposed of, and
       ``(C) at the time of such disposition, the transaction 
     resulting in the constructive sale of such position is open 
     with respect to the taxpayer or any related person,
     solely for purposes of determining whether the taxpayer has 
     entered into a constructive sale of any other appreciated 
     financial position held by the taxpayer, the taxpayer shall 
     be treated as entering into such transaction immediately 
     after such disposition. For purposes of the preceding 
     sentence, an assignment or other termination shall be treated 
     as a disposition.
       ``(2) Certain trust instruments treated as stock.--For 
     purposes of this section, an interest in a trust which is 
     actively traded (within the meaning of section 1092(d)(1)) 
     shall be treated as stock.
       ``(3) Multiple positions in property.--If a taxpayer holds 
     multiple positions in property, the determination of whether 
     a specific transaction is a constructive sale and, if so, 
     which appreciated financial position is deemed sold shall be 
     made in the same manner as actual sales.
       ``(f) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''
       (b) Election of Mark to Market for Securities Traders and 
     for Traders and Dealers in Commodities.--Subsection (d) of 
     section 475 (relating to mark to market accounting method for 
     dealers in securities) is amended by adding at the end the 
     following new paragraph:
       ``(4) Election of mark to market for securities traders and 
     for traders and dealers in commodities.--
       ``(A) In general.--In the case of a person--
       ``(i) who is engaged in a trade or business to which this 
     paragraph applies, and
       ``(ii) who elects to be treated as a dealer in securities 
     for purposes of this section with respect to such trade or 
     business,
     subsections (a), (b)(3), (c)(3), and (e) and the preceding 
     provisions of this subsection (or, in the case of a dealer in 
     commodities, this section) shall apply to all commodities and 
     securities held by such person in any trade or business with 
     respect to which such election is in effect in the same 
     manner as if such person were a dealer in securities and all 
     references to securities included references to commodities.
       ``(B) Application of paragraph.--This paragraph shall apply 
     to any active trade or business--
       ``(i) as a trader in securities, or
       ``(ii) as a trader or dealer in commodities.
       ``(C) Exception for certain holdings of traders.--In the 
     case of a trader in securities or commodities, subsection (a) 
     shall not apply to any security or commodity (to which 
     subsection (a) would otherwise apply solely by reason of this 
     paragraph) if such security or commodity is clearly 
     identified in the trader's records (before the close of the 
     day applicable under subsection (b)(2)) as being held other 
     than in a trade or business to which the election under 
     subparagraph (A) is in effect. A security or commodity so 
     identified shall be treated as described in subsection 
     (b)(1).
       ``(D) Commodity.--For purposes of this paragraph, the term 
     `commodities' includes only commodities of a kind customarily 
     dealt in on an organized commodity exchange.
       ``(E) Election.--An election under this paragraph may be 
     made separately for each trade or business and without the 
     consent of the Secretary. Such an election, once made, shall 
     apply to the taxable year for which made and all subsequent 
     taxable years unless revoked with the consent of the 
     Secretary.''
       (c) Clerical Amendment.--The table of sections for part IV 
     of subchapter P of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 1259. Constructive sales treatment for appreciated financial 
              positions.''

       (d) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to any constructive sale after June 8, 1997.
       (2) Exception for sales of positions, etc. held before June 
     9, 1997.--A constructive sale before June 9, 1997, and the 
     property to which the position involved in the transaction 
     relates, shall not be taken into account in determining 
     whether any other constructive sale after June 8, 1997, has 
     occurred if, within before the close of the 30-day period 
     beginning on the date of the enactment of this Act, such 
     position and property are clearly identified in the 
     taxpayer's records as offsetting. The preceding sentence 
     shall cease to apply as of the date the taxpayer ceases to 
     hold such position or property.
       (3) Special rule.--In the case of a decedent dying after 
     June 8, 1997, if--
       (A) there was a constructive sale on or before such date of 
     any appreciated financial position,
       (B) the transaction resulting in such constructive sale of 
     such position remains open (with respect to the decedent or 
     any related person) for not less than 2 years after the date 
     of such transaction (whether such period is before or after 
     such date), and
       (C) such transaction is not closed within the 30-day period 
     beginning on the date of the enactment of this Act,
     then, for purposes of such Code, such position (and any 
     property related thereto, as determined under the principles 
     of section 1259(d)(1) of such Code (as so added)) shall be 
     treated as property constituting rights to receive an item of 
     income in respect of a decedent under section 691 of such 
     Code.
       (4) Election of securities traders, and for traders and 
     dealers in commodities, to be treated as dealers in 
     securities.--
       (A) In general.--The amendment made by subsection (b) shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (B) 4-year spread of adjustments.--In the case of a 
     taxpayer who elects under section 475(d)(4) of the Internal 
     Revenue Code of 1986 (as added by this section) to change its 
     method of accounting for its first taxable year ending after 
     the date of the enactment of this Act, the net amount of the 
     adjustments required to be taken into account by the taxpayer 
     under section 481 of the Internal Revenue Code of 1986 shall 
     be taken into account ratably over the 4-taxable year period 
     beginning with such first taxable year.

     SEC. 1002. LIMITATION ON EXCEPTION FOR INVESTMENT COMPANIES 
                   UNDER SECTION 351.

       (a) In General.--Paragraph (1) of section 351(e) (relating 
     to exceptions) is amended by adding at the end the following: 
     ``For purposes of the preceding sentence, the term 
     `investment company' includes any company if more than 80 
     percent of the value of the assets of such company (other 
     than assets held in the ordinary course of a trade or 
     business for sale to customers) is attributable to--
       ``(A) money,
       ``(B) any financial instrument (as defined in section 
     731(c)(2)(C)),
       ``(C) any foreign currency,
       ``(D) any interest in a real estate investment trust, a 
     common trust fund, a regulated investment company, or a 
     publicly traded partnership (as defined in section 7704(b)),
       ``(E) any interest described in clause (iv), (v), or (vi) 
     of section 731(c)(2)(B) (or which would be so described 
     without regard to any reference to active trading or 
     marketability),
       ``(F) any other asset specified in regulations prescribed 
     by the Secretary, or
       ``(G) any combination of the foregoing.''
       (b) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     apply to transfers after June 8, 1997, in taxable years 
     ending after such date.
       (2) Binding contracts.--The amendment made by subsection 
     (a) shall not apply to any transfer pursuant to a written 
     binding contract in effect on June 8, 1997, that provides for 
     the transfer of a fixed amount of

[[Page H4355]]

     property, and at all times thereafter before such transfer.

     SEC. 1003. MODIFICATION OF RULES FOR ALLOCATING INTEREST 
                   EXPENSE TO TAX-EXEMPT INTEREST.

       (a) Pro Rata Allocation Rules Applicable to Corporations.--
       (1) In general.--Paragraph (1) of section 265(b) is amended 
     by striking ``In the case of a financial institution'' and 
     inserting ``In the case of a corporation''.
       (2) Only obligations acquired after June 8, 1997, taken 
     into account.--Subparagraph (A) of section 265(b)(2) is 
     amended by striking ``August 7, 1986'' and inserting ``June 
     8, 1997 (August 7, 1986, in the case of a financial 
     institution)''.
       (3) Small issuer exception not to apply.--Subparagraph (A) 
     of section 265(b)(3) is amended by striking ``Any qualified'' 
     and inserting ``In the case of a financial institution, any 
     qualified''.
       (4) Exception for certain bonds acquired on sale of goods 
     or services.--Subparagraph (B) of section 265(b)(4) is 
     amended by adding at the end the following new sentence: ``In 
     the case of a taxpayer other than a financial institution, 
     such term shall not include a nonsaleable obligation acquired 
     by such taxpayer in the ordinary course of business as 
     payment for goods or services provided by such taxpayer to 
     any State or local government.''
       (5) Look-thru rules for partnerships.--Paragraph (6) of 
     section 265(b) is amended by adding at the end the following 
     new subparagraph:
       ``(C) Look-thru rules for partnerships.--In the case of a 
     corporation which is a partner in a partnership, such 
     corporation shall be treated for purposes of this subsection 
     as holding directly its allocable share of the assets of the 
     partnership.''
       (6) Application of pro rata disallowance on affiliated 
     group basis.--Subsection (b) of section 265 is amended by 
     adding at the end the following new paragraph:
       ``(7) Application of disallowance on affiliated group 
     basis.--
       ``(A) In general.--For purposes of this subsection, all 
     members of an affiliated group filing a consolidated return 
     under section 1501 shall be treated as 1 taxpayer.
       ``(B) Treatment of insurance companies.--This subsection 
     shall not apply to an insurance company, and subparagraph (A) 
     shall be applied without regard to any member of an 
     affiliated group which is an insurance company.''
       (6) De minimis exception for nonfinancial institutions.--
     Subsection (b) of section 265 is amended by adding at the end 
     the following new paragraph:
       ``(8) De minimis exception for nonfinancial institutions.--
     In the case of a corporation, paragraph (1) shall not apply 
     for any taxable year if the amount described in paragraph 
     (2)(A) with respect to such corporation does not exceed the 
     lesser of--
       ``(A) 2 percent of the amount described in paragraph 
     (2)(B), or
       ``(B) $1,000,000.
     The preceding sentence shall not apply to a financial 
     institution or to a dealer in tax-exempt obligations.''
       (7) Clerical amendment.--The subsection heading for section 
     265(b) is amended by striking ``Financial Institutions'' and 
     inserting ``Corporations''.
       (b) Application of Section 265(a)(2) With Respect to 
     Controlled Groups.--Paragraph (2) of section 265(a) is 
     amended after ``obligations'' by inserting ``held by the 
     taxpayer (or any corporation which is a member of a 
     controlled group (as defined in section 267(f)(1)) which 
     includes the taxpayer)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 1004. GAINS AND LOSSES FROM CERTAIN TERMINATIONS WITH 
                   RESPECT TO PROPERTY.

       (a) Application of Capital Treatment to Property Other Than 
     Personal Property.--
       (1) In general.--Paragraph (1) of section 1234A (relating 
     to gains and losses from certain terminations) is amended by 
     striking ``personal property (as defined in section 
     1092(d)(1))'' and inserting ``property''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to terminations more than 30 days after the date 
     of the enactment of this Act.
       (b) Application of Capital Treatment, Etc. to Obligations 
     Issued by Natural Persons.--
       (1) In general.--Section 1271(b) is amended to read as 
     follows:
       ``(b) Exception for Certain Obligations.--
       ``(1) In general.--This section shall not apply to--
       ``(A) any obligation issued by a natural person before June 
     9, 1997, and
       ``(B) any obligation issued before July 2, 1982, by an 
     issuer which is not a corporation and is not a government or 
     political subdivision thereof.
       ``(2) Termination.--Paragraph (1) shall not apply to any 
     obligation purchased (within the meaning of section 
     179(d)(2)) after June 8, 1997.''
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of enactment of this Act.

     SEC. 1005. DETERMINATION OF ORIGINAL ISSUE DISCOUNT WHERE 
                   POOLED DEBT OBLIGATIONS SUBJECT TO 
                   ACCELERATION.

       (a) In General.--Subparagraph (C) of section 1272(a)(6) 
     (relating to debt instruments to which the paragraph applies) 
     is amended by striking ``or'' at the end of clause (i), by 
     striking the period at the end of clause (ii) and inserting 
     ``, or'', and by inserting after clause (i) the following:
       ``(iii) any pool of debt instruments the yield on which may 
     be reduced by reason of prepayments (or to the extent 
     provided in regulations, by reason of other events).
     To the extent provided in regulations prescribed by the 
     Secretary, in the case of a small business engaged in the 
     trade or business of selling tangible personal property at 
     retail, clause (iii) shall not apply to debt instruments 
     incurred in the ordinary course of such trade or business 
     while held by such business.''
       (b) Effective Dates.--
       (1) In general.--The amendment made by this section shall 
     apply to taxable years beginning after the date of the 
     enactment of this Act.
       (2) Change in method of accounting.--In the case of any 
     taxpayer required by this section to change its method of 
     accounting for its first taxable year beginning after the 
     date of the enactment of this Act--
       (A) such change shall be treated as initiated by the 
     taxpayer,
       (B) such change shall be treated as made with the consent 
     of the Secretary, and
       (C) the net amount of the adjustments required to be taken 
     into account by the taxpayer under section 481 of the 
     Internal Revenue Code of 1986 shall be taken into account 
     ratably over the 4-taxable year period beginning with such 
     first taxable year.

     SEC. 1006. DENIAL OF INTEREST DEDUCTIONS ON CERTAIN DEBT 
                   INSTRUMENTS.

       (a) In General.--Section 163 (relating to deduction for 
     interest) is amended by redesignating subsection (k) as 
     subsection (l) and by inserting after subsection (j) the 
     following new subsection:
       ``(k) Disallowance of Deduction on Certain Debt Instruments 
     of Corporations.--
       ``(1) In general.--No deduction shall be allowed under this 
     chapter for any interest paid or accrued on a disqualified 
     debt instrument.
       ``(2) Disqualified debt instrument.--For purposes of this 
     subsection, the term `disqualified debt instrument' means any 
     indebtedness of a corporation which is payable in equity of 
     the issuer or a related party.
       ``(3) Special rules for amounts payable in equity.--For 
     purposes of paragraph (2), indebtedness shall be treated as 
     payable in equity of the issuer or a related party only if--
       ``(A) a substantial amount of the principal or interest is 
     required to be paid or converted, or at the option of the 
     issuer or a related party is payable in, or convertible into, 
     such equity,
       ``(B) a substantial amount of the principal or interest is 
     required to be determined, or at the option of the issuer or 
     a related party is determined, by reference to the value of 
     such equity, or
       ``(C) the indebtedness is part of an arrangement which is 
     reasonably expected to result in a transaction described in 
     subparagraph (A) or (B).
     For purposes of subparagraphs (A) and (B), principal or 
     interest shall be treated as required to be so paid, 
     converted, or determined if it may be required at the option 
     of the holder or a related party and there is a substantial 
     certainty the option will be exercised.
       ``(4) Related party.--For purposes of this subsection, a 
     person is a related party with respect to another person if 
     such person bears a relationship to such other person 
     described in section 267(b) or 707(b).
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection, including regulations 
     preventing avoidance of this subsection through the use of an 
     issuer other than a corporation.''
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to disqualified debt instruments issued after June 8, 
     1997.
       (2) Transition rule.--The amendment made by this section 
     shall not apply to any instrument issued after June 8, 1997, 
     if such instrument is--
       (A) issued pursuant to a written agreement which was 
     binding on such date and at all times thereafter,
       (B) described in a ruling request submitted to the Internal 
     Revenue Service on or before such date, or
       (C) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission required solely by reason of the distribution.
        Subtitle B--Corporate Organizations and Reorganizations

     SEC. 1011. TAX TREATMENT OF CERTAIN EXTRAORDINARY DIVIDENDS.

       (a) Treatment of Extraordinary Dividends in Excess of 
     Basis.--Paragraph (2) of section 1059(a) (relating to 
     corporate shareholder's recognition of gain attributable to 
     nontaxed portion of extraordinary dividends) is amended to 
     read as follows:
       ``(2) Amounts in excess of basis.--If the nontaxed portion 
     of such dividends exceeds such basis, such excess shall be 
     treated as gain from the sale or exchange of such stock for 
     the taxable year in which the extraordinary dividend is 
     received.''
       (b) Treatment of Redemptions Where Options Involved.--
     Paragraph (1) of section 1059(e) (relating to treatment of 
     partial liquidations and non-pro rata redemptions) is amended 
     to read as follows:

[[Page H4356]]

       ``(1) Treatment of partial liquidations and certain 
     redemptions.--Except as otherwise provided in regulations--
       ``(A) Redemptions.--In the case of any redemption of 
     stock--
       ``(i) which is part of a partial liquidation (within the 
     meaning of section 302(e)) of the redeeming corporation,
       ``(ii) which is not pro rata as to all shareholders, or
       ``(iii) which would not have been treated (in whole or in 
     part) as a dividend if any options had not been taken into 
     account under section 318(a)(4),

     any amount treated as a dividend with respect to such 
     redemption shall be treated as an extraordinary dividend to 
     which paragraphs (1) and (2) of subsection (a) apply without 
     regard to the period the taxpayer held such stock. In the 
     case of a redemption described in clause (iii), only the 
     basis in the stock redeemed shall be taken into account under 
     subsection (a).
       ``(B) Reorganizations, etc.--An exchange described in 
     section 356(a)(1) which is treated as a dividend under 
     section 356(a)(2) shall be treated as a redemption of stock 
     for purposes of applying subparagraph (A).''
       (c) Time for Reduction.--Paragraph (1) of section 1059(d) 
     is amended to read as follows:
       ``(1) Time for reduction.--Any reduction in basis under 
     subsection (a)(1) shall be treated as occurring at the 
     beginning of the ex-dividend date of the extraordinary 
     dividend to which the reduction relates.''
       (d) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to distributions after May 3, 1995.
       (2) Transition rule.--The amendments made by this section 
     shall not apply to any distribution made pursuant to the 
     terms of--
       (A) a written binding contract in effect on May 3, 1995, 
     and at all times thereafter before such distribution, or
       (B) a tender offer outstanding on May 3, 1995.
       (3) Certain dividends not pursuant to certain 
     redemptions.--In determining whether the amendment made by 
     subsection (a) applies to any extraordinary dividend other 
     than a dividend treated as an extraordinary dividend under 
     section 1059(e)(1) of the Internal Revenue Code of 1986 (as 
     amended by this Act), paragraphs (1) and (2) shall be applied 
     by substituting ``September 13, 1995'' for ``May 3, 1995''.

     SEC. 1012. APPLICATION OF SECTION 355 TO DISTRIBUTIONS 
                   FOLLOWED BY ACQUISITIONS AND TO INTRAGROUP 
                   TRANSACTIONS.

       (a) Distributions Followed by Acquisitions.--Section 355 
     (relating to distribution of stock and securities of a 
     controlled corporation) is amended by adding at the end the 
     following new subsection:
       ``(e) Recognition of Gain Where Certain Distributions of 
     Stock or Securities Are Followed by Acquisition.--
       ``(1) General rule.--If there is a distribution to which 
     this subsection applies, the following rules shall apply:
       ``(A) Acquisition of controlled corporation.--If there is 
     an acquisition described in paragraph (2)(A)(ii) with respect 
     to any controlled corporation, any stock or securities in the 
     controlled corporation shall not be treated as qualified 
     property for purposes of subsection (c)(2) of this section or 
     section 361(c)(2).
       ``(B) Acquisition of distributing corporation.--If there is 
     an acquisition described in paragraph (2)(A)(ii) with respect 
     to the distributing corporation, the controlled corporation 
     shall recognize gain in an amount equal to the amount of net 
     gain which would be recognized if all the assets of the 
     distributing corporation (immediately after the distribution) 
     were sold (at such time) for fair market value. Any gain 
     recognized under the preceding sentence shall be treated as 
     long-term capital gain and shall be taken into account for 
     the taxable year which includes the day after the date of 
     such distribution.
       ``(2) Distributions to which subsection applies.--
       ``(A) In general.--This subsection shall apply to any 
     distribution--
       ``(i) to which this section (or so much of section 356 as 
     relates to this section) applies, and
       ``(ii) which is part of a plan (or series of related 
     transactions) pursuant to which 1 or more persons acquire 
     directly or indirectly stock representing a 50-percent or 
     greater interest in the distributing corporation or any 
     controlled corporation.
       ``(B) Plan presumed to exist in certain cases.--If 1 or 
     more persons acquire directly or indirectly stock 
     representing a 50-percent or greater interest in the 
     distributing corporation or any controlled corporation during 
     the 4-year period beginning on the date which is 2 years 
     before the date of the distribution, such acquisition shall 
     be treated as pursuant to a plan described in subparagraph 
     (A)(ii) unless it is established that the distribution and 
     the acquisition are not pursuant to a plan or series of 
     related transactions.
       ``(C) Coordination with subsection (d).--This subsection 
     shall not apply to any distribution to which subsection (d) 
     applies.
       ``(3) Special rules relating to acquisitions.--
       ``(A) Certain acquisitions not taken into account.--Except 
     as provided in regulations, the following acquisitions shall 
     not be treated as described in paragraph (2)(A)(ii):
       ``(i) The acquisition of stock in any controlled 
     corporation by the distributing corporation.
       ``(ii) The acquisition by a person of stock in any 
     controlled corporation by reason of holding stock in the 
     distributing corporation.
       ``(iii) The acquisition by a person of stock in any 
     successor corporation of the distributing corporation or any 
     controlled corporation by reason of holding stock in such 
     distributing or controlled corporation.
       ``(iv) The acquisition of stock in a corporation if 
     shareholders owning directly or indirectly a 50-percent or 
     greater interest in the distributing corporation or any 
     controlled corporation before such acquisition own indirectly 
     a 50-percent or greater interest in such distributing or 
     controlled corporation after such acquisition.

     This subparagraph shall not apply to any acquisition if the 
     stock held before the acquisition was acquired pursuant to a 
     plan described in subparagraph (A)(ii).
       ``(B) Asset acquisitions.--Except as provided in 
     regulations, for purposes of this subsection, if the assets 
     of the distributing corporation or any controlled corporation 
     are acquired by a successor corporation in a transaction 
     described in subparagraph (A), (C), or (D) of section 
     368(a)(1) or any other transaction specified in regulations 
     by the Secretary, the shareholders (immediately before the 
     acquisition) of the corporation acquiring such assets shall 
     be treated as acquiring stock in the corporation from which 
     the assets were acquired.
       ``(4) Definition and special rules.--For purposes of this 
     subsection--
       ``(A) 50-percent or greater interest.--The term `50-percent 
     or greater interest' has the meaning given such term by 
     subsection (d)(4).
       ``(B) Distributions in title 11 or similar case.--Paragraph 
     (1) shall not apply to any distribution made in a title 11 or 
     similar case (as defined in section 368(a)(3)).
       ``(C) Aggregation and attribution rules.--
       ``(i) Aggregation.--The rules of paragraph (7)(A) of 
     subsection (d) shall apply.
       ``(ii) Attribution.--Section 355(d)(8)(A) shall apply in 
     determining whether a person holds stock or securities in any 
     corporation.
       ``(D) Successors and predecessors.--For purposes of this 
     subsection, any reference to a controlled corporation or a 
     distributing corporation shall include a reference to any 
     predecessor or successor of such corporation.
       ``(E) Statute of limitations.--If there is an acquisition 
     to which paragraph (1) (A) or (B) applies--
       ``(i) the statutory period for the assessment of any 
     deficiency attributable to any part of the gain recognized 
     under this subsection by reason of such acquisition 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 by regulations prescribe) that such acquisition 
     occurred, and
       ``(ii) 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.
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this subsection, including regulations--
       ``(A) providing for the application of this subsection 
     where there is more than 1 controlled corporation,
       ``(B) treating 2 or more distributions as 1 distribution 
     where necessary to prevent the avoidance of such purposes, 
     and
       ``(C) providing for the application of rules similar to the 
     rules of subsection (d)(6) where appropriate for purposes of 
     paragraph (2)(B).''
       (b) Section 355 Not To Apply to Certain Intragroup 
     Transactions.--Section 355, as amended by subsection (a), is 
     amended by adding at the end the following new subsection:
       ``(f) Section Not To Apply to Certain Intragroup 
     Transactions.--Except as provided in regulations, this 
     section shall not apply to the distribution of stock from 1 
     member of an affiliated group filing a consolidated return to 
     another member of such group, and the Secretary shall provide 
     proper adjustments for the treatment of such distribution, 
     including (if necessary) adjustments to--
       ``(1) the adjusted basis of any stock which--
       ``(A) is in a corporation which is a member of such group, 
     and
       ``(B) is held by another member of such group, and
       ``(2) the earnings and profits of any member of such 
     group.''
       (c) Determination of Control in Certain Divisive 
     Transactions.--
       (1) Section 351 transactions.--Section 351(c) (relating to 
     special rule) is amended to read as follows:
       ``(c) Special Rules Where Distribution to Shareholders.--
       ``(1) In general.--In determining control for purposes of 
     this section--
       ``(A) the fact that any corporate transferor distributes 
     part or all of the stock in the corporation which it receives 
     in the exchange to its shareholders shall not be taken into 
     account, and
       ``(B) if the requirements of section 355 are met with 
     respect to such distribution, the shareholders shall be 
     treated as in control of such corporation immediately after 
     the exchange if the shareholders hold at least a 50-percent 
     interest in such corporation immediately after the 
     distribution.

[[Page H4357]]

       ``(2) 50-percent interest.--For purposes of this 
     subsection, the term `50-percent interest' means stock 
     possessing 50 percent of the total combined voting power of 
     all classes of stock entitled to vote and 50 percent of the 
     total value of shares of all classes of stock.''
       (2) D reorganizations.--Section 368(a)(2)(H) (relating to 
     special rule for determining whether certain transactions are 
     qualified under paragraph (1)(D)) is amended to read as 
     follows:
       ``(H) Special rules for determining whether certain 
     transactions are qualified under paragraph (1)(d).--For 
     purposes of determining whether a transaction qualifies under 
     paragraph (1)(D)--
       ``(i) in the case of a transaction with respect to which 
     the requirements of subparagraphs (A) and (B) of section 
     354(b)(1) are met, the term `control' has the meaning given 
     such term by section 304(c), and
       ``(ii) in the case of a transaction with respect to which 
     the requirements of section 355 are met, the shareholders 
     described in paragraph (1)(D) shall be treated as having 
     control of the corporation to which the assets are 
     transferred if such shareholders hold a 50-percent or greater 
     interest (as defined in section 351(c)(2)) in such 
     corporation immediately after the transfer.''
       (d) Effective Dates.--
       (1) Section 355 rules.--The amendments made by subsections 
     (a) and (b) shall apply to distributions after April 16, 
     1997.
       (2) Divisive transactions.--The amendments made by 
     subsection (c) shall apply to transfers after the date of the 
     enactment of this Act.
       (3) Transition rule.--The amendments made by this section 
     shall not apply to any distribution after April 16, 1997, if 
     such distribution is--
       (A) made pursuant to a written agreement which was binding 
     on such date and at all times thereafter,
       (B) described in a ruling request submitted to the Internal 
     Revenue Service on or before such date, or
       (C) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission required solely by reason of the distribution.
     This subparagraph shall not apply to any written agreement, 
     ruling request, or public announcement or filing unless it 
     identifies the unrelated acquirer of the distributing 
     corporation or of any controlled corporation, whichever is 
     applicable.

     SEC. 1013. TAX TREATMENT OF REDEMPTIONS INVOLVING RELATED 
                   CORPORATIONS.

       (a) Stock Purchases by Related Corporations.--The last 
     sentence of section 304(a)(1) (relating to acquisition by 
     related corporation other than subsidiary) is amended to read 
     as follows: ``To the extent that such distribution is treated 
     as a distribution to which section 301 applies, the 
     transferor and the acquiring corporation shall be treated in 
     the same manner as if the transferor had transferred the 
     stock so acquired to the acquiring corporation in exchange 
     for stock of the acquiring corporation in a transaction to 
     which section 351(a) applies, and then the acquiring 
     corporation had redeemed the stock it was treated as issuing 
     in such transaction.''
       (b) Coordination With Section 1059.--Clause (iii) of 
     section 1059(e)(1)(A), as amended by this title, is amended 
     to read as follows:
       ``(iii) which would not have been treated (in whole or in 
     part) as a dividend if--

       ``(I) any options had not been taken into account under 
     section 318(a)(4), or
       ``(II) section 304(a) had not applied,''.

       (c) Special Rule for Acquisitions by Foreign 
     Corporations.--Section 304(b) (relating to special rules for 
     application of subsection (a)) is amended by adding at the 
     end the following new paragraph:
       ``(5) Acquisitions by foreign corporations.--
       ``(A) In general.--In the case of any acquisition to which 
     subsection (a) applies in which the acquiring corporation is 
     a foreign corporation, the only earnings and profits taken 
     into account under paragraph (2)(A) shall be those earnings 
     and profits--
       ``(i) which are attributable (under regulations prescribed 
     by the Secretary) to stock of the acquiring corporation owned 
     (within the meaning of section 958(a)) by a corporation or 
     individual which is--

       ``(I) a United States shareholder (within the meaning of 
     section 951(b)) of the acquiring corporation, and
       ``(II) the transferor or a person who bears a relationship 
     to the transferor described in section 267(b) or 707(b), and

       ``(ii) which were accumulated during the period or periods 
     such stock was owned by such person while the acquiring 
     corporation was a controlled foreign corporation.
       ``(B) Application of section 1248.--For purposes of 
     subparagraph (A), the rules of section 1248(d) shall apply 
     except to the extent otherwise provided by the Secretary.
       ``(C) Regulations.--The Secretary shall prescribe such 
     regulations as are appropriate to carry out the purposes of 
     this paragraph.''
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to distributions and acquisitions after June 8, 1997.
       (2) Transition rule.--The amendments made by this section 
     shall not apply to any distribution or acquisition after June 
     8, 1997, if such distribution or acquisition is--
       (A) made pursuant to a written agreement which was binding 
     on such date and at all times thereafter,
       (B) described in a ruling request submitted to the Internal 
     Revenue Service on or before such date, or
       (C) described in a public announcement or filing with the 
     Securities and Exchange Commission on or before such date.

     SEC. 1014. MODIFICATION OF HOLDING PERIOD APPLICABLE TO 
                   DIVIDENDS RECEIVED DEDUCTION.

       (a) In General.--Subparagraph (A) of section 246(c)(1) is 
     amended to read as follows:
       ``(A) which is held by the taxpayer for 45 days or less 
     during the 90-day period beginning on the date which is 45 
     days before the date on which such share becomes ex-dividend 
     with respect to such dividend, or''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 246(c) is amended to read as 
     follows:
       ``(2) 90-day rule in the case of certain preference 
     dividends.--In the case of stock having preference in 
     dividends, if the taxpayer receives dividends with respect to 
     such stock which are attributable to a period or periods 
     aggregating in excess of 366 days, paragraph (1)(A) shall be 
     applied--
       ``(A) by substituting `90 days' for `45 days' each place it 
     appears, and
       ``(B) by substituting `180-day period' for `90-day 
     period'.''
       (2) Paragraph (3) of section 246(c) is amended by adding 
     ``and'' at the end of subparagraph (A), by striking 
     subparagraph (B), and by redesignating subparagraph (C) as 
     subparagraph (B).
       (c) Effective Date.--The amendments made by this section 
     shall apply to dividends received or accrued after the 30th 
     day after the date of the enactment of this Act.
                 Subtitle C--Other Corporate Provisions

     SEC. 1021. REGISTRATION AND OTHER PROVISIONS RELATING TO 
                   CONFIDENTIAL CORPORATE TAX SHELTERS.

       (a) In General.--Section 6111 (relating to registration of 
     tax shelters) is amended by redesignating subsections (d) and 
     (e) as subsections (e) and (f), respectively, and by 
     inserting after subsection (c) the following new subsection:
       ``(d) Certain Confidential Arrangements Treated as Tax 
     Shelters.--
       ``(1) In general.--For purposes of this section, the term 
     `tax shelter' includes any entity, plan, arrangement, or 
     transaction--
       ``(A) a significant purpose of the structure of which is 
     the avoidance or evasion of Federal income tax for a direct 
     or indirect participant which is a corporation,
       ``(B) which is offered to any potential participant under 
     conditions of confidentiality, and
       ``(C) for which the tax shelter promoters may receive fees 
     in excess of $100,000 in the aggregate.
       ``(2) Conditions of confidentiality.--For purposes of 
     paragraph (1)(B), an offer is under conditions of 
     confidentiality if--
       ``(A) the potential participant to whom the offer is made 
     (or any other person acting on behalf of such participant) 
     has an understanding or agreement with or for the benefit of 
     any promoter of the tax shelter that such participant (or 
     such other person) will limit disclosure of the tax shelter 
     or any significant tax features of the tax shelter, or
       ``(B) any promoter of the tax shelter--
       ``(i) claims, knows, or has reason to know,
       ``(ii) knows or has reason to know that any other person 
     (other than the potential participant) claims, or
       ``(iii) causes another person to claim,

     that the tax shelter (or any aspect thereof) is proprietary 
     to any person other than the potential participant or is 
     otherwise protected from disclosure to or use by others.

     For purposes of this subsection, the term `promoter' means 
     any person or any related person (within the meaning of 
     section 267 or 707) who participates in the organization, 
     management, or sale of the tax shelter.
       ``(3) Persons other than promoter required to register in 
     certain cases.--
       ``(A) In general.--If--
       ``(i) the requirements of subsection (a) are not met with 
     respect to any tax shelter (as defined in paragraph (1)) by 
     any tax shelter promoter, and
       ``(ii) no tax shelter promoter is a United States person,

     then each United States person who discussed participation in 
     such shelter shall register such shelter under subsection 
     (a).
       ``(B) Exception.--Subparagraph (A) shall not apply to a 
     United States person who discussed participation in a tax 
     shelter if--
       ``(i) such person notified the promoter in writing (not 
     later than the close of the 90th day after the day on which 
     such discussions began) that such person would not 
     participate in such shelter, and
       ``(ii) such person does not participate in such shelter.
       ``(4) Offer to participate treated as offer for sale.--For 
     purposes of subsections (a) and (b), an offer to participate 
     in a tax shelter (as defined in paragraph (1)) shall be 
     treated as an offer for sale.''
       (b) Penalty.--Subsection (a) of section 6707 (relating to 
     failure to furnish information regarding tax shelters) is 
     amended by adding at the end the following new paragraph:
       ``(3) Confidential arrangements.--
       ``(A) In general.--In the case of a tax shelter (as defined 
     in section 6111(d)), the penalty imposed under paragraph (1) 
     shall be an amount equal to the greater of--
       ``(i) 50 percent of the fees paid to all promoters of the 
     tax shelter with respect to offerings made before the date 
     such shelter is registered under section 6111, or
       ``(ii) $10,000.

[[Page H4358]]

     Clause (i) shall be applied by substituting `75 percent' for 
     `50 percent' in the case of an intentional failure or act 
     described in paragraph (1).
       ``(B) Special rule for participants required to register 
     shelter.--In the case of a person required to register such a 
     tax shelter by reason of section 6111(d)(3)--
       ``(i) such person shall be required to pay the penalty 
     under paragraph (1) only if such person actually participated 
     in such shelter,
       ``(ii) the amount of such penalty shall be determined by 
     taking into account under subparagraph (A)(i) only the fees 
     paid by such person, and
       ``(iii) such penalty shall be in addition to the penalty 
     imposed on any other person for failing to register such 
     shelter.''
       (c) Modifications to Substantial Understatement Penalty.--
       (1) Restriction on reasonable basis for corporate 
     understatement of income tax.--Subparagraph (B) of section 
     6662(d)(2) is amended by adding at the end the following new 
     flush sentence:

     ``For purposes of clause (ii)(II), in no event shall a 
     corporation be treated as having a reasonable basis for its 
     tax treatment of an item attributable to a multiple-party 
     financing transaction if such treatment does not clearly 
     reflect the income of the corporation.''
       (2) Modification to definition of tax shelter.--Clause 
     (iii) of section 6662(d)(2)(C) is amended by striking ``the 
     principal purpose'' and inserting ``a significant purpose''.
       (d) Conforming Amendments.--
       (1) Paragraph (2) of section 6707(a) is amended by striking 
     ``The penalty'' and inserting ``Except as provided in 
     paragraph (3), the penalty''.
       (2) Subparagraph (A) of section 6707(a)(1) is amended by 
     striking ``paragraph (2)'' and inserting ``paragraph (2) or 
     (3), as the case may be''.
       (e) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to any tax 
     shelter (as defined in section 6111(d) of the Internal 
     Revenue Code of 1986, as amended by this section) interests 
     in which are offered to potential participants after the 
     Secretary of the Treasury prescribes guidance with respect to 
     meeting requirements added by such amendments.
       (2) Modifications to substantial understatement penalty.--
     The amendments made by subsection (c) shall apply to items 
     with respect to transactions entered into after the date of 
     the enactment of this Act.

     SEC. 1022. CERTAIN PREFERRED STOCK TREATED AS BOOT.

       (a) Section 351.--Section 351 (relating to transfer to 
     corporation controlled by transferor) is amended by 
     redesignating subsection (g) as subsection (h) and by 
     inserting after subsection (f) the following new subsection:
       ``(g) Nonqualified Preferred Stock Not Treated as Stock.--
       ``(1) In general.--For purposes of subsections (a) and (b), 
     the term `stock' shall not include nonqualified preferred 
     stock.
       ``(2) Nonqualified preferred stock.--For purposes of 
     paragraph (1)--
       ``(A) In general.--The term `nonqualified preferred stock' 
     means preferred stock if--
       ``(i) the holder of such stock has the right to require the 
     issuer or a related person to redeem or purchase the stock,
       ``(ii) the issuer or a related person is required to redeem 
     or purchase such stock,
       ``(iii) the issuer or a related person has the right to 
     redeem or purchase the stock and, as of the issue date, it is 
     more likely than not that such right will be exercised, or
       ``(iv) the dividend rate on such stock varies in whole or 
     in part (directly or indirectly) with reference to interest 
     rates, commodity prices, or other similar indices.
       ``(B) Limitations.--Clauses (i), (ii), and (iii) of 
     subparagraph (A) shall apply only if the right or obligation 
     referred to therein may be exercised within the 20-year 
     period beginning on the issue date of such stock and such 
     right or obligation is not subject to a contingency which, as 
     of the issue date, makes remote the likelihood of the 
     redemption or purchase.
       ``(C) Exceptions for certain rights or obligations.--
       ``(i) In general.--A right or obligation shall not be 
     treated as described in clause (i), (ii), or (iii) of 
     subparagraph (A) if--

       ``(I) it may be exercised only upon the death, disability, 
     or mental incompetency of the holder, or
       ``(II) in the case of a right or obligation to redeem or 
     purchase stock transferred in connection with the performance 
     of services for the issuer or a related person (and which 
     represents reasonable compensation), it may be exercised only 
     upon the holder's separation from service from the issuer or 
     a related person.

       ``(ii) Exception.--Clause (i)(I) shall not apply if the 
     stock relinquished in the exchange, or the stock acquired in 
     the exchange is in--

       ``(I) a corporation if any class of stock in such 
     corporation or a related party is readily tradable on an 
     established securities market or otherwise, or
       ``(II) any other corporation if such exchange is part of a 
     transaction or series of transactions in which such 
     corporation is to become a corporation described in subclause 
     (I).

       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Preferred stock.--The term `preferred stock' means 
     stock which is limited and preferred as to dividends and does 
     not participate (including through a conversion privilege) in 
     corporate growth to any significant extent.
       ``(B) Related person.--A person shall be treated as related 
     to another person if they bear a relationship to such other 
     person described in section 267(b) or 707(b).
       ``(4) Regulations.--The Secretary may prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this subsection and sections 354(a)(2)(C), 
     355(a)(3)(D), and 356(e). The Secretary may also prescribe 
     regulations, consistent with the treatment under this 
     subsection and such sections, for the treatment of 
     nonqualified preferred stock under other provisions of this 
     title.''
       (b) Section 354.--Paragraph (2) of section 354(a) (relating 
     to exchanges of stock and securities in certain 
     reorganizations) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Nonqualified preferred stock.--
       ``(i) In general.--Nonqualified preferred stock (as defined 
     in section 351(g)(2)) received in exchange for stock other 
     than nonqualified preferred stock (as so defined) shall not 
     be treated as stock or securities.
       ``(ii) Recapitalizations of family-owned corporations.--

       ``(I) In general.--Clause (i) shall not apply in the case 
     of a recapitalization under section 368(a)(1)(E) of a family-
     owned corporation.
       ``(II) Family-owned corporation.--For purposes of this 
     clause, except as provided in regulations, the term `family-
     owned corporation' means any corporation which is described 
     in clause (i) of section 447(d)(2)(C) throughout the 8-year 
     period beginning on the date which is 5 years before the date 
     of the recapitalization. For purposes of the preceding 
     sentence, stock shall not be treated as owned by a family 
     member during any period described in section 355(d)(6)(B).''

       (c) Section 355.--Paragraph (3) of section 355(a) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Non Qualified preferred stock.--Nonqualified 
     preferred stock (as defined in section 351(g)(2)) received in 
     a distribution with respect to stock other than nonqualified 
     preferred stock (as so defined) shall not be treated as stock 
     or securities.''
       (d) Section 356.--Section 356 is amended by redesignating 
     subsections (e) and (f) as subsections (f) and (g), 
     respectively, and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Nonqualified Preferred Stock Treated as Other 
     Property.--For purposes of this section--
       ``(1) In general.--Except as provided in paragraph (2), the 
     term `other property' includes nonqualified preferred stock 
     (as defined in section 351(g)(2)).
       ``(2) Exception.--The term `other property' does not 
     include nonqualified preferred stock (as so defined) to the 
     extent that, under section 354 or 355, such preferred stock 
     would be permitted to be received without the recognition of 
     gain.''
       (e) Conforming Amendments.--
       (1) Subparagraph (B) of section 354(a)(2) and subparagraph 
     (C) of section 355(a)(3)(C) are each amended by inserting 
     ``(including nonqualified preferred stock, as defined in 
     section 351(g)(2))'' after ``stock''.
       (2) Subparagraph (A) of section 354(a)(3) and subparagraph 
     (A) of section 355(a)(4) are each amended by inserting 
     ``nonqualified preferred stock and'' after ``including''.
       (3) Section 1036 is amended by redesignating subsection (b) 
     as subsection (c) and by inserting after subsection (a) the 
     following new subsection:
       ``(b) Nonqualified Preferred Stock Not Treated as Stock.--
     For purposes of this section, nonqualified preferred stock 
     (as defined in section 351(g)(2)) shall be treated as 
     property other than stock.''
       (f) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to transactions after June 8, 1997.
       (2) Transition rule.--The amendments made by this section 
     shall not apply to any transaction after June 8, 1997, if 
     such transaction is--
       (A) made pursuant to a written agreement which was binding 
     on such date and at all times thereafter,
       (B) described in a ruling request submitted to the Internal 
     Revenue Service on or before such date, or
       (C) described on or before such date in a public 
     announcement or in a filing with the Securities and Exchange 
     Commission required solely by reason of the distribution.
                 Subtitle D--Administrative Provisions

     SEC. 1031. REPORTING OF CERTAIN PAYMENTS MADE TO ATTORNEYS.

       (a) In General.--Section 6045 (relating to returns of 
     brokers) is amended by adding at the end the following new 
     subsection:
       ``(f) Return Required in the Case of Payments to 
     Attorneys.--
       ``(1) In general.--Any person engaged in a trade or 
     business and making a payment (in the course of such trade or 
     business) to which this subsection applies shall file a 
     return under subsection (a) and a statement under subsection 
     (b) with respect to such payment.
       ``(2) Application of subsection.--
       ``(A) In general.--This subsection shall apply to any 
     payment to an attorney in connection with legal services 
     (whether or not such services are performed for the payor).

[[Page H4359]]

       ``(B) Exception.--This subsection shall not apply to the 
     portion of any payment which is required to be reported under 
     section 6041(a) (or would be so required but for the dollar 
     limitation contained therein) or section 6051.''
       (b) Reporting of Attorneys' Fees Payable to Corporations.--
     The regulations providing an exception under section 6041 of 
     the Internal Revenue Code of 1986 for payments made to 
     corporations shall not apply to payments of attorneys' fees.
       (c) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 1997.

     SEC. 1032. DECREASE OF THRESHOLD FOR REPORTING PAYMENTS TO 
                   CORPORATIONS PERFORMING SERVICES FOR FEDERAL 
                   AGENCIES.

       (a) In General.--Subsection (d) of section 6041A (relating 
     to returns regarding payments of remuneration for services 
     and direct sales) is amended by adding at the end the 
     following new paragraph:
       ``(3) Payments to corporations by federal executive 
     agencies.--
       ``(A) In general.--Notwithstanding any regulation 
     prescribed by the Secretary before the date of the enactment 
     of this paragraph, subsection (a) shall apply to remuneration 
     paid to a corporation by any Federal executive agency (as 
     defined in section 6050M(b)).
       ``(B) Exception.--Subparagraph (A) shall not apply to--
       ``(i) services under contracts described in section 
     6050M(e)(3) with respect to which the requirements of section 
     6050M(e)(2) are met, and
       ``(ii) such other services as the Secretary may specify in 
     regulations prescribed after the date of the enactment of 
     this paragraph.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to returns the due date for which (determined 
     without regard to any extension) is more than 90 days after 
     the date of the enactment of this Act.

     SEC. 1033. DISCLOSURE OF RETURN INFORMATION FOR 
                   ADMINISTRATION OF CERTAIN VETERANS PROGRAMS.

       (a) General Rule.--Subparagraph (D) of section 6103(l)(7) 
     (relating to disclosure of return information to Federal, 
     State, and local agencies administering certain programs) is 
     amended by striking ``Clause (viii) shall not apply after 
     September 30, 1998.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 1034. CONTINUOUS LEVY ON CERTAIN PAYMENTS.

       (a) In General.--Section 6331 (relating to levy and 
     distraint) is amended--
       (1) by redesignating subsection (h) as subsection (i), and
       (2) by inserting after subsection (g) the following new 
     subsection:
       ``(h) Continuing Levy on Certain Payments.--
       ``(1) In general.--The effect of a levy on specified 
     payments to or received by a taxpayer shall be continuous 
     from the date such levy is first made until such levy is 
     released. Notwithstanding section 6334, such levy shall 
     attach up to 15 percent of any salary or pension payment due 
     to the taxpayer.
       ``(2) Specified payments.--For the purposes of paragraph 
     (1), the term `specified payments' means--
       ``(A) Federal payments other than payments for which 
     eligibility is based on the income or assets (or both) of a 
     payee,
       ``(B) payments described in subsection (a)(4) (relating to 
     unemployment benefits), and
       ``(C) payments described in subsection (a)(11) (relating to 
     certain public assistance payments).''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to levies issued after the date of the enactment 
     of this Act.

     SEC. 1035. RETURNS OF BENEFICIARIES OF ESTATES AND TRUSTS 
                   REQUIRED TO FILE RETURNS CONSISTENT WITH ESTATE 
                   OR TRUST RETURN OR TO NOTIFY SECRETARY OF 
                   INCONSISTENCY.

       (a) Domestic Estates and Trusts.--Section 6034A (relating 
     to information to beneficiaries of estates and trusts) is 
     amended by adding at the end the following new subsection:
       ``(c) Beneficiary's Return Must be Consistent with Estate 
     or Trust Return or Secretary Notified of Inconsistency.--
       ``(1) In general.--A beneficiary of any estate or trust to 
     which subsection (a) applies shall, on such beneficiary's 
     return, treat any reported item in a manner which is 
     consistent with the treatment of such item on the applicable 
     entity's return.
       ``(2) Notification of inconsistent treatment.--
       ``(A) In general.--In the case of any reported item, if--
       ``(i)(I) the applicable entity has filed a return but the 
     beneficiary's treatment on such beneficiary's return is (or 
     may be) inconsistent with the treatment of the item on the 
     applicable entity's return, or
       ``(II) the applicable entity has not filed a return, and
       ``(ii) the beneficiary files with the Secretary a statement 
     identifying the inconsistency,

     paragraph (1) shall not apply to such item.
       ``(B) Beneficiary receiving incorrect information.--A 
     beneficiary shall be treated as having complied with clause 
     (ii) of subparagraph (A) with respect to a reported item if 
     the beneficiary--
       ``(i) demonstrates to the satisfaction of the Secretary 
     that the treatment of the reported item on the beneficiary's 
     return is consistent with the treatment of the item on the 
     statement furnished under subsection (a) to the beneficiary 
     by the applicable entity, 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 beneficiary does not comply with 
     subparagraph (A)(ii) of paragraph (2),

     any adjustment required to make the treatment of the items by 
     such beneficiary consistent with the treatment of the items 
     on the applicable entity's 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) Definitions.--For purposes of this subsection--
       ``(A) Reported item.--The term `reported item' means any 
     item for which information is required to be furnished under 
     subsection (a).
       ``(B) Applicable entity.--The term `applicable entity' 
     means the estate or trust of which the taxpayer is the 
     beneficiary.
       ``(5) Addition to tax for failure to comply with section.--
     For addition to tax in the case of a beneficiary's negligence 
     in connection with, or disregard of, the requirements of this 
     section, see part II of subchapter A of chapter 68.''
       (b) Foreign Trusts.--Subsection (d) of section 6048 
     (relating to information with respect to certain foreign 
     trusts) is amended by adding at the end the following new 
     paragraph:
       ``(5) United states person's return must be consistent with 
     trust return or secretary notified of inconsistency.--Rules 
     similar to the rules of section 6034A(c) shall apply to items 
     reported by a trust under subsection (b)(1)(B) and to United 
     States persons referred to in such subsection.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to returns of beneficiaries and owners filed 
     after the date of the enactment of this Act.
            Subtitle E--Excise and Employment Tax Provisions

     SEC. 1041. EXTENSION AND MODIFICATION OF AIRPORT AND AIRWAY 
                   TRUST FUND TAXES.

       (a) Fuel Taxes.--
       (1) Aviation fuel.--Clause (ii) of section 4091(b)(3)(A) is 
     amended by striking ``September 30, 1997'' and inserting 
     ``September 30, 2007''.
       (2) Aviation gasoline.--Subparagraph (B) of section 
     4081(d)(2) is amended by striking ``September 30, 1997'' and 
     inserting ``September 30, 2007''.
       (3) Noncommercial aviation.--Subparagraph (B) of section 
     4041(c)(3) is amended by striking ``September 30, 1997'' and 
     inserting ``September 30, 2007''.
       (b) Ticket Taxes.--
       (1) Persons.--Clause (ii) of section 4261(g)(1)(A) is 
     amended by striking ``September 30, 1997'' and inserting 
     ``September 30, 2007''.
       (2) Property.--Clause (ii) of section 4271(d)(1)(A) is 
     amended by striking ``September 30, 1997'' and inserting 
     ``September 30, 2007''.
       (c) Modifications to Tax on Transportation of Persons by 
     Air.--Subsection (c) of section 4261 (relating to use of 
     international travel facilities) is amended to read as 
     follows:
       ``(c) Use of International Travel Facilities.--
       ``(1) In general.--There is hereby imposed a tax of $10 on 
     any amount paid (whether within or without the United States) 
     for any transportation of any person by air, if such 
     transportation begins or ends in the United States.
       ``(2) Exception for transportation entirely taxable under 
     subsection (a).--This subsection shall not apply to any 
     transportation all of which is taxable under subsection (a) 
     (determined without regard to sections 4281 and 4282).
       ``(3) Special rule for alaska and hawaii.--In any case in 
     which the tax imposed by paragraph (1) applies to a domestic 
     segment, such tax shall apply only on departure.
       ``(4) Inflation adjustment.--
       ``(A) In general.--In the case of transportation beginning 
     in a calendar year after 1998, the dollar amount contained in 
     paragraph (1) shall be increased by an amount equal to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 1997' for `calendar year 1992' in subparagraph 
     (B) thereof.
       ``(B) Rounding.--If any increase determined under 
     subparagraph (A) is not a multiple of 10 cents, such increase 
     shall be rounded to the nearest multiple of 10 cents.''
       (d) Effective Dates.--
       (1) Fuel taxes.--The amendment made by subsection (a) shall 
     apply take effect on October 1, 1997.
       (2) Ticket taxes.--
       (A) In general.--The amendments made by subsections (b) and 
     (c) shall apply to transportation beginning on or after 
     October 1, 1997.

[[Page H4360]]

       (B) Treatment of amounts paid for tickets purchased before 
     date of enactment.--The amendments made by subsection (c) 
     shall not apply to amounts paid for a ticket purchased before 
     the date of the enactment of this Act for a specified flight 
     beginning on or after October 1, 1997.

     SEC. 1042. CREDIT FOR TIRE TAX IN LIEU OF EXCLUSION OF VALUE 
                   OF TIRES IN COMPUTING PRICE.

       (a) In General.--Subsection (e) of section 4051 is amended 
     to read as follows:
       ``(e) Credit Against Tax for Tire Tax.--If--
       ``(1) tires are sold on or in connection with the sale of 
     any article, and
       ``(2) tax is imposed by this subchapter on the sale of such 
     tires,

     there shall be allowed as a credit against the tax imposed by 
     this subchapter an amount equal to the tax (if any) imposed 
     by section 4071 on such tires.''
       (b) Conforming Amendment.--Subparagraph (B) of section 
     4052(b)(1) is amended by striking clause (iii), by adding 
     ``and'' at the end of clause (ii), and by redesignating 
     clause (iv) as clause (iii).
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1998.

     SEC. 1043. RESTORATION OF LEAKING UNDERGROUND STORAGE TANK 
                   TRUST FUND TAXES.

       Paragraph (3) of section 4081(d) is amended by inserting 
     before the period ``, and before the date of the enactment of 
     the Revenue Reconciliation Act of 1997''.

     SEC. 1044. REINSTATEMENT OF OIL SPILL LIABILITY TRUST FUND 
                   TAX.

       (a) In General.--Paragraph (1) of section 4611(f) is 
     amended by striking ``December 31, 1989, and before January 
     1, 1995'' and inserting ``December 31, 1997''. Paragraph (2) 
     of section 4611(f) is hereby repealed.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on January 1, 1998.

     SEC. 1045. EXTENSION OF FEDERAL UNEMPLOYMENT SURTAX.

       (a) In General.--Section 3301 is amended by striking 
     ``equal to--'' and all that follows through ``thereafter;'' 
     and inserting ``6.2 percent in the case of calendar year 1998 
     and each calendar year thereafter''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to calendar years beginning after December 31, 
     1997.
         Subtitle F--Provisions Relating to Tax-Exempt Entities

     SEC. 1051. EXPANSION OF LOOK-THRU RULE FOR INTEREST, 
                   ANNUITIES, ROYALTIES, AND RENTS DERIVED BY 
                   SUBSIDIARIES OF TAX-EXEMPT ORGANIZATIONS.

       (a) In General.--Paragraph (13) of section 512(b) is 
     amended to read as follows:
       ``(13) Special rules for certain amounts received from 
     controlled entities.--
       ``(A) In general.--If an organization (in this paragraph 
     referred to as the `controlling organization') receives 
     (directly or indirectly) a specified payment from another 
     entity which it controls (in this paragraph referred to as 
     the `controlled entity'), notwithstanding paragraphs (1), 
     (2), and (3), the controlling organization shall include such 
     payment as an item of gross income derived from an unrelated 
     trade or business to the extent such payment reduces the net 
     unrelated income of the controlled entity (or increases any 
     net unrelated loss of the controlled entity). There shall be 
     allowed all deductions of the controlling organization 
     directly connected with amounts treated as derived from an 
     unrelated trade or business under the preceding sentence.
       ``(B) Net unrelated income or loss.--For purposes of this 
     paragraph--
       ``(i) Net unrelated income.--The term `net unrelated 
     income' means--

       ``(I) in the case of a controlled entity which is not 
     exempt from tax under section 501(a), the portion of such 
     entity's taxable income which would be unrelated business 
     taxable income if such entity were exempt from tax under 
     section 501(a) and had the same exempt purposes (as defined 
     in section 513A(a)(5)(A)) as the controlling organization, or
       ``(II) in the case of a controlled entity which is exempt 
     from tax under section 501(a), the amount of the unrelated 
     business taxable income of the controlled entity.

       ``(ii) Net unrelated loss.--the term `net unrelated loss' 
     means the net operating loss adjusted under rules similar to 
     the rules of clause (i).
       ``(C) Specified payment.--For purposes of this paragraph, 
     the term `specified payment' means any interest, annuity, 
     royalty, or rent.
       ``(D) Definition of control.--For purposes of this 
     paragraph--
       ``(i) Control.--The term `control' means--

       ``(I) in the case of a corporation, ownership (by vote or 
     value) of more than 50 percent of the stock in such 
     corporation,
       ``(II) in the case of a partnership, ownership of more than 
     50 percent of the profits interests or capital interests in 
     such partnership, or
       ``(III) in any other case, ownership of more than 50 
     percent of the beneficial interests in the entity.

       ``(ii) Constructive ownership.--Section 318 (relating to 
     constructive ownership of stock) shall apply for purposes of 
     determining ownership of stock in a corporation. Similar 
     principles shall apply for purposes of determining ownership 
     of interests in any other entity.
       ``(E) Related persons.--The Secretary shall prescribe such 
     rules as may be necessary or appropriate to prevent avoidance 
     of the purposes of this paragraph through the use of related 
     persons.''
       (b) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after the date of the enactment of this Act.
       (2) Control test.--In the case of taxable years beginning 
     before January 1, 1999, an organization shall be treated as 
     controlling another organization for purposes of section 
     512(b)(13) of the Internal Revenue Code of 1986 (as amended 
     by this section) only if it controls such organization within 
     the meaning of such section, determined by substituting ``80 
     percent'' for ``50 percent'' each place it appears in 
     subparagraph (D) thereof.
                 Subtitle G--Foreign-Related Provisions

     SEC. 1061. DEFINITION OF FOREIGN PERSONAL HOLDING COMPANY 
                   INCOME.

       (a) Income From Notional Principal Contracts and Payments 
     in Lieu of Dividends.--
       (1) In general.--Paragraph (1) of section 954(c) (defining 
     foreign personal holding company income) is amended by adding 
     at the end the following new subparagraph:
       ``(F) Income from notional principal contracts.--Net income 
     from notional principal contracts. Any item of income, gain, 
     deduction, or loss from a notional principal contract entered 
     into for purposes of hedging any item described in any 
     preceding subparagraph shall not be taken into account for 
     purposes of this subparagraph but shall be taken into account 
     under such other subparagraph.
       ``(G) Payments in lieu of dividends.--Payments in lieu of 
     dividends which are made pursuant to an agreement to which 
     section 1058 applies.''
       (2) Conforming amendment.--Subparagraph (B) of section 
     954(c)(1) is amended--
       (A) by striking the second sentence, and
       (B) by striking ``also'' in the last sentence.
       (b) Exception for Dealers.--Paragraph (2) of section 954(c) 
     is amended by adding at the end the following new 
     subparagraph:
       ``(C) Exception for dealers.--Except as provided in 
     subparagraph (A), (E), or (G) of paragraph (1) or by 
     regulations, in the case of a regular dealer in property 
     (within the meaning of paragraph (1)(B)), forward contracts, 
     option contracts, or similar financial instruments (including 
     notional principal contracts and all instruments referenced 
     to commodities), there shall not be taken into account in 
     computing foreign personal holding income any item of income, 
     gain, deduction, or loss from any transaction (including 
     hedging transactions) entered into in the ordinary course of 
     such dealer's trade or business as such a dealer.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 1062. PERSONAL PROPERTY USED PREDOMINANTLY IN THE UNITED 
                   STATES TREATED AS NOT PROPERTY OF A LIKE KIND 
                   WITH RESPECT TO PROPERTY USED PREDOMINANTLY 
                   OUTSIDE THE UNITED STATES.

       (a) In General.--Subsection (h) of section 1031 (relating 
     to exchange of property held for productive use or 
     investment) is amended to read as follows:
       ``(h) Special Rules for Foreign Real and Personal 
     Property.--For purposes of this section--
       ``(1) Real property.--Real property located in the United 
     States and real property located outside the United States 
     are not property of a like kind.
       ``(2) Personal property.--
       ``(A) In general.--Personal property used predominantly 
     within the United States and personal property used 
     predominantly outside the United States are not property of a 
     like kind.
       ``(B) Predominant use.--Except as provided in subparagraph 
     (C) and (D), the predominant use of any property shall be 
     determined based on--
       ``(i) in the case of the property relinquished in the 
     exchange, the 2-year period ending on the date of such 
     relinquishment, and
       ``(ii) in the case of the property acquired in the 
     exchange, the 2-year period beginning on the date of such 
     acquisition.
       ``(C) Property held for less than 2 years.--Except in the 
     case of an exchange which is part of a transaction (or series 
     of transactions) structured to avoid the purposes of this 
     subsection--
       ``(i) only the periods the property was held by the person 
     relinquishing the property (or any related person) shall be 
     taken into account under subparagraph (B)(i), and
       ``(ii) only the periods the property was held by the person 
     acquiring the property (or any related person) shall be taken 
     into account under subparagraph (B)(ii).
       ``(D) Special rule for certain property.--Property 
     described in any subparagraph of section 168(g)(4) shall be 
     treated as used predominantly in the United States.''
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to transfers after June 8, 1997, in taxable years 
     ending after such date.
       (2) Binding contracts.--The amendment made by this section 
     shall not apply to any transfer pursuant to a written binding 
     contract in effect on June 8, 1997, and at all

[[Page H4361]]

     times thereafter before the disposition of property. A 
     contract shall not fail to meet the requirements of the 
     preceding sentence solely because--
       (A) it provides for a sale in lieu of an exchange, or
       (B) the property to be acquired as replacement property was 
     not identified under such contract before June 9, 1997.

     SEC. 1063. HOLDING PERIOD REQUIREMENT FOR CERTAIN FOREIGN 
                   TAXES.

       (a) In General.--Section 901 is amended by redesignating 
     subsection (k) as subsection (l) and by inserting after 
     subsection (j) the following new subsection:
       ``(k) Minimum Holding Period for Certain Taxes.--
       ``(1) In general.--No credit shall be allowed to the 
     taxpayer under subsection (a) for any income, war profits, or 
     excess profits tax by reason of a dividend or other inclusion 
     with respect to stock in a foreign corporation or a regulated 
     investment company if--
       ``(A) such stock is held by the taxpayer for 15 days or 
     less during the 30-day period beginning on the date which is 
     15 days before the date on which such share becomes ex-
     dividend with respect to such dividend, or
       ``(B) to the extent that the taxpayer is under an 
     obligation (whether pursuant to a short sale or otherwise) to 
     make related payments with respect to positions in 
     substantially similar or related property.
       ``(2) Lower tier corporations.--To the extent that the 
     credit otherwise allowable under subsection (a) is for taxes 
     deemed paid under section 853, 902, or 960 through a chain of 
     ownership of stock in 1 or more other foreign corporations, 
     no credit shall be allowed under subsection (a) for such 
     taxes to the extent--
       ``(A) attributable to stock held by any corporation in such 
     chain for less than the period described in paragraph (1)(A), 
     or
       ``(B) that such corporation is under an obligation referred 
     to in paragraph (1)(B).
       ``(3) 45-day rule in the case of certain preference 
     dividends.--In the case of stock having preference in 
     dividends, if the taxpayer receives dividends with respect to 
     such stock which are attributable to a period or periods 
     aggregating in excess of 366 days, paragraph (1)(A) shall be 
     applied--
       ``(A) by substituting `45 days' for `15 days' each place it 
     appears, and
       ``(B) by substituting `90-day period' for `30-day period'.
       ``(4) Exception for certain taxes paid by securities 
     dealers.--
       ``(A) In general.--Paragraphs (1) and (2) shall not apply 
     to any qualified tax with respect to any security held in the 
     active conduct in a foreign country of a securities business 
     of any person--
       ``(i) who is registered as a securities broker or dealer 
     under section 15(a) of the Securities Exchange Act of 1934,
       ``(ii) who is registered as a Government securities broker 
     or dealer under section 15C(a) of such Act, or
       ``(iii) who is licensed or authorized in such foreign 
     country to conduct securities activities in such country and 
     is subject to bona fide regulation by a securities regulating 
     authority of such country.
       ``(B) Qualified tax.--For purposes of subparagraph (A), the 
     term `qualified tax' means a tax paid to a foreign country 
     (other than the foreign country referred to in subparagraph 
     (A)) if--
       ``(i) the dividend to which such tax is attributable is 
     subject to taxation on a net basis by the country referred to 
     in subparagraph (A), and
       ``(ii) such country allows a credit against its net basis 
     tax for the full amount of the tax paid to such other foreign 
     country.
       ``(C) Regulations.--The Secretary may prescribe such 
     regulations as may be appropriate to prevent the abuse of the 
     exception provided by this paragraph.
       ``(5) Certain rules to apply.--For purposes of this 
     subsection, the rules of paragraphs (3) and (4) of section 
     246(c) shall apply.
       ``(6) Taxes allowed as deduction, etc.--Sections 275 and 78 
     shall not apply to any tax which is not allowable as a credit 
     under subsection (a) by reason of this subsection.''
       (b) Notice of Withholding Taxes Paid by Regulated 
     Investment Company.--Subsection (c) of section 853 (relating 
     to foreign tax credit allowed to shareholders) is amended by 
     adding at the end the following new sentence: ``Such notice 
     shall also include the amount of such taxes which (without 
     regard to the election under this section) would not be 
     allowable as a credit under section 901(a) to the regulated 
     investment company by reason of section 901(k).''
       (c) Effective Date.--The amendments made by this section 
     shall apply to dividends paid or accrued more than 30 days 
     after the date of the enactment of this Act.

     SEC. 1064. PENALTIES FOR FAILURE TO DISCLOSE POSITION THAT 
                   CERTAIN INTERNATIONAL TRANSPORTATION INCOME IS 
                   NOT INCLUDIBLE IN GROSS INCOME.

       (a) In General.--Section 883 is amended by adding at the 
     end the following new subsection:
       ``(d) Penalties for Failure to Disclose Position That 
     Certain International Transportation Income Is Not Includible 
     in Gross Income.--
       ``(1) In general.--A taxpayer who, with respect to any tax 
     imposed by this title, takes the position that any of its 
     gross income derived from the international operation of 1 or 
     more ships or aircraft is not includible in gross income by 
     reason of paragraph (1) or (2) of subsection (a) or paragraph 
     (1) or (2) of section 872(b) (or by reason of any applicable 
     treaty) shall be entitled to such treatment only if such 
     position is disclosed (in such manner as the Secretary may 
     prescribe) on the return of tax for such tax (or any 
     statement attached to such return).
       ``(2) Additional penalties for failing to disclose 
     position.--If a taxpayer fails to meet the requirement of 
     paragraph (1) for any taxable year with respect to the 
     international operation of 1 or more ships or one or more 
     aircraft--
       ``(A) the amount of the income from the international 
     operation to which such failure relates--
       ``(i) which is from sources without the United States, and
       ``(ii) which is attributable to a fixed place of business 
     in the United States,
     shall be treated for purposes of this title as effectively 
     connected with the conduct of a trade or business within the 
     United States, and
       ``(B) no deductions or credits shall be allowed which are 
     attributable to income from the international operation to 
     which the failure relates.
       ``(3) Reasonable cause exception.--This subsection shall 
     not apply to a failure to disclose a position if it is shown 
     that such failure is due to reasonable cause and not due to 
     willful neglect.''
       (b) Conforming Amendments.--Paragraphs (1) and (2) of 
     section 872(b), and paragraph (1) and (2) of 883(a), are each 
     amended by striking ``Gross income'' each place it appears 
     and inserting ``Except as provided in section 883(d), gross 
     income''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years beginning after December 31, 1997.
       (2) Coordination with treaties.--The amendments made by 
     this section shall not apply in any case where their 
     application would be contrary to any treaty obligation of the 
     United States.
       (d) Information To Be Provided by Customs Service.--The 
     United States Custom Service shall provide the Secretary of 
     the Treasury or his delegate with such information as may be 
     specified by such Secretary in order to enable such Secretary 
     to determine whether ships which are not registered in the 
     United States are engaged in transportation to or from the 
     United States.

     SEC. 1065. INTEREST ON UNDERPAYMENTS NOT REDUCED BY FOREIGN 
                   TAX CREDIT CARRYBACKS.

       (a) In General.--Subsection (d) of section 6601 is amended 
     by redesignating paragraphs (2) and (3) as paragraphs (3) and 
     (4), respectively, and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Foreign tax credit carrybacks.--If any credit allowed 
     for any taxable year is increased by reason of a carryback of 
     tax paid or accrued to foreign countries or possessions of 
     the United States, such increase shall not affect the 
     computation of interest under this section for the period 
     ending with the filing date for the taxable year in which 
     such taxes were in fact paid or accrued, or, with respect to 
     any portion of such credit carryback from a taxable year 
     attributable to a net operating loss carryback or a capital 
     loss carryback from a subsequent taxable year, such increase 
     shall not affect the computation of interest under this 
     section for the period ending with the filing date for such 
     subsequent taxable year.''
       (b) Conforming Amendment to Refunds Attributable to Foreign 
     Tax Credit Carrybacks.--
       (1) In general.--Subsection (f) of section 6611 is amended 
     by redesignating paragraphs (2) and (3) as paragraphs (3) and 
     (4), respectively, and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Foreign tax credit carrybacks.--For purposes of 
     subsection (a), if any overpayment of tax imposed by subtitle 
     A results from a carryback of tax paid or accrued to foreign 
     countries or possessions of the United States, such 
     overpayment shall be deemed not to have been made before the 
     filing date for the taxable year in which such taxes were in 
     fact paid or accrued, or, with respect to any portion of such 
     credit carryback from a taxable year attributable to a net 
     operating loss carryback or a capital loss carryback from a 
     subsequent taxable year, such overpayment shall be deemed not 
     to have been made before the filing date for such subsequent 
     taxable year.''
       (2) Conforming amendments.--
       (A) Paragraph (4) of section 6611(f) (as so redesignated) 
     is amended--
       (i) by striking ``paragraphs (1) and (2)'' and inserting 
     ``paragraphs (1), (2), and (3)'', and
       (ii) by striking ``paragraph (1) or (2)'' each place it 
     appears and inserting ``paragraph (1), (2), or (3)''.
       (B) Clause (ii) of section 6611(f)(4)(B) (as so 
     redesignated) is amended by striking ``and'' at the end of 
     subclause (I), by redesignating subclause (II) as subclause 
     (III), and by inserting after subclause (I) the following new 
     subclause:

       ``(II) in the case of a carryback of taxes paid or accrued 
     to foreign countries or possessions of the United States, the 
     taxable year in which such taxes were in fact paid or accrued 
     (or, with respect to any portion of such carryback from a 
     taxable year attributable to a net operating loss carryback 
     or a capital loss carryback from a subsequent taxable year, 
     such subsequent taxable year), and''.

[[Page H4362]]

       (C) Subclause (III) of section 6611(f)(4)(B)(ii) (as so 
     redesignated) is amended by inserting ``(as defined in 
     paragraph (3)(B))'' after ``credit carryback'' the first 
     place it appears.
       (D) Section 6611 is amended by striking subsection (g) and 
     by redesignating subsections (h) and (i) as subsections (g) 
     and (h), respectively.
       (c) Effective Date.--The amendments made by this section 
     shall apply to carrybacks arising in taxable years beginning 
     after the date of the enactment of this Act.
                  Subtitle H--Other Revenue Provisions

     SEC. 1071. TERMINATION OF SUSPENSE ACCOUNTS FOR FAMILY 
                   CORPORATIONS REQUIRED TO USE ACCRUAL METHOD OF 
                   ACCOUNTING.

       (a) In General.--Subsection (i) of section 447 (relating to 
     method of accounting for corporations engaged in farming) is 
     amended by adding at the end the following new paragraph:
       ``(7) Termination.--
       ``(A) In general.--No suspense account may be established 
     under this subsection by any corporation required by this 
     section to change its method of accounting for any taxable 
     year ending after June 8, 1997.
       ``(B) Phaseout of existing suspense accounts.--
       ``(i) In general.--Each suspense account under this 
     subsection shall be reduced (but not below zero) for each 
     taxable year beginning after June 8, 1997, by an amount equal 
     to the lesser of--

       ``(I) the applicable portion of such account, or
       ``(II) 50 percent of the taxable income of the corporation 
     for the taxable year, or, if the corporation has no taxable 
     income for such year, the amount of any net operating loss 
     (as defined in section 172(c)) for such taxable year.

     For purposes of the preceding sentence, the amount of taxable 
     income and net operating loss shall be determined without 
     regard to this paragraph.
       ``(ii) Coordination with other reductions.--The amount of 
     the applicable portion for any taxable year shall be reduced 
     (but not below zero) by the amount of any reduction required 
     for such taxable year under any other provision of this 
     subsection.
       ``(iv) Inclusion in income.--Any reduction in a suspense 
     account under this paragraph shall be included in gross 
     income for the taxable year of the reduction.
       ``(C) Applicable portion.--For purposes of subparagraph 
     (B), the term `applicable portion' means, for any taxable 
     year, the amount which would ratably reduce the amount in the 
     account (after taking into account prior reductions) to zero 
     over the period consisting of such taxable year and the 
     remaining taxable years in such first 20 taxable years.
       ``(D) Amounts after 20th year.--Any amount in the account 
     as of the close of the 20th year referred to in subparagraph 
     (C) shall be treated as the applicable portion for each 
     succeeding year thereafter to the extent not reduced under 
     this paragraph for any prior taxable year after such 20th 
     year.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after June 8, 1997.

     SEC. 1072. ALLOCATION OF BASIS AMONG PROPERTIES DISTRIBUTED 
                   BY PARTNERSHIP.

       (a) In General.--Subsection (c) of section 732 is amended 
     to read as follows:
       ``(c) Allocation of Basis.--
       ``(1) In general.--The basis of distributed properties to 
     which subsection (a)(2) or (b) is applicable shall be 
     allocated--
       ``(A) first to any unrealized receivables (as defined in 
     section 751(c)) and inventory items (as defined in section 
     751(d)(2)) in an amount equal to the adjusted basis of each 
     such property to the partnership (or if the basis to be 
     allocated is less than the sum of the adjusted bases of such 
     properties to the partnership, in the manner provided in 
     paragraph (3)), and
       ``(B) to the extent of any remaining basis, to other 
     distributed properties--
       ``(i) first to the extent of each such property's adjusted 
     basis to the partnership, and
       ``(ii) then, to the extent any increase or decrease in 
     basis is required in order to have the adjusted bases of such 
     other distributed properties equal such remaining basis, in 
     the manner provided in paragraph (2) or (3), whichever is 
     appropriate.
       ``(2) Method of allocating increase.--Any increase required 
     under paragraph (1)(B) shall be allocated among the 
     properties--
       ``(A) first to properties with unrealized appreciation in 
     proportion to their respective amounts of unrealized 
     appreciation before such increase (but only to the extent of 
     each property's unrealized appreciation), and
       ``(B) then, to the extent such increase is not allocated 
     under subparagraph (A), in proportion to their respective 
     fair market values.
       ``(3) Method of allocating decrease.--Any decrease required 
     under paragraph (1)(A) or (1)(B) shall be allocated--
       ``(A) first to properties with unrealized depreciation in 
     proportion to their respective amounts of unrealized 
     depreciation before such decrease (but only to the extent of 
     each property's unrealized depreciation), and
       ``(B) then, to the extent such decrease is not allocated 
     under subparagraph (A), in proportion to their respective 
     adjusted bases (as adjusted under subparagraph (A)).''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to distributions after the date of the enactment 
     of this Act.

     SEC. 1073. REPEAL OF REQUIREMENT THAT INVENTORY BE 
                   SUBSTANTIALLY APPRECIATED.

       (a) In General.--Paragraph (2) of section 751(a) is amended 
     to read as follows:
       ``(2) inventory items of the partnership,''.
       (b) Conforming Amendments.--
       (1) Subsection (d) of section 751 is amended to read as 
     follows:
       ``(d) Inventory Items.--For purposes of this subchapter, 
     the term `inventory items' means--
       ``(1) property of the partnership of the kind described in 
     section 1221(1),
       ``(2) any other property of the partnership which, on sale 
     or exchange by the partnership, would be considered property 
     other than a capital asset and other than property described 
     in section 1231,
       ``(3) any other property of the partnership which, if sold 
     or exchanged by the partnership, would result in a gain 
     taxable under subsection (a) of section 1246 (relating to 
     gain on foreign investment company stock), and
       ``(4) any other property held by the partnership which, if 
     held by the selling or distributee partner, would be 
     considered property of the type described in paragraph (1), 
     (2), or (3).''
       (2) Sections 724(d)(2), 731(a)(2)(B), 731(c)(6), 
     732(c)(1)(A) (as amended by the preceding section), 
     735(a)(2), and 735(c)(1) are each amended by striking 
     ``section 751(d)(2)'' and inserting ``section 751(d)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales, exchanges, and distributions after the 
     date of the enactment of this Act.

     SEC. 1074. EXTENSION OF TIME FOR TAXING PRECONTRIBUTION GAIN.

       (a) In General.--Sections 704(c)(1)(B) and 737(b)(1) are 
     each amended by striking ``5 years'' and inserting ``10 
     years''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to property contributed to a partnership after 
     June 8, 1997.

     SEC. 1075. LIMITATION ON PROPERTY FOR WHICH INCOME FORECAST 
                   METHOD MAY BE USED.

       (a) Limitation.--Subsection (g) of section 167 is amended 
     by adding at the end the following new paragraph:
       ``(6) Limitation on property for which income forecast 
     method may be used.--The depreciation deduction allowable 
     under this section may be determined under the income 
     forecast method or any similar method only with respect to--
       ``(A) property described in paragraph (3) or (4) of section 
     168(f),
       ``(B) copyrights,
       ``(C) books,
       ``(D) patents, and
       ``(E) other property specified in regulations.
     Such methods may not be used with respect to any amortizable 
     section 197 intangible (as defined in section 197(c)).''
       (b) Depreciation Period for Rent-To-own Property.--
       (1) In general.--Subparagraph (A) of section 168(e)(3) 
     (relating to 3-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 qualified rent-to-own property.''
       (2) 4-year class life.--The table contained in section 
     168(g)(3)(B) is amended by inserting before the first item 
     the following new item:

  ``(A)(iii)...................................................4 ''    

       (3) Definition of qualified rent-to-own property.--
     Subsection (i) of section 168 is amended by adding at the end 
     the following new paragraph:
       ``(14) Qualified rent-to-own property.--
       ``(A) In general.--The term `qualified rent-to-own 
     property' means property held by a rent-to-own dealer for 
     purposes of being subject to a rent-to-own contract.
       ``(B) Rent-to-own dealer.--The term `rent-to-own dealer' 
     means a person that, in the ordinary course of business, 
     regularly enters into rent-to-own contracts with customers 
     for the use of consumer property, if a substantial portion of 
     those contracts terminate and the property is returned to 
     such person before the receipt of all payments required to 
     transfer ownership of the property from such person to the 
     customer.
       ``(C) Consumer property.--The term `consumer property' 
     means tangible personal property of a type generally used 
     within the home. Such term shall not include cellular 
     telephones and any computer or peripheral equipment (as 
     defined in section 168(i)).
       ``(D) Rent-to-own contract.--The term `rent-to-own 
     contract' means any lease for the use of consumer property 
     between a rent-to-own dealer and a customer who is an 
     individual which--
       ``(i) is titled `Rent-to-Own Agreement' or `Lease Agreement 
     with Ownership Option,' or uses other similar language,
       ``(ii) provides for level, regular periodic payments (for a 
     payment period which is a week or month),
       ``(iii) provides that legal title to such property remains 
     with the rent-to-own dealer until the customer makes all the 
     payments described in clause (ii) or early purchase payments 
     required under the contract to acquire legal title to the 
     item of property,

[[Page H4363]]

       ``(iv) provides a beginning date and a maximum period of 
     time for which the contract may be in effect that does not 
     exceed 156 weeks or 36 months from such beginning date 
     (including renewals or options to extend),
       ``(v) provides for level payments within the 156-week or 
     36-month period that, in the aggregate, generally exceed the 
     normal retail price of the consumer property plus interest,
       ``(vi) provides for payments under the contract that, in 
     the aggregate, do not exceed $10,000 per item of consumer 
     property,
       ``(vii) provides that the customer does not have any legal 
     obligation to make all the payments referred to in clause 
     (ii) set forth under the contract, and that at the end of 
     each payment period the customer may either continue to use 
     the consumer property by making the payment for the next 
     payment period or return such property to the rent-to-own 
     dealer in good working order, in which case the customer does 
     not incur any further obligations under the contract and is 
     not entitled to a return of any payments previously made 
     under the contract, and
       ``(viii) provides that the customer has no right to sell, 
     sublease, mortgage, pawn, pledge, encumber, or otherwise 
     dispose of the consumer property until all the payments 
     stated in the contract have been made.''
       (c) Effective Date.--The amendment made by this section 
     shall apply to property placed in service after the date of 
     the enactment of this Act.

     SEC. 1076. REPEAL OF SPECIAL RULE FOR RENTAL USE OF VACATION 
                   HOMES, ETC., FOR LESS THAN 15 DAYS.

       (a) In General.--Section 280A (relating to disallowance of 
     certain expenses in connection with business use of home, 
     rental of vacation homes, etc.) is amended by striking 
     subsection (g).
       (b) No Basis Reduction Unless Depreciation Claimed.--
     Section 1016 is amended by redesignating subsection (e) as 
     subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Special Rule Where Rental Use of Vacation Home, Etc., 
     for Less Than 15 Days.--If a dwelling unit is used during the 
     taxable year by the taxpayer as a residence and such dwelling 
     unit is actually rented for less than 15 days during the 
     taxable year, the reduction under subsection (a)(2) by reason 
     of such rental use in any taxable year beginning after 
     December 31, 1997, shall not exceed the depreciation 
     deduction allowed for such rental use.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1077. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY 
                   CONVERTED PROPERTY BE REPLACED WITH PROPERTY 
                   ACQUIRED FROM AN UNRELATED PERSON.

       (a) In General.--Subsection (i) of section 1033 is amended 
     to read as follows:
       ``(i) Replacement Property Must Be Acquired From Unrelated 
     Person in Certain Cases.--
       ``(1) In general.--If the property which is involuntarily 
     converted is held by a taxpayer to which this subsection 
     applies, subsection (a) shall not apply if the replacement 
     property or stock is acquired from a related person. The 
     preceding sentence shall not apply to the extent that the 
     related person acquired the replacement property or stock 
     from an unrelated person during the period applicable under 
     subsection (a)(2)(B).
       ``(2) Taxpayers to which subsection applies.--This 
     subsection shall apply to--
       ``(A) a C corporation,
       ``(B) a partnership in which 1 or more C corporations own, 
     directly or indirectly (determined in accordance with section 
     707(b)(3)), more than 50 percent of the capital interest, or 
     profits interest, in such partnership at the time of the 
     involuntary conversion, and
       ``(C) any other taxpayer if, with respect to property which 
     is involuntarily converted during the taxable year, the 
     aggregate of the amount of realized gain on such property on 
     which there is realized gain exceeds $100,000.
     In the case of a partnership, subparagraph (C) shall apply 
     with respect to the partnership and with respect to each 
     partner. A similar rule shall apply in the case of an S 
     corporation and its shareholders.
       ``(3) Related person.--For purposes of this subsection, a 
     person is related to another person if the person bears a 
     relationship to the other person described in section 267(b) 
     or 707(b)(1).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to involuntary conversions occurring after June 
     8, 1997.

     SEC. 1078. TREATMENT OF EXCEPTION FROM INSTALLMENT SALES 
                   RULES FOR SALES OF PROPERTY BY A MANUFACTURER 
                   TO A DEALER.

       (a) In General.--Paragraph (2) of section 811(c) of the Tax 
     Reform Act of 1986 is hereby repealed.
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to taxable years beginning after the date of the 
     enactment of this Act.
       (2) Coordination with section 481.--In the case of any 
     taxpayer required by this section to change its method of 
     accounting for any taxable year--
       (A) such changes shall be treated as initiated by the 
     taxpayer,
       (B) such changes shall be treated as made with the consent 
     of the Secretary, and
       (C) the net amount of the adjustments required to be taken 
     into account under section 481(a) of the Internal Revenue 
     Code of 1986 shall be taken into account ratably over the 4 
     taxable year period beginning with the first taxable year 
     beginning after the date of the enactment of this Act.

                               H.R. 2014

                         Offered By: Mr. Archer

       Amendment No. 2: Strike ``Revenue Reconciliation Act of 
     1997'' each place it appears and insert ``Taxpayer Relief Act 
     of 1997''.
       Page 13, strike lines 1 through 10, and insert the 
     following:
       ``(2) Reduction for dependent care credit.--In the case of 
     taxable years beginning after December 31, 1999--
       ``(A) In general.--The credit allowed by subsection (a) for 
     the taxable year (determined after paragraph (1) but before 
     paragraph (3)) shall be reduced by the amount equal to 50 
     percent of the credit allowed under section 21 for such 
     taxable year (determined after section 26(c)).
       ``(B) Exception based on adjusted gross income.--
       ``(i) In general.--Subparagraph (A) shall not apply to a 
     taxpayer whose modified adjusted gross income for the taxable 
     year does not exceed the threshold amount.
       ``(ii) Phasein of reduction.--If the modified adjusted 
     gross income of the taxpayer for the taxable year exceeds the 
     threshold amount by less than $5,000, the amount of the 
     reduction under subparagraph (A) shall be an amount which 
     bears the same ratio to the amount of such reduction 
     (determined without regard to this clause) as the excess of 
     the taxpayer's modified adjusted gross income over the 
     threshold amount bears to $5,000. In the case of a joint 
     return, the preceding sentence shall be applied by 
     substituting `$10,000' for `$5,000' each place it appears.
       ``(iii) Threshold amount.--For purposes of this 
     subparagraph, the term `threshold amount' means--

       ``(I) $60,000 in the case of a joint return,
       ``(II) $33,000 in the case of an individual who is not 
     married, and
       ``(III) $25,000 in the case of a married individual filing 
     a separate return.

     For purposes of this clause, marital status shall be 
     determined under section 7703.
       ``(iv) Modified adjusted gross income.--For purposes of 
     this subparagraph, the term `modified adjusted gross income' 
     has the meaning given such term by section 26(c).''
       Page 13, line 11, strike ``(B)'' and insert ``(C)''.
       Page 16, after line 5, insert the following new 
     subsections:
       (e) Notice of Credit.--The Secretary of the Treasury or his 
     delegate shall include in any booklet of instructions for 
     Form 1040, 1040A, or 1040EZ prepared by such Secretary for 
     filing individual income tax returns for taxable years 
     beginning in 1998 a notice which states only the following: 
     ``The Taxpayer Relief Act of 1997 which was recently passed 
     by the Congress has fulfilled its promise to provide tax 
     relief to American families. The Act's child tax credit 
     allows American families to reduce their taxes by $400 per 
     child for 1998 and $500 per child after 1998. You may wish to 
     check with your employer about changing your tax 
     withholding.''
       (f) Adjustments to Withholding.--
       (1) In general.--The Secretary of the Treasury or his 
     delegate shall modify the tables and procedures under section 
     3402 of the Internal Revenue Code of 1986 such that every 
     employer making payment of wages during calendar year 1998 to 
     any specified employee--
       (A) shall reduce the amount deducted and withheld as tax 
     under chapter 24 of such Code for any payroll or other period 
     during such year to reflect such period's proportionate share 
     of the child care credit amount, and
       (B) shall, before implementing such reduction, provide 
     reasonable notice to such employees that such a reduction 
     will apply to each specified employee who does not provide 
     the employer with the notice referred to in paragraph (5).
       (2) Specified employee.--For purposes of this subsection, 
     the term ``specified employee'' means any employee--
       (A) whose wages from the employer on an annualized basis 
     are reasonably expected to be at least $30,000 but not more 
     than $100,000, and
       (B) who claims more than the base number of withholding 
     exemptions on the withholding exemption certificate furnished 
     to the employer.

     For purposes of the preceding sentence, the term ``base 
     number'' means 1 withholding exemption if the certificate 
     reflects withholding for an unmarried individual and 2 
     withholding exemptions if the certificate reflects 
     withholding for a married individual.
       (3) Child care credit amount.--For purposes of this 
     subsection, the term ``child care credit amount'' means the 
     lesser of $800 or the amount equal to the product of--
       (A) $400, and
       (B) the number of withholding exemptions claimed by the 
     employee on the withholding exemption certificate furnished 
     to the employer to the extent such number exceeds the base 
     number (as defined in paragraph (2)) of such exemptions.
       (4) Proportionate share.--For purposes of this subsection, 
     except as provided by the Secretary of the Treasury or his 
     delegate, a period's proportionate share of the child care 
     credit amount is the amount which bears the same ratio to the 
     child care credit amount as the number of days in such period 
     bears to 365.
       (5) Notice to have subsection not apply to employee.--This 
     subsection shall not

[[Page H4364]]

     apply to any employee who provides written notice (in such 
     form as the Secretary shall prescribe) to the employer of 
     such employee's decision not to have this subsection apply to 
     such employee.
       (6) Definitions.--Terms used in this subsection which are 
     also used in chapter 24 of the Internal Revenue Code of 1986 
     shall have the respective meanings given such terms by such 
     chapter.
       Page 99, after line 22, insert the following new paragraph:
       (4) Application of estimated tax rules for 1998.--Clause 
     (i) of section 6654(d)(1)(C) of the Internal Revenue Code of 
     1986 shall be applied by substituting ``105 percent'' for 
     ``110 percent'' where the preceding taxable year referred to 
     in such clause is a taxable year beginning in calendar year 
     1997.
       Page 141, strike lines 4 through 7 and insert the following 
     new section:

     SEC. 403. REPEAL OF ADJUSTMENT FOR DEPRECIATION.

       (a) In General.--Clause (i) of section 56(a)(1)(A) is 
     amended by inserting ``and before January 1, 1999,'' after 
     ``December 31, 1986,''.
       (b) Study.--
       (1) In general.--Because it is the intent of Congress that 
     the amendment made by subsection (a) not have the result of 
     permitting any corporation with taxable income from current 
     year operations to pay no Federal income tax, the Secretary 
     of the Treasury or his delegate shall conduct a study to 
     determine whether such amendment has that result and, if so, 
     the policy implications of that result.
       (2) Report.--The report of such study shall be submitted to 
     the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate 
     not later than January 1, 2001.
       Page 173, after line 22, insert the following new section 
     (and amend the table of contents accordingly):

     SEC. 605. BUDGETARY TREATMENT OF EXPIRING PREFERENTIAL EXCISE 
                   TAX RATES WHICH ARE DEDICATED TO TRUST FUNDS.

       (a) In General.--Subparagraph (C) of section 257(b)(2) of 
     the Balanced Budget and Emergency Deficit Control Act of 1985 
     (relating to the baseline) is amended by inserting before the 
     period ``; except that any expiring preferential rate (and 
     any credit or refund related thereto) shall be assumed not to 
     be extended''.
       (b) Estimate of Revenue Gain From Correcting Baseline.--For 
     purposes of estimating revenues under budget reconciliation, 
     the impact of the amendment made by subsection (a) on the 
     calculation of the baseline shall be determined in the same 
     manner as if such amendment were an amendment to the Internal 
     Revenue Code of 1986.
       (c) Budget Act Point of Order.--For purposes of section 
     311(a) of the Congressional Budget Act of 1974, the 
     appropriate level of revenues shall be determined on the 
     assumption that any expiring preferential rate (and any 
     credit or refund related thereto) of any excise tax dedicated 
     to a trust fund shall expire according to current law.
       (d) Effective Date.--The amendment made by subsection (a) 
     shall apply to budget years beginning after the date of the 
     enactment of this Act.
       Page 377, strike lines 10 through 15, and insert the 
     following new subsection:
       (g) Delayed Deposits of Airline Ticket Tax Revenues.--
     Notwithstanding section 6302 of the Internal Revenue Code of 
     1986, in the case of deposits of taxes imposed by section 
     4261 of the Internal Revenue Code of 1986, the due date for 
     any such deposit which would (but for this subsection) be 
     required to be made--
       (1) after August 14, 1997, and before October 1, 1997, 
     shall be October 10, 1997, or
       (2) after June 30, 1998, and before October 1, 1998, shall 
     be October 13, 1998.
       Page 387, strike line 1 and all that follows through line 6 
     on page 395 (relating to reduction of incentives for alcohol 
     fuels) and amend the table of contents accordingly.
       Page 395, line 7, strike ``1044'' and insert ``1043'' (and 
     amend the table of contents accordingly).

                               H.R. 2015

                         Offered By: Mr. Kasich

       Amendment No. 1: In section 1002, in the amendment made to 
     section 16(h)(1)(B) of the Food Stamp Act of 1977, amend 
     clause (ii) to read as follows:
       ``(ii) not less than 80 percent of the funds provided in 
     this subparagraph shall be used by a State agency for 
     employment and training programs under section 6(d)(4), other 
     than job search or job search training programs, for food 
     stamp recipients not excepted by section 6(o)(3).
       Strike subtitle D of title III and insert the following:
                       Subtitle D--Communications

     SEC. 3301. SPECTRUM AUCTIONS.

       (a) Extension and Expansion of Auction Authority.--
       (1) Amendments.--Section 309(j) of the Communications Act 
     of 1934 (47 U.S.C. 309(j)) is amended--
       (A) by striking paragraphs (1) and (2) and inserting in 
     lieu thereof the following:
       ``(1) General authority.--If, consistent with the 
     obligations described in paragraph (6)(E), mutually exclusive 
     applications are accepted for any initial license or 
     construction permit which will involve an exclusive use of 
     the electromagnetic spectrum, then the Commission shall grant 
     such license or permit to a qualified applicant through a 
     system of competitive bidding that meets the requirements of 
     this subsection.
       ``(2) Exemptions.--The competitive bidding authority 
     granted by this subsection shall not apply to licenses or 
     construction permits issued by the Commission--
       ``(A) that, as the result of the Commission carrying out 
     the obligations described in paragraph (6)(E), are not 
     mutually exclusive;
       ``(B) for public safety radio services, including private 
     internal radio services used by non-Government entities, 
     that--
       ``(i) protect the safety of life, health, or property; and
       ``(ii) are not made commercially available to the public;
       ``(C) for initial licenses or construction permits assigned 
     by the Commission to existing terrestrial broadcast licensees 
     for new terrestrial digital television services; or
       ``(D) for public telecommunications services, as defined in 
     section 397(14) of the Communications Act of 1934 (47 U.S.C. 
     397(14)), when the license application is for channels 
     reserved for noncommercial use.'';
       (B) in paragraph (3)--
       (i) by inserting after the second sentence the following 
     new sentence: ``The Commission shall, directly or by 
     contract, provide for the design and conduct (for purposes of 
     testing) of competitive bidding using a contingent 
     combinatorial bidding system that permits prospective bidders 
     to bid on combinations or groups of licenses in a single bid 
     and to enter multiple alternative bids within a single 
     bidding round.'';
       (ii) by striking ``and'' at the end of subparagraph (C);
       (iii) by striking the period at the end of subparagraph (D) 
     and inserting ``; and''; and
       (iv) by adding at the end the following new subparagraph:
       ``(E) ensuring that, in the scheduling of any competitive 
     bidding under this subsection, an adequate period is 
     allowed--
       ``(i) before issuance of bidding rules, to permit notice 
     and comment on proposed auction procedures; and
       ``(ii) after issuance of bidding rules, to ensure that 
     interested parties have a sufficient time to develop business 
     plans, assess market conditions, and evaluate the 
     availability of equipment for the relevant services.'';
       (C) in paragraph (4)--
       (i) by striking ``and'' at the end of subparagraph (D);
       (ii) by striking the period at the end of subparagraph (E) 
     and inserting ``; and''; and
       (iii) by adding at the end the following new subparagraph:
       ``(F) establish methods by which a minimum bid, in an 
     amount that is more than nominal in relation to the value of 
     the public spectrum resource being made available, will be 
     required to obtain any license or permit being assigned 
     pursuant to the competitive bidding.'';
       (D) in paragraph (8)--
       (i) by striking subparagraph (B); and
       (ii) by redesignating subparagraph (C) as subparagraph (B);
       (E) in paragraph (11), by striking ``September 30, 1998'' 
     and inserting ``December 31, 2002''; and
       (F) in paragraph (13)(F), by striking ``September 30, 
     1998'' and inserting ``the date of enactment of the Balanced 
     Budget Act of 1997''.
       (2) Conforming amendment.--Subsection (i) of section 309 of 
     the Communications Act of 1934 (47 U.S.C. 309(i)) is 
     repealed.
       (3) Effective date.--The amendment made by paragraph (1)(A) 
     shall not apply with respect to any license or permit for 
     which the Federal Communications Commission has accepted 
     mutually exclusive applications on or before the date of 
     enactment of this Act.
       (b) Commission Obligation To Make Additional Spectrum 
     Available by Auction.--
       (1) In general.--The Federal Communications Commission 
     shall complete all actions necessary to permit the 
     assignment, by September 30, 2002, by competitive bidding 
     pursuant to section 309(j) of the Communications Act of 1934 
     (47 U.S.C. 309(j)) of licenses for the use of bands of 
     frequencies that--
       (A) individually span not less than 25 megahertz, unless a 
     combination of smaller bands can, notwithstanding the 
     provisions of paragraph (7) of such section, reasonably be 
     expected to produce greater receipts;
       (B) in the aggregate span not less than 100 megahertz;
       (C) are located below 3 gigahertz;
       (D) have not, as of the date of enactment of this Act--
       (i) been designated by Commission regulation for assignment 
     pursuant to such section;
       (ii) been identified by the Secretary of Commerce pursuant 
     to section 113 of the National Telecommunications and 
     Information Administration Organization Act;
       (iii) been allocated for Federal Government use pursuant to 
     section 305 of the Communications Act of 1934 (47 U.S.C. 
     305);
       (iv) been designated in section 3303 of this Act; or
       (v) been allocated for unlicensed use pursuant to part 15 
     of the Commission's regulations (47 C.F.R. Part 15), if the 
     competitive bidding for licenses would interfere with 
     operation of end-user products permitted under such 
     regulations;
       (E) notwithstanding section 115(b)(1)(B) of the National 
     Telecommunications and Information Administration 
     Organization Act (47 U.S.C. 925(b)(1)(B)) or any proposal 
     pursuant

[[Page H4365]]

     to such section, include frequencies at 1,710-1,755 
     megahertz;
       (F) include frequencies at 2,110-2,150 megahertz; and
       (G) include 15 megahertz from within the bands of 
     frequencies at 1,990-2,110 megahertz.
       (2) Schedule for assignment of 1,710-1,755 megahertz.--The 
     Commission shall commence competitive bidding for the 
     commercial licenses pursuant to paragraph (1)(E) after 
     January 1, 2001. The Commission shall complete the assignment 
     of such commercial licenses, and report to the Congress the 
     total revenues from such competitive bidding, by September 
     30, 2002.
       (3) Use of bands at 2,110-2,150 megahertz.--The Commission 
     shall reallocate spectrum located at 2,110-2,150 megahertz 
     for assignment by competitive bidding unless the Commission 
     determines that auction of other spectrum (A) better serves 
     the public interest, convenience, and necessity, and (B) can 
     reasonably be expected to produce greater receipts. If the 
     Commission makes such a determination, then the Commission 
     shall, within 2 years after the date of enactment of this 
     Act, identify an alternative 40 megahertz, and report to the 
     Congress an identification of such alternative 40 megahertz 
     for assignment by competitive bidding.
       (4) Use of 15 megahertz from bands at 1,990-2,110 
     megahertz.--The Commission shall reallocate 15 megahertz from 
     spectrum located at 1,990-2,110 megahertz for assignment by 
     competitive bidding unless the President determines such 
     spectrum cannot be reallocated due to the need to protect 
     incumbent Federal systems from interference, and that 
     allocation of other spectrum (A) better serves the public 
     interest, convenience, and necessity, and (B) can reasonably 
     be expected to produce greater receipts. If the President 
     makes such a determination, then the President shall, within 
     2 years after the date of enactment of this Act, identify 
     alternative bands of frequencies totalling 15 megahertz, and 
     report to the Congress an identification of such alternative 
     bands for assignment by competitive bidding.
       (5) Criteria for reassignment.--In making available bands 
     of frequencies for competitive bidding pursuant to paragraph 
     (1), the Commission shall--
       (A) seek to promote the most efficient use of the spectrum;
       (B) take into account the cost to incumbent licensees of 
     relocating existing uses to other bands of frequencies or 
     other means of communication; and
       (C) comply with the requirements of international 
     agreements concerning spectrum allocations.
       (6) Notification to ntia.--The Commission shall notify the 
     Secretary of Commerce if--
       (A) the Commission is not able to provide for the effective 
     relocation of incumbent licensees to bands of frequencies 
     that are available to the Commission for assignment; and
       (B) the Commission has identified bands of frequencies that 
     are--
       (i) suitable for the relocation of such licensees; and
       (ii) allocated for Federal Government use, but that could 
     be reallocated pursuant to part B of the National 
     Telecommunications and Information Administration 
     Organization Act (as amended by this Act).
       (c) Identification and Reallocation of Frequencies.--The 
     National Telecommunications and Information Administration 
     Organization Act (47 U.S.C. 901 et seq.) is amended--
       (1) in section 113, by adding at the end the following new 
     subsection:
       ``(f) Additional Reallocation Report.--If the Secretary 
     receives a notice from the Commission pursuant to section 
     3301(b)(3) of the Balanced Budget Act of 1997, the Secretary 
     shall prepare and submit to the President, the Commission, 
     and the Congress a report recommending for reallocation for 
     use other than by Federal Government stations under section 
     305 of the 1934 Act (47 U.S.C. 305), bands of frequencies 
     that are suitable for the uses identified in the Commission's 
     notice. The Commission shall, not later than one year after 
     receipt of such report, prepare, submit to the President and 
     the Congress, and implement, a plan for the immediate 
     allocation and assignment of such frequencies under the 1934 
     Act to incumbent licencees described in section 3301(b)(3) of 
     the Balanced Budget Act of 1997.''; and
       (2) in section 114(a)(1), by striking ``(a) or (d)(1)'' and 
     inserting ``(a), (d)(1), or (f)''.
       (d) Identification and Reallocation of Auctionable 
     Frequencies.--The National Telecommunications and Information 
     Administration Organization Act (47 U.S.C. 901 et seq.) is 
     amended--
       (1) in section 113(b)--
       (A) by striking the heading of paragraph (1) and inserting 
     ``Initial reallocation report'';
       (B) by inserting ``in the first report required by 
     subsection (a)'' after ``recommend for reallocation'' in 
     paragraph (1);
       (C) by inserting ``or (3)'' after ``paragraph (1)'' each 
     place it appears in paragraph (2); and
       (D) by inserting after paragraph (2) the following new 
     paragraph:
       ``(3) Second reallocation report.--In accordance with the 
     provisions of this section, the Secretary shall recommend for 
     reallocation in the second report required by subsection (a), 
     for use other than by Federal Government stations under 
     section 305 of the 1934 Act (47 U.S.C. 305), a band or bands 
     of frequencies that--
       ``(A) in the aggregate span not less than 20 megahertz;
       ``(B) individually span not less than 20 megahertz, unless 
     a combination of smaller bands can reasonably be expected to 
     produce greater receipts;
       ``(C) are located below 3 gigahertz; and
       ``(D) meet the criteria specified in paragraphs (1) through 
     (5) of subsection (a).''; and
       (2) in section 115--
       (A) in subsection (b), by striking ``the report required by 
     section 113(a)'' and inserting ``the initial reallocation 
     report required by section 113(a)''; and
       (B) by adding at the end the following new subsection:
       ``(c) Allocation and Assignment of Frequencies Identified 
     in the Second Reallocation Report.--With respect to the 
     frequencies made available for reallocation pursuant to 
     section 113(b)(3), the Commission shall, not later than one 
     year after receipt of the second reallocation report required 
     by such section, prepare, submit to the President and the 
     Congress, and implement, a plan for the immediate allocation 
     and assignment under the 1934 Act of all such frequencies in 
     accordance with section 309(j) of such Act.''.

     SEC. 3302. AUCTION OF RECAPTURED BROADCAST TELEVISION 
                   SPECTRUM.

       Section 309(j) of the Communications Act of 1934 (47 U.S.C. 
     309(j)) is amended by adding at the end the following new 
     paragraph:
       ``(14) Auction of recaptured broadcast television 
     spectrum.--
       ``(A) Limitations on terms of terrestrial television 
     broadcast licenses.--A television license that authorizes 
     analog television services may not be renewed to authorize 
     such service for a period that extends beyond December 31, 
     2006. The Commission shall have the authority to grant by 
     regulation an extension of such date to licensees in a market 
     if the Commission determines that more than 5 percent of 
     households in such market continue to rely exclusively on 
     over-the-air terrestrial analog television signals.
       ``(B) Spectrum reversion and resale.--
       ``(i) The Commission shall ensure that, when the authority 
     to broadcast analog television services under a license 
     expires pursuant to subparagraph (A), each licensee shall 
     return spectrum according to the Commission's direction and 
     the Commission shall reclaim such spectrum.
       ``(ii) Licensees for new services occupying spectrum 
     reclaimed pursuant to clause (i) shall be selected in 
     accordance with this subsection. The Commission shall 
     complete the assignment of such licenses, and report to the 
     Congress the total revenues from such competitive bidding, by 
     September 30, 2002.
       ``(C) Certain limitations on qualified bidders 
     prohibited.--In prescribing any regulations relating to the 
     qualification of bidders for spectrum reclaimed pursuant to 
     subparagraph (B)(i), the Commission shall not--
       ``(i) preclude any party from being a qualified bidder for 
     spectrum that is allocated for any use that includes digital 
     television service on the basis of--

       ``(I) the Commission's duopoly rule (47 C.F.R. 73.3555(b)); 
     or
       ``(II) the Commission's newspaper cross-ownership rule (47 
     C.F.R. 73.3555(d)); or

       ``(ii) apply either such rule to preclude such a party that 
     is a successful bidder in a competitive bidding for such 
     spectrum from using such spectrum for digital television 
     service.
       ``(D) Definitions.--As used in this paragraph:
       ``(i) The term `digital television service' means 
     television service provided using digital technology to 
     enhance audio quality and video resolution, as further 
     defined in the Memorandum Opinion, Report, and Order of the 
     Commission entitled `Advanced Television Systems and Their 
     Impact Upon the Existing Television Service', MM Docket No. 
     87-268 and any subsequent Commission proceedings dealing with 
     digital television.
       ``(ii) The term `analog television service' means service 
     provided pursuant to the transmission standards prescribed by 
     the Commission in section 73.682(a) of its regulation (47 CFR 
     73.682(a)).''.

     SEC. 3303. ALLOCATION AND ASSIGNMENT OF NEW PUBLIC SAFETY AND 
                   COMMERCIAL LICENSES.

       (a) In General.--The Federal Communications Commission 
     shall, not later than January 1, 1998, allocate on a 
     national, regional, or market basis, from radio spectrum 
     between 746 megahertz and 806 megahertz--
       (1) 24 megahertz of that spectrum for public safety 
     services according to the terms and conditions established by 
     the Commission, unless the Commission determines that the 
     needs for public safety services can be met in particular 
     areas with allocations of less than 24 megahertz; and
       (2) the remainder of that spectrum for commercial purposes 
     to be assigned by competitive bidding in accordance with 
     section 309(j).
       (b) Assignment.--The Commission shall--
       (1) assign the licenses for public safety created pursuant 
     to subsection (a) no later than March 31, 1998;
       (2) commence competitive bidding for the commercial 
     licenses created pursuant to subsection (a) after January 1, 
     2001; and
       (3) complete competitive bidding for such commercial 
     licenses, and report to the Congress the total revenues from 
     such competitive bidding, by September 30, 2002.
       (c) Licensing of Unused Frequencies for Public Safety Radio 
     Services.--

[[Page H4366]]

       (1) Use of unused channels for public safety.--It shall be 
     the policy of the Commission, notwithstanding any other 
     provision of this Act or any other law, to waive whatever 
     licensee eligibility and other requirements (including 
     bidding requirements) are applicable in order to permit the 
     use of unassigned frequencies for public safety purposes by a 
     State or local governmental agency upon a showing that--
       (A) no other existing satisfactory public safety channel is 
     immediately available to satisfy the requested use;
       (B) the proposed use is technically feasible without 
     causing harmful interference to existing stations in the 
     frequency band entitled to protection from such interference 
     under the rules of the Commission; and
       (C) use of the channel for public safety purposes is 
     consistent with other existing public safety channel 
     allocations in the geographic area of proposed use.
       (2) Applicability.--Paragraph (1) shall apply to any 
     application that is pending before the Federal Communications 
     Commission, or that is not finally determined under either 
     section 402 or 405 of the Communications Act of 1934 (47 
     U.S.C. 402, 405) on May 15, 1997, or that is filed after such 
     date.
       (d) Conditions on Licenses.--With respect to public safety 
     and commercial licenses granted pursuant to this subsection, 
     the Commission shall--
       (1) establish interference limits at the boundaries of the 
     spectrum block and service area;
       (2) establish any additional technical restrictions 
     necessary to protect full-service analog television service 
     and digital television service during a transition to digital 
     television service; and
       (3) permit public safety and commercial licensees--
       (A) to aggregate multiple licenses to create larger 
     spectrum blocks and service areas; and
       (B) to disaggregate or partition licenses to create smaller 
     spectrum blocks or service areas.
       (e) Protection of Qualifying Low-Power Stations.--After 
     making any allocation or assignment under this section the 
     Commission shall seek to assure that each qualifying low-
     power television station is assigned a frequency below 746 
     megahertz to permit the continued operation of such station.
       (f) Definitions.--For purposes of this section:
       (1) Commission.--The term ``Commission'' means the Federal 
     Communications Commission.
       (2) Digital television service.--The term ``digital 
     television service'' means television service provided using 
     digital technology to enhance audio quality and video 
     resolution, as further defined in the Memorandum Opinion, 
     Report, and Order of the Commission entitled `Advanced 
     Television Systems and Their Impact Upon the Existing 
     Television Service', MM Docket No. 87-268 and any subsequent 
     Commission proceedings dealing with digital television.
       (3) Analog television service.--The term ``analog 
     television service'' means services provided pursuant to the 
     transmission standards prescribed by the Commission in 
     section 73.682(a) of its regulation (47 CFR 73.682(a)).
       (4) Public safety services.--The term ``public safety 
     services'' means services--
       (A) the sole or principal purpose of which is to protect 
     the safety of life, health, or property;
       (B) that are provided--
       (i) by State or local government entities; or
       (ii) by nongovernmental, private organizations that are 
     authorized by a governmental entity whose primary mission is 
     the provision of such services; and
       (C) that are not made commercially available to the public 
     by the provider.
       (5) Service area.--The term ``service area'' means the 
     geographic area over which a licensee may provide service and 
     is protected from interference.
       (6) Spectrum block.--The term ``spectrum block'' means the 
     range of frequencies over which the apparatus licensed by the 
     Commission is authorized to transmit signals.
       (7) Qualifying low-power television stations.--A station is 
     a qualifying low-power television station if, during the 90 
     days preceding the date of enactment of this Act--
       (A) such station broadcast a minimum of 18 hours per day;
       (B) such station broadcast an average of at least 3 hours 
     per week of programming that was produced within the 
     community of license of such station; and
       (C) such station was in compliance with the requirements 
     applicable to low-power television stations.

     SEC. 3304. ADMINISTRATIVE PROCEDURES FOR SPECTRUM AUCTIONS.

       (a) Expedited Procedures.--The rules governing competitive 
     bidding under this subtitle shall be effective immediately 
     upon publication in the Federal Register notwithstanding 
     section 553(d), 801(a)(3), and 806(a) of title 5, United 
     States Code. Chapter 6 of such title, and sections 3507 and 
     3512 of title 44, United States Code, shall not apply to such 
     rules and competitive bidding procedures governing 
     frequencies assigned under this subtitle. Notwithstanding 
     section 309(b) of the Communications Act of 1934 (47 U.S.C. 
     309(b)), no application for an instrument of authorization 
     for such frequencies shall be granted by the Commission 
     earlier than 7 days following issuance of public notice by 
     the Commission of the acceptance for filing of such 
     application or of any substantial amendment thereto. 
     Notwithstanding section 309(d)(1) of such Act (47 U.S.C. 
     309(d)(1)), the Commission may specify a period (no less than 
     5 days following issuance of such public notice) for the 
     filing of petitions to deny any application for an instrument 
     of authorization for such frequencies.
       (b) Deadline for Collection.--The Commission shall conduct 
     the competitive bidding under this subtitle in a manner that 
     ensures that all proceeds of the bidding are deposited in 
     accordance with section 309(j)(8) of the Communications Act 
     of 1934 not later September 30, 2002.

     SEC. 3305. UNIVERSAL SERVICE FUND PAYMENT SCHEDULE.

       (a) Acceleration of Payments.--There shall be available in 
     fiscal year 2001 from funds in the Treasury not otherwise 
     appropriated $2,000,000,000 to the universal service fund 
     under part 54 of the Federal Communications Commission's 
     regulations (47 C.F.R. Part 54) in addition to any other 
     revenues required to be collected under such part.
       (b) Limitation on Expenditures.--The outlays of the 
     universal service fund under part 54 of the Federal 
     Communications Commission's regulations (47 C.F.R. Part 54) 
     in fiscal year 2002 shall not exceed the amount of revenue 
     required to be collected in such fiscal year, less 
     $2,000,000,000.

     SEC. 3306. INQUIRY REQUIRED.

       The Federal Communications Commission shall, not later than 
     July 1, 1997, initiate the inquiry required by section 
     309(j)(12) of the Communications Act of 1934 (47 U.S.C. 
     309(j)(12)) for the purposes of collecting the information 
     required for its report under each of subparagraphs (A) 
     through (E) of such section, and shall keep the Congress 
     fully and currently informed with respect to the progress of 
     such inquiry.

       Amend section 3422 to read as follows (and conform the 
     table of contents of subtitle E of title III accordingly):

     SEC. 3422. PAYMENT OF PART OR ALL OF MEDICARE PART B PREMIUM 
                   FOR CERTAIN LOW-INCOME INDIVIDUALS.

       (a) Eligibility.--Section 1902(a)(10)(E) (42 U.S.C. 
     1396a(a)(10)(E)) is amended--
       (1) by striking ``and'' at the end of clause (ii),
       (2) in clause (iii), by striking ``and 120 percent in 1995 
     and years thereafter'' and inserting ``120 percent in 1995, 
     1996, and 1997, and 135 percent in 1998 and years 
     thereafter''; and
       (3) by inserting after clause (iii) the following:
       ``(iv) subject to section 1905(p)(4), for making medical 
     assistance available for the portion of medicare cost sharing 
     described in section 1905(p)(3)(A)(ii) that is attributable 
     to the application under section 1839(a)(5) of section 
     1833(d)(2) for individuals who would be described in clause 
     (iii) but for the fact that their income exceeds 135 percent, 
     but is less than 175 percent, of the official poverty line 
     (referred to in section 1905(p)(2)) for a family of the size 
     involved; and''.
       (b) 100 Percent Federal Payment.--The third sentence of 
     section 1905(b) (42 U.S.C. 1396d(b)) is amended by inserting 
     ``and with respect to amounts expended for medical assistance 
     described in section 1902(a)(10)(E)(iii) for individuals 
     described in such section whose income is equal to or exceeds 
     120 percent of the official poverty line and with respect to 
     amounts expended for medical assistance described in section 
     1902(a)(10)(E)(iv) for individuals described in such 
     section'' before the period at the end.
       Strike section 3405 (relating to determination of hospital 
     stay), and conform the table of contents of subtitle E of 
     title III accordingly.
       In section 3471(c), strike ``October'' each place it 
     appears and insert ``July''.
       In section 3502, in the section 2101(a) added by such 
     section, amend paragraphs (3) and (4) to read as follows:
       ``(3) Direct purchase of services for targeted low-income 
     children from providers, such as Federally qualified health 
     centers and rural health clinics.
       ``(4) Other methods specified under the plan for the 
     provision of health insurance coverage or medical assistance 
     for targeted low-income children.
       In section 3502, amend the section 2103(a) (added by such 
     section) to read as follows:
       ``(a) Total Allotment.--The total allotment that is 
     available under this title for--
       ``(1) fiscal year 1998 is $2,830,000,000,
       ``(2) fiscal year 1999 is $2,830,000,000,
       ``(3) fiscal year 2000 is $2,830,000,000,
       ``(4) fiscal year 2001 is $2,830,000,000,
       ``(5) fiscal year 2002 is $2,830,000,000, and
       ``(6) fiscal year 2003 and each succeeding fiscal year is 
     $2,850,000,000.
       In section 3502, in the section 2108(c)(4) added by such 
     section, strike ``200 percent'' and insert ``300 percent''.
       Add at the end of subtitle F of title III the following new 
     section (and conform the table of contents of such subtitle 
     accordingly):

     SEC. 3505. STATE OPTION OF CONTINUATION OF MEDICAID 
                   ELIGIBILITY FOR DISABLED CHILDREN WHO LOSE SSI 
                   BENEFITS.

       Section 1902(a)(10)(A)(ii) (42 U.S.C. 1396a(a)(10)(A)(ii)) 
     is amended--
       (1) by striking ``or'' at the end of subclause (XI),
       (2) by striking ``or'' at the end of subclause (XII), and
       (3) by adding at the end the following:

       ``(XIII) with respect to whom supplemental security income 
     benefits were being paid

[[Page H4367]]

     under title XVI as of the date of the enactment of section 
     211(a) of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996 (P.L. 104-193)) and would continue 
     to be paid but for the enactment of that section;''.

       In section 4617(a), in the subparagraph (T)(i) inserted by 
     such section, strike ``immediately after, or at'' and insert 
     ``at, or within 48 hours after''.
       Strike the last sentence of section 403(a)(5)(B)(iv) of the 
     Social Security Act, as proposed to be added by section 
     5001(a).
       Strike subparagraph (H) of section 403(a)(5) of the Social 
     Security Act, as proposed to be added by section 5001(a), and 
     insert the following:
       ``(H) Funding.--The amount specified in this subparagraph 
     is $1,500,000,000 for each of fiscal years 1998 and 1999.
       Strike sections 5002 and 5004, redesignate sections 5003 
     and 5005 as sections 5002 and 5003, respectively, and insert 
     after section 5003 (as so redesignated) the following:

     SEC. 5004. RULES GOVERNING EXPENDITURE OF FUNDS FOR WORK 
                   EXPERIENCE AND COMMUNITY SERVICE PROGRAMS.

       (a) In General.--Section 407 of the Social Security Act (42 
     U.S.C. 607) is amended by adding at the end the following:
       ``(j) Rules Governing Expenditure of Funds for Work 
     Experience and Community Service Programs.--
       ``(1) In general.--To the extent that a State to which a 
     grant is made under section 403(a)(5) or any other provision 
     of section 403 uses the grant to establish or operate a work 
     experience or community service program, the State may 
     establish and operate the program in accordance with this 
     subsection.
       ``(2) Purpose.--The purpose of a work experience or 
     community experience program is to provide experience or 
     training for individuals not able to obtain employment in 
     order to assist them to move to regular employment. Such a 
     program shall be designed to improve the employability of 
     participants through actual work experience to enable 
     individuals participating in the program to move promptly 
     into regular public or private employment. Such a program 
     shall not place individuals in private, for-profit entities.
       ``(3) Limitation on projects that may be undertaken.--A 
     work experience or community service program shall be limited 
     to projects which serve a useful public purpose in fields 
     such as health, social service, environmental protection, 
     education, urban and rural development and redevelopment, 
     welfare, recreation, public facilities, public safety, and 
     day care, and other purposes identified by the State.
       ``(4) Maximum hours of participation per month.--A State 
     that elects to establish a work experience or community 
     service program shall operate the program so that each 
     participant participates in the program with the maximum 
     number of hours that any such individual may be required to 
     participate in any month being a number equal to--
       ``(A)(i) the amount of assistance provided during the month 
     to the family of which the individual is a member under the 
     State program funded under this part; plus
       ``(ii) the dollar value equivalent of any benefits provided 
     during the month to the household of which the individual is 
     a member under the food stamp program under the Food Stamp 
     Act of 1977; minus
       ``(iii) any amount collected by the State as child support 
     with respect to the family that is retained by the State; 
     divided by
       ``(B) the greater of the Federal minimum wage or the 
     applicable State minimum wage.
       ``(5) Maximum hours of participation per week.--A State 
     that elects to establish a work experience or community 
     service program may not require any participant in any such 
     program to participate in any such program for a combined 
     total of more than 40 hours per week.
       ``(6) Rule of interpretation.--This subsection shall not be 
     construed as authorizing the provision of assistance under a 
     State program funded under this part as compensation for work 
     performed, nor shall a participant be entitled to a salary or 
     to any other work or training expense provided under any 
     other provision of law by reason of participation in a work 
     experience or community service program described in this 
     subsection.''.
       (b) Retroactivity.--The amendment made by subsection (a) of 
     this section shall take effect as if included in the 
     enactment of section 103(a) of the Personal Responsibility 
     and Work Opportunity Reconciliation Act of 1996.

     SEC. 5005. STATE OPTION TO TAKE ACCOUNT OF CERTAIN WORK 
                   ACTIVITIES OF RECIPIENTS WITH SUFFICIENT 
                   PARTICIPATION IN WORK EXPERIENCE OR COMMUNITY 
                   SERVICE PROGRAMS.

       (a) In General.--Section 407(c) of the Social Security Act 
     (42 U.S.C. 607(c)) is amended by adding at the end the 
     following:
       ``(3) State option to take account of certain work 
     activities of recipients with sufficient participation in 
     work experience or community service programs.--
     Notwithstanding paragraphs (1) and (2) of this subsection and 
     subsection (d)(8), for purposes of determining monthly 
     participation rates under paragraphs (1)(B)(i) and (2)(B) of 
     subsection (b), an individual who, during a month, has 
     participated in a work experience or community service 
     program operated in accordance with subsection (j), for the 
     maximum number of hours that the individual may be required 
     to participate in such a program during the month shall be 
     treated as engaged in work for the month if, during the 
     month, the individual has participated in any other work 
     activity for a number of hours that is not less than the 
     number of hours required by subsection (c)(1) for the month 
     minus such maximum number of hours.''.
       (b) Retroactivity.--The amendment made by subsection (a) of 
     this section shall take effect as if included in the 
     enactment of section 103(a) of the Personal Responsibility 
     and Work Opportunity Reconciliation Act of 1996.

     SEC. 5006. WORKER PROTECTIONS.

       Section 407(f) of the Social Security Act (42 U.S.C. 
     607(f)) is amended to read as follows:
       ``(f) Worker Protections.--
       ``(1) Nondisplacement in work activities.--
       ``(A) General prohibition.--Subject to this paragraph, an 
     adult in a family receiving assistance under a State program 
     funded under this part attributable to funds provided by the 
     Federal Government may fill a vacant employment position in 
     order to engage in a work activity.
       ``(B) Prohibition against violation of contracts.--A work 
     activity shall not violate an existing contract for services 
     or collective bargaining agreement.
       ``(C) Other prohibitions.--An adult participant in a work 
     activity shall not be employed or assigned--
       ``(i) when any other individual is on layoff from the same 
     or any substantially equivalent job; or
       ``(ii) if the employer has terminated the employment of any 
     regular employee or otherwise caused an involuntary reduction 
     if its workforce with the intention of filling the vacancy so 
     created with the participant.
       ``(2) Health and safety.--Health and safety standards 
     established under Federal and State law otherwise applicable 
     to working conditions of employees shall be equally 
     applicable to working conditions of participants engaged in a 
     work activity.
       ``(3) Nondiscrimination.--In addition to the protections 
     provided under the provisions of law specified in section 
     408(c), an individual may not be discriminated against with 
     respect to participation in work activities by reason of 
     gender.
       ``(4) Grievance procedure.--
       ``(A) In general.--Each State to which a grant is made 
     under section 403 shall establish and maintain a procedure 
     for grievances or complaints from employees alleging 
     violations of paragraph (1) and participants in work 
     activities alleging violations of paragraph (1), (2), or (3).
       ``(B) Hearing.--The procedure shall include an opportunity 
     for a hearing.
       ``(C) Remedies.--The procedure shall include remedies for 
     violation of paragraph (1), (2), or (3), which may include--
       ``(i) prohibition against placement of a participant with 
     an employer that has violated paragraph (1), (2), or (3);
       ``(ii) where applicable, reinstatement of an employee, 
     payment of lost wages and benefits, and reestablishment of 
     other relevant terms, conditions and privileges of 
     employment; and
       ``(iii) where appropriate, other equitable relief.
       ``(5) Nonpreemption of state nondisplacement laws.--The 
     provisions of this subsection relating to nondisplacement of 
     employees shall not be construed to preempt any provision of 
     State law relating to nondisplacement of employees that 
     affords greater protections to employees than is afforded by 
     such provisions of this subsection.''.
       In section 5302(a), strike subsection (c) of section 809 of 
     the new part 8 being inserted thereby.
       In section 8013(a), in the section 1729A of title 38, 
     United States Code, proposed to be added by that section, 
     strike paragraph (1) of subsection (c) and insert the 
     following (and redesignate the succeeding paragraph 
     accordingly):
       ``(c)(1) Subject to the provisions of appropriations Acts, 
     amounts in the fund shall be available, without fiscal year 
     limitation, to the Secretary for the following purposes:
       ``(A) Furnishing medical care and services under this 
     chapter, to be available during any fiscal year for the same 
     purposes and subject to the same limitations (other than with 
     respect to the period of availability for obligation) as 
     apply to amounts appropriated from the general fund of the 
     Treasury for that fiscal year for medical care.
       ``(B) Expenses of the Department for the identification, 
     billing, auditing, and collection of amounts owed the United 
     States by reason of medical care and services furnished under 
     this chapter.
       ``(2) Amounts available under paragraph (1) may not be used 
     for any purpose other than a purpose set forth in 
     subparagraph (A) or (B) of that paragraph.
       In section 403(a)(5)(B)(i) of the Social Security Act, as 
     proposed to be added by section 9001(a), strike ``2000'' and 
     insert ``1999''.
       Strike subparagraphs (H) and (I) of section 403(a)(5) of 
     the Social Security Act, as proposed to be added by section 
     9001(a), and insert the following:
       ``(H) Funding.--The amount specified in this subparagraph 
     is $1,500,000,000 for each of fiscal years 1998 and 1999.
       Redesignate subparagraph (J) of section 403(a)(5) of the 
     Social Security Act, as proposed to be added by section 
     9001(a), as subparagraph (I).
       Strike subparagraph (K) of section 403(a)(5) of the Social 
     Security Act, as proposed to be added by section 9001(a).

[[Page H4368]]

       Strike section 9004, redesignate section 9005 as section 
     9007, and insert after section 9003 the following (and amend 
     the table of contents of title IX accordingly):

     SEC. 9004. RULES GOVERNING EXPENDITURE OF FUNDS FOR WORK 
                   EXPERIENCE AND COMMUNITY SERVICE PROGRAMS.

       (a) In General.--Section 407 of the Social Security Act (42 
     U.S.C. 607) is amended by adding at the end the following:
       ``(j) Rules Governing Expenditure of Funds for Work 
     Experience and Community Service Programs.--
       ``(1) In general.--To the extent that a State to which a 
     grant is made under section 403(a)(5) or any other provision 
     of section 403 uses the grant to establish or operate a work 
     experience or community service program, the State may 
     establish and operate the program in accordance with this 
     subsection.
       ``(2) Purpose.--The purpose of a work experience or 
     community experience program is to provide experience or 
     training for individuals not able to obtain employment in 
     order to assist them to move to regular employment. Such a 
     program shall be designed to improve the employability of 
     participants through actual work experience to enable 
     individuals participating in the program to move promptly 
     into regular public or private employment. Such a program 
     shall not place individuals in private, for-profit entities.
       ``(3) Limitation on projects that may be undertaken.--A 
     work experience or community service program shall be limited 
     to projects which serve a useful public purpose in fields 
     such as health, social service, environmental protection, 
     education, urban and rural development and redevelopment, 
     welfare, recreation, public facilities, public safety, and 
     day care, and other purposes identified by the State.
       ``(4) Maximum hours of participation per month.--A State 
     that elects to establish a work experience or community 
     service program shall operate the program so that each 
     participant participates in the program with the maximum 
     number of hours that any such individual may be required to 
     participate in any month being a number equal to--
       ``(A)(i) the amount of assistance provided during the month 
     to the family of which the individual is a member under the 
     State program funded under this part; plus
       ``(ii) the dollar value equivalent of any benefits provided 
     during the month to the household of which the individual is 
     a member under the food stamp program under the Food Stamp 
     Act of 1977; minus
       ``(iii) any amount collected by the State as child support 
     with respect to the family that is retained by the State; 
     divided by
       ``(B) the greater of the Federal minimum wage or the 
     applicable State minimum wage.
       ``(5) Maximum hours of participation per week.--A State 
     that elects to establish a work experience or community 
     service program may not require any participant in any such 
     program to participate in any such program for a combined 
     total of more than 40 hours per week.
       ``(6) Rule of interpretation.--This subsection shall not be 
     construed as authorizing the provision of assistance under a 
     State program funded under this part as compensation for work 
     performed, nor shall a participant be entitled to a salary or 
     to any other work or training expense provided under any 
     other provision of law by reason of participation in a work 
     experience or community service program described in this 
     subsection.''.
       (b) Retroactivity.--The amendment made by subsection (a) of 
     this section shall take effect as if included in the 
     enactment of section 103(a) of the Personal Responsibility 
     and Work Opportunity Reconciliation Act of 1996.

     SEC. 9005. STATE OPTION TO TAKE ACCOUNT OF CERTAIN WORK 
                   ACTIVITIES OF RECIPIENTS WITH SUFFICIENT 
                   PARTICIPATION IN WORK EXPERIENCE OR COMMUNITY 
                   SERVICE PROGRAMS.

       (a) In General.--Section 407(c) of the Social Security Act 
     (42 U.S.C. 607(c)) is amended by adding at the end the 
     following:
       ``(3) State option to take account of certain work 
     activities of recipients with sufficient participation in 
     work experience or community service programs.--
     Notwithstanding paragraphs (1) and (2) of this subsection and 
     subsection (d)(8), for purposes of determining monthly 
     participation rates under paragraphs (1)(B)(i) and (2)(B) of 
     subsection (b), an individual who, during a month, has 
     participated in a work experience or community service 
     program operated in accordance with subsection (j), for the 
     maximum number of hours that the individual may be required 
     to participate in such a program during the month shall be 
     treated as engaged in work for the month if, during the 
     month, the individual has participated in any other work 
     activity for a number of hours that is not less than the 
     number of hours required by subsection (c)(1) for the month 
     minus such maximum number of hours.''.
       (b) Retroactivity.--The amendment made by subsection (a) of 
     this section shall take effect as if included in the 
     enactment of section 103(a) of the Personal Responsibility 
     and Work Opportunity Reconciliation Act of 1996.

     SEC. 9006. WORKER PROTECTIONS.

       Section 407(f) of the Social Security Act (42 U.S.C. 
     607(f)) is amended to read as follows:
       ``(f) Worker Protections.--
       ``(1) Nondisplacement in work activities.--
       ``(A) General prohibition.--Subject to this paragraph, an 
     adult in a family receiving assistance under a State program 
     funded under this part attributable to funds provided by the 
     Federal Government may fill a vacant employment position in 
     order to engage in a work activity.
       ``(B) Prohibition against violation of contracts.--A work 
     activity shall not violate an existing contract for services 
     or collective bargaining agreement.
       ``(C) Other prohibitions.--An adult participant in a work 
     activity shall not be employed or assigned--
       ``(i) when any other individual is on layoff from the same 
     or any substantially equivalent job; or
       ``(ii) if the employer has terminated the employment of any 
     regular employee or otherwise caused an involuntary reduction 
     if its workforce with the intention of filling the vacancy so 
     created with the participant.
       ``(2) Health and safety.--Health and safety standards 
     established under Federal and State law otherwise applicable 
     to working conditions of employees shall be equally 
     applicable to working conditions of participants engaged in a 
     work activity.
       ``(3) Nondiscrimination.--In addition to the protections 
     provided under the provisions of law specified in section 
     408(c), an individual may not be discriminated against with 
     respect to participation in work activities by reason of 
     gender.
       ``(4) Grievance procedure.--
       ``(A) In general.--Each State to which a grant is made 
     under section 403 shall establish and maintain a procedure 
     for grievances or complaints from employees alleging 
     violations of paragraph (1) and participants in work 
     activities alleging violations of paragraph (1), (2), or (3).
       ``(B) Hearing.--The procedure shall include an opportunity 
     for a hearing.
       ``(C) Remedies.--The procedure shall include remedies for 
     violation of paragraph (1), (2), or (3), which may include--
       ``(i) prohibition against placement of a participant with 
     an employer that has violated paragraph (1), (2), or (3);
       ``(ii) where applicable, reinstatement of an employee, 
     payment of lost wages and benefits, and reestablishment of 
     other relevant terms, conditions and privileges of 
     employment; and
       ``(iii) where appropriate, other equitable relief.
       ``(5) Nonpreemption of state nondisplacement laws.--The 
     provisions of this subsection relating to nondisplacement of 
     employees shall not be construed to preempt any provision of 
     State law relating to nondisplacement of employees that 
     affords greater protections to employees than is afforded by 
     such provisions of this subsection.''.
       In section 10617(a)(2), in the subparagraph (T) inserted by 
     such section--
       (1) strike ``(or under the supervision of a physician)'' 
     and insert ``(or as prescribed by a physician)'', and
       (2) strike ``immediately after, or at'' in clause (i) and 
     insert ``at, or within 48 hours after''.
       At the end, add the following new title:
                      TITLE XI--BUDGET ENFORCEMENT

     SEC. 11001. SHORT TITLE; TABLE OF CONTENTS.

       (a) Short Title.--This Act may be cited as the ``Budget 
     Enforcement Act of 1997''.
       (b) Table of Contents.--

                      TITLE XI--BUDGET ENFORCEMENT

Sec. 11001. Short title; table of contents.

  Subtitle A--Amendments to the Congressional Budget and Impoundment 
                          Control Act of 1974

Sec. 11101. Amendments to section 3.
Sec. 11102. Amendments to section 201.
Sec. 11103. Amendments to section 202.
Sec. 11104. Amendment to section 300.
Sec. 11105. Amendments to section 301.
Sec. 11106. Amendments to section 302.
Sec. 11107. Amendments to section 303.
Sec. 11108. Amendment to section 305.
Sec. 11109. Amendments to section 308.
Sec. 11110. Amendments to section 310.
Sec. 11111. Amendments to section 311.
Sec. 11112. Amendment to section 312.
Sec. 11113. Adjustments and Budget Committee determinations.
Sec. 11114. Effect of self-executing amendments on points of order in 
              the House of Representatives.
Sec. 11115. Amendment of section 401 and repeal of section 402.
Sec. 11116. Repeal of title VI.
Sec. 11117. Amendments to section 904.
Sec. 11118. Repeal of sections 905 and 906.
Sec. 11119. Amendments to sections 1022 and 1024.
Sec. 11120. Amendment to section 1026.

  Subtitle B--Amendments to the Balanced Budget and Emergency Deficit 
                          Control Act of 1985

Sec. 11201. Purpose.
Sec. 11202. General statement and definitions.
Sec. 11203. Enforcing discretionary spending limits.
Sec. 11204. Violent crime reduction trust fund.
Sec. 11205. Enforcing pay-as-you-go.
Sec. 11206. Reports and orders.
Sec. 11207. Exempt programs and activities.
Sec. 11208. General and special sequestration rules.
Sec. 11209. The baseline.
Sec. 11210. Technical correction.
Sec. 11211. Judicial review.
Sec. 11212. Effective date.
Sec. 11213. Reduction of preexisting balances and exclusion of effects 
              of this Act from paygo scorecard.

[[Page H4369]]

  Subtitle A--Amendments to the Congressional Budget and Impoundment 
                          Control Act of 1974

     SEC. 11101. AMENDMENTS TO SECTION 3.

       Section 3 of the Congressional Budget and Impoundment 
     Control Act of 1974 (2 U.S.C. 622) is amended--
       (1) in paragraph (2)(A), by striking ``and'' at the end of 
     clause (iii), by striking the period and inserting ``; and'' 
     at the end of clause (iv), and by adding at the end the 
     following:
       ``(v) entitlement authority and the food stamp program.''; 
     and
       (2) in paragraph (9), by inserting ``, but such term does 
     not include salary or basic pay funded through an 
     appropriation Act'' before the period.

     SEC. 11102. AMENDMENTS TO SECTION 201.

       (a) Term of Office.--The first sentence of section 
     201(a)(3) of the Congressional Budget Act of 1974 is amended 
     to read as follows: ``The term of office of the Director 
     shall be four years and shall expire on January 3 of the year 
     preceding a Presidential election.''.
       (b) Redesignation of Executed Provision.--Section 201 of 
     the Congressional Budget Act of 1974 is amended by 
     redesignating subsection (g) (relating to revenue estimates) 
     as subsection (f).

     SEC. 11103. AMENDMENTS TO SECTION 202.

       (a) Assistance to Budget Committees.--The first sentence of 
     section 202(a) of the Congressional Budget Act of 1974 is 
     amended by inserting ``primary'' before ``duty''.
       (b) Elimination of Executed Provision.--Section 202 of the 
     Congressional Budget Act of 1974 is amended by striking 
     subsection (e) and by redesignating subsections (f), (g), and 
     (h) as subsections (e), (f), and (g), respectively.

     SEC. 11104. AMENDMENT TO SECTION 300.

       The item relating to February 25 in the timetable set forth 
     in section 300 of the Congressional Budget Act of 1974 is 
     amended by striking ``February 25'' and inserting ``Within 6 
     weeks after President submits budget''.

     SEC. 11105. AMENDMENTS TO SECTION 301.

       (a) Terms of Budget Resolutions.--Section 301(a) of the 
     Congressional Budget Act of 1974 is amended by striking ``, 
     and planning levels for each of the two ensuing fiscal 
     years,'' and inserting ``and for at least each of the 4 
     ensuing fiscal years''.
       (b) Contents of Budget Resolutions.--Paragraphs (1) and (4) 
     of section 301(a) of the Congressional Budget Act of 1974 are 
     amended by striking ``, budget outlays, direct loan 
     obligations, and primary loan guarantee commitments'' each 
     place it appears and inserting ``and budget outlays''.
       (c) Additional Matters.--Section 301(b) of the 
     Congressional Budget Act of 1974 is amended by amending 
     paragraph (7) to read as follows--
       ``(7) set forth pay-as-you-go procedures in the Senate 
     whereby committee allocations, aggregates, and other levels 
     can be revised for legislation within a committee's 
     jurisdiction if such legislation would not increase the 
     deficit for the first year covered by the resolution and will 
     not increase the deficit for the period of 5 fiscal years 
     covered by the resolution;''.
       (d) Views and Estimates.--The first sentence of section 
     301(d) of the Congressional Budget Act of 1974 is amended by 
     inserting ``or at such time as may be requested by the 
     Committee on the Budget,'' after ``Code,''.
       (e) Hearings and Report.--Section 301(e)(2) of the 
     Congressional Budget Act of 1974 is amended by striking 
     ``total direct loan obligations, total primary loan guarantee 
     commitments,''.
       (f) Social Security Corrections.--Section 301(i) of the 
     Congressional Budget Act of 1974 is amended by--
       (1) inserting ``Social security point of order.--'' after 
     ``(i)''; and
       (2) striking ``as reported to the Senate'' and inserting 
     ``(or amendment, motion, or conference report on such a 
     resolution)''.

     SEC. 11106. AMENDMENTS TO SECTION 302.

       (a) Allocations and Suballocations.--Subsections (a) and 
     (b) of section 302 of the Congressional Budget Act of 1974 
     are amended to read as follows:
       ``(a) Committee Spending Allocations.--
       ``(1) Allocation among committees.--The joint explanatory 
     statement accompanying a conference report on a budget 
     resolution shall include allocations, consistent with the 
     resolution recommended in the conference report, of the 
     appropriate levels (for each fiscal year covered by that 
     resolution and a total for all such years, except in the case 
     of the Committee on Appropriations only for the first such 
     fiscal year) of--
       ``(A) total new budget authority;
       ``(B) total outlays; and
       ``(C) in the Senate, social security outlays;
     among each committee of the House of Representatives or the 
     Senate that has jurisdiction over legislation providing or 
     creating such amounts.
       ``(2) No double counting.--In the House of Representatives, 
     any item allocated to one committee may not be allocated to 
     another such committee.
       ``(3) Further division of amounts.--In the House of 
     Representatives, the amounts allocated to each committee for 
     each fiscal year, other than the Committee on Appropriations, 
     shall be further divided between amounts provided or required 
     by law on the date of filing of that conference report and 
     amounts not so provided or required. The amounts allocated to 
     the Committee on Appropriations for each fiscal year shall be 
     further divided between discretionary and mandatory amounts 
     or programs, as appropriate.
       ``(4) Amounts not allocated.--(A) In the House of 
     Representatives, if a committee receives no allocation of new 
     budget authority or outlays, that committee shall be deemed 
     to have received an allocation equal to zero for new budget 
     authority or outlays.
       ``(B) In the Senate, if a committee receives no allocation 
     of new budget authority, outlays, or social security outlays, 
     that committee shall be deemed to have received an allocation 
     equal to zero for new budget authority, outlays, or social 
     security outlays.
       ``(5) Social security levels in the Senate.--
       ``(A) In general.--For purposes of paragraph (1)(C), social 
     security surpluses equal the excess of social security 
     revenues over social security outlays in a fiscal year or 
     years with such an excess and social security deficits equal 
     the excess of social security outlays over social security 
     revenues in a fiscal year or years with such an excess.
       ``(B) Tax treatment.--For purposes of paragraph (1)(C), no 
     provision of any legislation involving a change in chapter 1 
     of the Internal Revenue Code of 1986 shall be treated as 
     affecting the amount of social security revenues or outlays 
     unless such provision changes the income tax treatment of 
     social security benefits.
       ``(6) Adjusting Allocation of Discretionary Spending in the 
     House of Representatives.--(A) If a concurrent resolution on 
     the budget is not adopted by April 15, the chairman of the 
     Committee on the Budget of the House of Representatives shall 
     submit to the House, as soon as practicable, an allocation 
     under paragraph (1) to the Committee on Appropriations 
     consistent with the discretionary spending limits contained 
     in the most recently agreed to concurrent resolution on the 
     budget for the second fiscal year covered by that resolution.
       ``(B) As soon as practicable after an allocation under 
     paragraph (1) is submitted under this section, the Committee 
     on Appropriations shall make suballocations and promptly 
     report those suballocations to the House of Representatives.
       ``(b) Suballocations by Appropriation Committees.--As soon 
     as practicable after a concurrent resolution on the budget is 
     agreed to, the Committee on Appropriations of each House 
     (after consulting with the Committee on Appropriations of the 
     other House) shall suballocate each amount allocated to it 
     for the budget year under subsection (a) among its 
     subcommittees. Each Committee on Appropriations shall 
     promptly report to its House suballocations made or revised 
     under this paragraph.''.
       (b) Point of Order.--Section 302(c) of the Congressional 
     Budget Act of 1974 is amended to read as follows:
       ``(c) Point of Order.--After the Committee on 
     Appropriations has received an allocation pursuant to 
     subsection (a) for a fiscal year, it shall not be in order in 
     the House of Representatives or the Senate to consider any 
     bill, joint resolution, amendment, motion, or conference 
     report providing new budget authority for that fiscal year 
     within the jurisdiction of that committee, until such 
     committee makes the suballocations required by subsection 
     (b).''.
       (c) Enforcement of Point of Order.--(1) Section 302(f)(1) 
     of the Congressional Budget Act of 1974 is amended by--
       (A) striking ``providing new budget authority for such 
     fiscal year or new entitlement authority effective during 
     such fiscal year'' and inserting ``providing new budget 
     authority for any fiscal year covered by the concurrent 
     resolution'';
       (B) striking ``appropriate allocation made pursuant to 
     subsection (b) for such fiscal year'' and inserting 
     ``appropriate allocation made under subsection (a) or any 
     suballocation made under subsection (b), as applicable, for 
     the fiscal year of the concurrent resolution or for the total 
     of all fiscal years covered by the concurrent resolution''; 
     and
       (C) striking ``of new discretionary budget authority or new 
     entitlement authority to be exceeded'' and inserting ``of new 
     discretionary budget authority to be exceeded''.
       (2) Section 302(f)(2) of the Congressional Budget Act of 
     1974 is amended to read as follows:
       ``(2) Enforcement of committee allocations and 
     suballocations in the Senate.--After a concurrent resolution 
     on the budget is agreed to, it shall not be in order in the 
     Senate to consider any bill, joint resolution, amendment, 
     motion, or conference report that would cause--
       ``(A) in the case of any committee except the Committee on 
     Appropriations, the appropriate allocation of new budget 
     authority or outlays under subsection (a) to be exceeded; or
       ``(B) in the case of the Committee on Appropriations, the 
     appropriate suballocation of new budget authority or outlays 
     under subsection (b) to be exceeded.''.
       (d) Separate Allocations.--Section 302(g) of the 
     Congressional Budget Act of 1974 is amended to read as 
     follows:
       ``(g) Separate Allocations.--The Committees on 
     Appropriations and the Budget shall make separate allocations 
     and suballocations under this section consistent with the 
     categories in section 251(c) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985.''

     SEC. 11107. AMENDMENTS TO SECTION 303.

       (a) In General.--Section 303 of the Congressional Budget 
     Act of 1974 is amended to read as follows:

[[Page H4370]]

     ``concurrent resolution on the budget must be adopted before 
legislation providing new budget authority, new spending authority, or 
       changes in revenues or the public debt limit is considered

       ``Sec. 303. (a) In General.--It shall not be in order in 
     either the House of Representatives or the Senate to consider 
     any bill, joint resolution, amendment, motion, or conference 
     report as reported to the House or Senate which provides--
       ``(1) new budget authority for a fiscal year;
       ``(2) an increase or decrease in revenues to become 
     effective during a fiscal year;
       ``(3) an increase or decrease in the public debt limit to 
     become effective during a fiscal year;
       ``(4) in the Senate only, new spending authority (as 
     defined in section 401(c)(2)) for a fiscal year; or
       ``(5) in the Senate only, outlays,
     until the concurrent resolution on the budget for such fiscal 
     year (or, in the Senate, a concurrent resolution on the 
     budget covering such fiscal year) has been agreed to pursuant 
     to section 301.
       ``(b) Exceptions.--(1) In the House of Representatives, 
     subsection (a) does not apply to any bill or resolution--
       ``(A) providing advance discretionary new budget authority 
     which first becomes available in a fiscal year following the 
     fiscal year to which the concurrent resolution applies; or
       ``(B) increasing or decreasing revenues which first become 
     effective in a fiscal year following the fiscal year to which 
     the concurrent resolution applies.

     After May 15 of any calendar year, subsection (a) does not 
     apply in the House of Representatives to any general 
     appropriation bill, or amendment thereto, which provides new 
     budget authority for the fiscal year beginning in such 
     calendar year.
       ``(2) In the Senate, subsection (a) does not apply to any 
     bill or resolution making advance appropriations for the 
     fiscal year to which the concurrent resolution applies and 
     the two succeeding fiscal years.
       (b) Conforming Amendment.--The item relating to section 303 
     in the table of contents set forth in section 1(b) of the 
     Congressional Budget and Impoundment Control Act of 1974 is 
     amended by striking ``new credit authority,''.

     SEC. 11108. AMENDMENT TO SECTION 305.

       Section 305(a)(1) of the Congressional Budget Act of 1974 
     is amended by inserting ``when the House is not in session'' 
     after ``holidays'' each place it appears.

     SEC. 11109. AMENDMENTS TO SECTION 308.

       Section 308 of the Congressional Budget Act of 1974 is 
     amended--
       (1)(A) in the side heading of subsection (a), by striking 
     ``OR NEW CREDIT AUTHORITY,'' and by striking the first comma 
     and inserting ``OR'';
       (B) in paragraphs (1) and (2) of subsection (a), by 
     striking ``or new credit authority,'' each place it appears 
     and by striking the comma before ``new spending authority'' 
     each place it appears and inserting ``or'';
       (2) in subsection (b)(1), by striking ``or new credit 
     authority,'' and by striking the comma before ``new spending 
     authority'' and inserting ``or'';
       (3) in subsection (c), by inserting ``and'' after the 
     semicolon at the end of paragraph (3), by striking ``; and'' 
     at the end of paragraph (4) and inserting a period; and by 
     striking paragraph (5); and
       (4) by inserting ``joint'' before ``resolution'' each place 
     it appears and, in subsection (b)(1), by inserting ``joint'' 
     before ``resolutions''.

     SEC. 11110. AMENDMENTS TO SECTION 310.

       Section 310 of the Congressional Budget Act of 1974 is 
     amended by--
       (1) in subsection (a)(1), by inserting ``and'' after the 
     semicolon at the end of subparagraph (B), by striking 
     ``subparagraphs (C) and (D), and by inserting after 
     subparagraph (B) the following new subparagraph:
       ``(C) direct spending (as defined in section 250(c)(8) of 
     the Balanced Budget and Emergency Deficit Control Act of 
     1985),''; and
       (2) in subsection (c)(1)(A), by inserting ``of the absolute 
     value'' after ``20 percent'' each place it appears.

     SEC. 11111. AMENDMENTS TO SECTION 311.

       Section 311 of the Congressional Budget Act of 1974 is 
     amended to read as follows:


``NEW BUDGET AUTHORITY, NEW SPENDING AUTHORITY, AND REVENUE LEGISLATION 
                   MUST BE WITHIN APPROPRIATE LEVELS

       ``Sec. 311. (a) Enforcement of Budget Aggregates.--
       ``(1) In the house of representatives.--Except as provided 
     by subsection (c), after the Congress has completed action on 
     a concurrent resolution on the budget for a fiscal year, it 
     shall not be in order in the House of Representatives to 
     consider any bill, joint resolution, amendment, motion, or 
     conference report providing new budget authority for such 
     fiscal year or reducing revenues for such fiscal year, if--
       ``(A) the enactment of such bill or resolution as reported;
       ``(B) the adoption and enactment of such amendment; or
       ``(C) the enactment of such bill or resolution in the form 
     recommended in such conference report;

     would cause the appropriate level of total new budget 
     authority or total budget outlays set forth in the most 
     recently agreed to concurrent resolution on the budget for 
     such fiscal year to be exceeded, or would cause revenues to 
     be less than the appropriate level of total revenues set 
     forth in such concurrent resolution such fiscal year or for 
     the total of all fiscal years covered by the concurrent 
     resolution, except in the case that a declaration of war by 
     the Congress is in effect.
       ``(2) In the senate.--After a concurrent resolution on the 
     budget is agreed to, it shall not be in order in the Senate 
     to consider any bill, resolution, amendment, motion, or 
     conference report that--
       ``(A) would cause the appropriate level of total new budget 
     authority or total outlays set forth for the first fiscal 
     year in such resolution to be exceeded; or
       ``(B) would cause revenues to be less than the appropriate 
     level of total revenues set forth for the first fiscal year 
     covered by such resolution or for the period including the 
     first fiscal year plus the following 4 fiscal years in such 
     resolution.
       ``(3) Enforcement of social security levels in the 
     senate.--After a concurrent resolution on the budget is 
     agreed to, it shall not be in order in the Senate to consider 
     any bill, resolution, amendment, motion, or conference report 
     that would cause a decrease in social security surpluses or 
     an increase in social security deficits derived from the 
     levels of social security revenues and social security 
     outlays set forth for the first fiscal year covered by the 
     resolution and for the period including the first fiscal year 
     plus the following 4 fiscal years in such resolution.
       ``(b) Social Security Levels.--
       ``(1) In general.--For the purposes of subsection (a)(3), 
     social security surpluses equal the excess of social security 
     revenues over social security outlays in a fiscal year or 
     years with such an excess and social security deficits equal 
     the excess of social security outlays over social security 
     revenues in a fiscal year or years with such an excess.
       ``(2) Tax treatment.--For the purposes of this section, no 
     provision of any legislation involving a change in chapter 1 
     of the Internal Revenue Code of 1986 shall be treated as 
     affecting the amount of social security revenues or outlays 
     unless such provision changes the income tax treatment of 
     social security benefits.
       ``(c) Exception in the House of Representatives.--
     Subsection (a)(1) shall not apply in the House of 
     Representatives to any bill, resolution, or amendment that 
     provides new budget authority for a fiscal year or to any 
     conference report on any such bill or resolution, if--
       ``(1) the enactment of such bill or resolution as reported;
       ``(2) the adoption and enactment of such amendment; or
       ``(3) the enactment of such bill or resolution in the form 
     recommended in such conference report;
     would not cause the appropriate allocation of new budget 
     authority made pursuant to section 302(a) for such fiscal 
     year, for the committee within whose jurisdiction such bill, 
     resolution, or amendment falls, to be exceeded.''.

     SEC. 11112. AMENDMENT TO SECTION 312.

       (a) In General.--Section 312 of the Congressional Budget 
     Act of 1974 is amended to read as follows:


                           ``points of order

       ``Sec. 312. (a) Budget Committee Determinations.--For 
     purposes of this title and title IV, the levels of new budget 
     authority, budget outlays, spending authority as described in 
     section 401(c)(2), direct spending, new entitlement 
     authority, and revenues for a fiscal year shall be determined 
     on the basis of estimates made by the Committee on the Budget 
     of the House of Representatives or the Senate, as the case 
     may be.
       ``(b) Discretionary Spending Point of Order in the 
     Senate.--
       ``(1) Except as otherwise provided in this subsection, it 
     shall not be in order in the Senate to consider any 
     concurrent resolution on the budget (or amendment, motion, or 
     conference report on such a resolution) that would exceed any 
     of the discretionary spending limits in section 251(c) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985.
       ``(2) This subsection shall not apply if a declaration of 
     war by the Congress is in effect or if a joint resolution 
     pursuant to section 258 of the Balanced Budget and Emergency 
     Deficit Control Act of 1985 has been enacted.
       ``(c) Maximum Deficit Amount Point of Order in the 
     Senate.--It shall not be in order in the Senate to consider 
     any concurrent resolution on the budget for a fiscal year 
     under section 301, or to consider any amendment to that 
     concurrent resolution, or to consider a conference report on 
     that concurrent resolution--
       ``(1) if the level of total budget outlays for the first 
     fiscal year that is set forth in that concurrent resolution 
     or conference report exceeds the recommended level of Federal 
     revenues set forth for that year by an amount that is greater 
     than the maximum deficit amount, if any, specified in the 
     Balanced Budget and Emergency Deficit Control Act of 1985 for 
     such fiscal year; or
       ``(2) if the adoption of such amendment would result in a 
     level of total budget outlays for that fiscal year which 
     exceeds the recommended level of Federal revenues for that 
     fiscal year, by an amount that is greater than the maximum 
     deficit amount, if any, specified in the Balanced Budget and 
     Emergency Deficit Control Act of 1985 for such fiscal year.
       ``(d) Timing of Points of Order in the Senate.--A point of 
     order under this Act may not be raised against a bill, 
     resolution,

[[Page H4371]]

     amendment, motion, or conference report while an amendment or 
     motion, the adoption of which would remedy the violation of 
     this Act, is pending before the Senate.
       ``(e) Points of Order in the Senate Against Amendments 
     Between the Houses.--Each provision of this Act that 
     establishes a point of order against an amendment also 
     establishes a point of order in the Senate against an 
     amendment between the Houses. If a point of order under this 
     Act is raised in the Senate against an amendment between the 
     Houses, and the Presiding Officer sustains the point of 
     order, the effect shall be the same as if the Senate had 
     disagreed to the amendment.
       ``(f) Effect of a Point of Order on a Bill in the Senate.--
     In the Senate, if the Chair sustains a point of order under 
     this Act against a bill, the Chair shall then send the bill 
     to the committee of appropriate jurisdiction for further 
     consideration.''.
       (b) Conforming Amendment.--The item relating to section 312 
     in the table of contents set forth in section 1(b) of the 
     Congressional Budget and Impoundment Control Act of 1974 is 
     amended by striking ``Effect of point'' and inserting 
     ``Point''.

     SEC. 11113. ADJUSTMENTS AND BUDGET COMMITTEE DETERMINATIONS.

       (a) In General.--Title III of the Congressional Budget Act 
     of 1974 is amended by adding at the end the following new 
     section:


                             ``adjustments

       ``Sec. 314. (a) Adjustments.--When--
       ``(1)(A) the Committee on Appropriations reports an 
     appropriation measure for fiscal year 1998, 1999, 2000, 2001, 
     or 2002 that specifies an amount for emergencies pursuant to 
     section 251(b)(2)(A) of the Balanced Budget and Emergency 
     Deficit Control Act of 1985 or for continuing disability 
     reviews pursuant to section 251(b)(2)(C) of that Act;
       ``(B) any other committee reports emergency legislation 
     described in section 252(e) of that Act;
       ``(C) the Committee on Appropriations reports an 
     appropriation measure for fiscal year 1998, 1999, 2000, 2001, 
     or 2002 that includes an appropriation with respect to clause 
     (i) or (ii), the adjustment shall be the amount of budget 
     authority in the measure that is the dollar equivalent, in 
     terms of Special Drawing Rights, of--
       ``(i) increases the United States quota as part of the 
     International Monetary Fund Eleventh General Review of Quotas 
     (United States Quota); or
       ``(ii) increases the maximum amount available to the 
     Secretary of the Treasury pursuant to section 17 of the 
     Bretton Woods Agreement Act, as amended from time to time 
     (New Arrangements to Borrow); or
       ``(D) the Committee on Appropriations reports an 
     appropriation measure for fiscal year 1998, 1999, or 2000 
     that includes an appropriation for arrearages for 
     international organizations, international peacekeeping, and 
     multilateral development banks during that fiscal year, and 
     the sum of the appropriations for the period of fiscal years 
     1998 through 2000 do not exceed $1,884,000,000 in budget 
     authority; or
       ``(2) a conference committee submits a conference report 
     thereon;

     the chairman of the Committee on the Budget of the Senate or 
     House of Representatives shall make the adjustments referred 
     to in subsection (c) to reflect the additional new budget 
     authority for such matter provided in that measure or 
     conference report and the additional outlays flowing in all 
     fiscal years from such amounts for such matter.
       ``(b) Application of Adjustments.--The adjustments and 
     revisions to allocations, aggregates, and limits made by the 
     Chairman of the Committee on the Budget pursuant to 
     subsection (a) for legislation shall only apply while such 
     legislation is under consideration and shall only permanently 
     take effect upon the enactment of that legislation.
       ``(c) Content of Adjustments.--The adjustments referred to 
     in subsection (a) shall consist of adjustments, as 
     appropriate, to--
       ``(1) the discretionary spending limits as set forth in the 
     most recently agreed to concurrent resolution on the budget;
       ``(2) the allocations made pursuant to the most recently 
     adopted concurrent resolution on the budget pursuant to 
     section 302(a); and
       ``(3) the budgetary aggregates as set forth in the most 
     recently adopted concurrent resolution on the budget.
       ``(d) Reporting Revised Suballocations.--Following the 
     adjustments made under subsection (a), the Committees on 
     Appropriations of the Senate and the House of Representatives 
     may report appropriately revised suballocations pursuant to 
     section 302(b) to carry out this subsection.
       ``(e) Definitions.--As used in subsection (a)(1)(A), when 
     referring to continuing disability reviews, the terms 
     `continuing disability reviews', `additional new budget 
     authority', and `additional outlays' shall have the same 
     meanings as provided in section 251(b)(2)(C)(ii) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985.''.
       (b) Conforming Amendments.--(1) Sections 302(g), 311(c), 
     and 313(e) of the Congressional Budget Act of 1974 are 
     repealed.
       (2) The table of contents set forth in section 1(b) of the 
     Congressional Budget and Impoundment Control Act of 1974 is 
     amended by adding after the item relating to section 313 the 
     following new item:

``Sec. 314. Adjustments.''.

     SEC. 11114. EFFECT OF SELF-EXECUTING AMENDMENTS ON POINTS OF 
                   ORDER IN THE HOUSE OF REPRESENTATIVES.

       (a) Effect of Points of Order.--Title III of the 
     Congressional Budget Act of 1974 is amended by adding after 
     section 314 the following new section:


 ``Effect of self-executing amendments on points of order in the house 
                           of representatives

       ``Sec. 315. In the House of Representatives, if a provision 
     of a bill, as reported, violates a section of this title or 
     title IV and a self-executing rule providing for 
     consideration of that bill modifies that provision to 
     eliminate such violation, then such point of order shall not 
     lie against consideration of that bill.''.
       (b) Conforming Amendment.--The table of contents set forth 
     in section 1(b) of the Congressional Budget and Impoundment 
     Control Act of 1974 is amended by adding after the item 
     relating to section 314 the following new item:

``Sec. 315. Effect of self-executing amendments on points of order in 
              the house of representatives.''.

     SEC. 11115. AMENDMENT OF SECTION 401 AND REPEAL OF SECTION 
                   402.

       (a) Section 401.--Subsections (a) and (b) of section 401 of 
     the Congressional Budget Act of 1974 are amended to read as 
     follows:


    ``bills providing new spending authority or new credit authority

       ``Sec. 401. (a) Controls on Legislation Providing Spending 
     Authority or Credit Authority.--It shall not be in order in 
     either the House of Representatives or the Senate to consider 
     any bill, joint resolution, amendment, motion, or conference 
     report, as reported to its House which provides new spending 
     authority described in subsection (c)(2)(A) or (B) or new 
     credit authority, unless that bill, resolution, conference 
     report, or amendment also provides that such new spending 
     authority as described in subsection (c)(2) (A) or (B) or new 
     credit authority is to be effective for any fiscal year only 
     to such extent or in such amounts as are provided in 
     appropriation Acts.
       ``(b) Legislation Providing Entitlement Authority.--It 
     shall not be in order in either the House of Representatives 
     or the Senate to consider any bill, joint resolution, 
     amendment, motion, or conference report, as reported to its 
     House which provides new spending authority described in 
     subsection (c)(2)(C) which is to become effective before the 
     first day of the fiscal year which begins during the calendar 
     year in which such bill or resolution is reported.''.
       (b) Repealer of Section 402.--(1) Section 402 of the 
     Congressional Budget Act of 1974 is repealed.
       (2) Conforming Amendments.--(1) Sections 403 through 407 of 
     the Congressional Budget Act of 1974 are redesignated as 
     sections 402 through 406, respectively.
       (2) The table of contents set forth in section 1(b) of the 
     Congressional Budget and Impoundment Control Act of 1974 is 
     amended by deleting the item relating to section 402 and by 
     redesignating the items relating to sections 403 through 407 
     as the items relating to sections 402 through 406, 
     respectively.

     SEC. 11116. REPEAL OF TITLE VI.

       (a) Repealer.--Title VI of the Congressional Budget Act of 
     1974 is repealed.
       (b) Conforming Amendments.--The items relating to title VI 
     of the table of contents set forth in section 1(b) of the 
     Congressional Budget and Impoundment Control Act of 1974 are 
     repealed.

     SEC. 11117. AMENDMENTS TO SECTION 904.

       (a) Conforming Amendment.--Section 904(a) of the 
     Congressional Budget Act of 1974 is amended by striking 
     ``(except section 905)'' and by striking ``V, and VI (except 
     section 601(a))'' and inserting ``and V''.
       (b) Waivers.--Section 904(c) of the Congressional Budget 
     Act of 1974 is amended to read as follows:
       ``(c) Waivers.--
       ``(1) Sections 305(b)(2), 305(c)(4), 306, 310(d)(2), 313, 
     904(c), and 904(d) of this Act may be waived or suspended in 
     the Senate only by the affirmative vote of three-fifths of 
     the Members, duly chosen and sworn.
       ``(2) Sections 301(i), 302(c), 302(f), 310(g), 311(a), and 
     315 of this Act and sections 258(a)(4)(C), 
     258(A)(b)(3)(C)(I), 258(B)(f)(1), 258B(h)(1), 258(h)(3), 
     258C(a)(5), and 258(C)(b)(1) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 may be waived or 
     suspended in the Senate only by the affirmative vote of 
     three-fifths of the Members, duly chosen and sworn.''.
       (c) Appeals.--Section 904(d) of the Congressional Budget 
     Act of 1974 is amended to read as follows:
       ``(d) Appeals.--
       ``(1) Appeals in the Senate from the decisions of the Chair 
     relating to any provision of title III or IV of section 1017 
     shall, except as otherwise provided therein, be limited to 1 
     hour, to be equally divided between, and controlled by, the 
     mover and the manager of the resolution, concurrent 
     resolution, reconciliation bill, or rescission bill, as the 
     case may be.
       ``(2) An affirmative vote of three-fifths of the Members, 
     duly chosen and sworn, shall be required in the Senate to 
     sustain an appeal of the ruling of the Chair on a point of 
     order raised under sections 305(b)(2), 305(c)(4), 306, 
     310(d)(2), 313, 904(c), and 904(d) of this Act.
       ``(3) An affirmative vote of three-fifths of the Members, 
     duly chosen and sworn, shall be required in the Senate to 
     sustain an appeal of the ruling of the Chair on a point of 
     order raised under sections 301(i), 302(c), 302(f), 310(g), 
     311(a), and 315 of this Act and sections 258(a)(4)(C), 
     258(A)(b)(3)(C)(I),

[[Page H4372]]

     258(B)(f)(1), 258B(h)(1), 258(h)(3), 258C(a)(5), and 
     258(C)(b)(1) of the Balanced Budget and Emergency Deficit 
     Control Act of 1985.''.
       (d) Expiration of Supermajority Voting Requirements.--
     Section 904 of the Congressional Budget Act of 1974 is 
     amended by adding at the end the following:
       ``(e) Expiration of Certain Supermajority Voting 
     Requirements.--Subsections (c)(2) and (d)(3) shall expire on 
     September 30, 2002.''.

     SEC. 11118. REPEAL OF SECTIONS 905 AND 906.

       (a) Repealer.--Sections 905 and 906 of the Congressional 
     Budget and Impoundment Control Act of 1974 are repealed.
       (b) Conforming Amendments.--The table of contents set forth 
     in section 1(b) of the Congressional Budget and Impoundment 
     Control Act of 1974 is amended by striking the items relating 
     to sections 905 and 906.

     SEC. 11119. AMENDMENTS TO SECTIONS 1022 AND 1024.

       (a) Section 1022.--Section 1022(b)(1)(F) of Congressional 
     Budget and Impoundment Control Act of 1974 is amended by 
     striking ``section 601'' and inserting ``section 251(c) the 
     Balanced Budget and Emergency Deficit Control Act of 1985''.
       (b) Section 1024.--Section 1024(a)(1)(B) of Congressional 
     Budget and Impoundment Control Act of 1974 is amended by 
     striking ``section 601(a)(2)'' and inserting ``section 251(c) 
     the Balanced Budget and Emergency Deficit Control Act of 
     1985''.

     SEC. 11120. AMENDMENT TO SECTION 1026.

       Section 1026(7)(A)(iv) of the Congressional Budget and 
     Impoundment Control Act of 1974 is amended by striking 
     ``and'' and inserting ``or''.
  Subtitle B--Amendments to the Balanced Budget and Emergency Deficit 
                          Control Act of 1985

     SEC. 11201. PURPOSE.

       This subtitle extends discretionary spending limits and 
     pay-as-you-go requirements.

     SEC. 11202. GENERAL STATEMENT AND DEFINITIONS.

       (a) General Statement.--Section 250(b) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 (2 U.S.C. 
     900(b)) is amended by striking the first two sentences and 
     inserting the following: ``This part provides for the 
     enforcement of a balanced budget by fiscal year 2002 as 
     called for in House Concurrent Resolution 84 (105th Congress, 
     1st session).''.
       (b) Definitions.--Section 250(c) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended--
       (1) by striking paragraph (4) and inserting the following:
       ``(4) The term `category' means defense, nondefense, and 
     violent crime reduction discretionary appropriations as 
     specified in the joint explanatory statement accompanying a 
     conference report on the Balanced Budget Act of 1997.'';
       (2) by striking paragraph (6) and inserting the following:
       ``(6) The term `budgetary resources' means new budget 
     authority, unobligated balances, direct spending authority, 
     and obligation limitations.'';
       (3) in paragraph (9), by striking ``submission of the 
     fiscal year 1992 budget that are not included with a budget 
     submission'' and inserting ``that budget submission that are 
     not included with it'';
       (4) in paragraph (14), by inserting ``first 4'' before 
     ``fiscal years'' and by striking ``1995'' and inserting 
     ``2006'';
       (5) by striking paragraphs (17) and (20) and by 
     redesignating paragraphs (18), (19), and (21) as paragraphs 
     (17), (18), and (19), respectively;
       (6) in paragraph (17) (as redesignated), by striking 
     ``Omnibus Budgtet Reconciliation Act of 1990'' and inserting 
     ``Balanced Budget Act of 1997'';
       (7) in paragraph (20) (as redesignated), by striking the 
     second sentence; and
       (8) by adding at the end the following new paragraph:
       ``(20) The term `consultation', when applied to the 
     Committee on the Budget of either the House of 
     Representatives or of the Senate, means written communication 
     with that committee that affords that committee an 
     opportunity to comment on the matter that is the subject of 
     the consultation before official action is taken on such 
     matter.''.

     SEC. 11203. ENFORCING DISCRETIONARY SPENDING LIMITS.

       (a) Extension Through Fiscal Year 2002.--Section 251 of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended--
       (1) in the side heading of subsection (a), by striking 
     ``1991-1998'' and inserting ``1997-2002'';
       (2) in subsection (a)(7) by inserting ``(excluding 
     Saturdays, Sundays, or legal holidays)'' after ``5 calendar 
     days'';
       (3) in the first sentence of subsection (b)(1), by striking 
     ``1992, 1993, 1994, 1995, 1996, 1997 or 1998'' and inserting 
     ``1997 or any fiscal year thereafter through 2002'' and by 
     striking ``through 1998'' and inserting ``through 2002'';
       (4) in subsection (b)(1), by striking ``the following:'' 
     and all that follows through ``in concepts and definitions'' 
     the first place it appears and inserting ``the following: the 
     adjustments'' and by striking subparagraphs (B) and (C);
       (5) in subsection (b)(2), by striking ``1991, 1992, 1993, 
     1994, 1995, 1996, 1997, or 1998'' and inserting ``1997 or any 
     fiscal year thereafter through 2002'', by striking ``through 
     1998'' and inserting ``through 2002'', and by striking 
     subparagraphs (A), (B), (C), (E), and (G), and by 
     redesignating subparagraphs (D), (F), and (H) as 
     subparagraphs (A), (B), and (C), respectively;
       (6) in subsection (b)(2)(A) (as redesignated), by striking 
     ``(i)'', by striking clause (ii), and by inserting ``fiscal'' 
     before ``years'';
       (7) in subsection (b)(2)(B) (as redesignated), by striking 
     everything after ``the adjustment in outlays'' and inserting 
     ``for a fiscal year is the amount of the excess but not to 
     exceed 0.5 percent of the adjusted discretionary spending 
     limit on outlays for that fiscal year in fiscal year 1997 or 
     any fiscal year thereafter through 2002; and
       (8) by adding at the end of subsection (b)(2) the following 
     new subparagraphs:
       ``(D) Allowance for IMF.--If an appropriations bill or 
     joint resolution is enacted for fiscal year 1998, 1999, 2000, 
     2001, or 2002 that includes an appropriation with respect to 
     clause (i) or (ii), the adjustment shall be the amount of 
     budget authority in the measure that is the dollar 
     equivalent, in terms of Special Drawing Rights, of--
       ``(i) an increase in the United States quota as part of the 
     International Monetary Fund Eleventh General Review of Quotas 
     (United States Quota); or
       ``(ii) any increase in the maximum amount available to the 
     Secretary of the Treasury pursuant to section 17 of the 
     Bretton Woods Agreement Act, as amended from time to time 
     (New Arrangements to Borrow).
       ``(E) Allowance for international arrearages.--
       ``(i) Adjustments.--If an appropriations bill or joint 
     resolution is enacted for fiscal year 1998, 1999, or 2000 
     that includes an appropriation for arrearages for 
     international organizations, international peacekeeping, and 
     multilateral banks for that fiscal year, the adjustment shall 
     be the amount of budget authority in such measure and the 
     outlays flowing in all fiscal years from such budget 
     authority.
       ``(ii) Limitations.--The total amount of adjustments made 
     pursuant to this subparagraph for the period of fiscla years 
     1998 through 2000 shall not exceed $1,884,000,000 in budget 
     authority.''.
       (b) Shifting of Discretionary Spending Limits into the 
     Balanced Budget and Emergency Deficit Control Act of 1985.--
     Section 251 of the Balanced Budget and Emergency Deficit 
     Control Act of 1985 is amended by adding at the end the 
     following new subsection:
       ``(c) Discretionary Spending Limit.--As used in this part, 
     the term `discretionary spending limit' means--
       ``(1) with respect to fiscal year 1997, for the 
     discretionary category, the current adjusted amount of new 
     budget authority and outlays;
       ``(2) with respect to fiscal year 1998--
       ``(A) for the defense category: $269,000,000,000 in new 
     budget authority and $266,823,000,000 in outlays;
       ``(B) for the nondefense category: $252,357,000,000 in new 
     budget authority and $282,853,000,000 in outlays; and
       ``(C) for the violent crime reduction category: 
     $5,500,000,000 in new budget authority and $3,592,000,000 in 
     outlays;
       ``(3) with respect to fiscal year 1999--
       ``(A) for the defense category: $271,500,000,000 in new 
     budget authority and $266,518,000,000 in outlays; and
       ``(B) for the nondefense category: $261,499,000,000 in new 
     budget authority and $292,803,000,000 in outlays;
       ``(4) with respect to fiscal year 2000, for the 
     discretionary category: $537,193,000,000 in new budget 
     authority and $564,265,000,000 in outlays;
       ``(5) with respect to fiscal year 2001, for the 
     discretionary category: $542,032,000,000 in new budget 
     authority and $564,396,000,000 in outlays; and
       ``(6) with respect to fiscal year 2002, for the 
     discretionary category: $551,074,000,000 in new budget 
     authority and $560,799,000,000 in outlays;

     as adjusted in strict conformance with subsection (b).''.

     SEC. 11204. VIOLENT CRIME REDUCTION TRUST FUND.

       (a) Sequestration Regarding Violent Crime Reduction Trust 
     Fund.--Section 251A of the Balanced Budget and Emergency 
     Deficit Control Act of 1985 is repealed.
       (b) Conforming Amendment.--Section 310002 of Public Law 
     103-322 (42 U.S.C. 14212) is repealed.

     SEC. 11205. ENFORCING PAY-AS-YOU-GO.

       (a) Extension.--Section 252 (2 U.S.C. 902) is amended--
       (1) by striking subsections (a) and (b) and inserting the 
     following:
       ``(a) Purpose.--The purpose of this section is to assure 
     that any legislation enacted prior to September 30, 2002, 
     affecting direct spending or receipts that increases the 
     deficit will trigger an offsetting sequestration.
       ``(b) Sequestration.--
       ``(1) Timing.--Within 15 calendar days after Congress 
     adjourns to end a session and on the same day as a 
     sequestration (if any) under sections 251 and 253, there 
     shall be a sequestration to offset the amount of any net 
     deficit increase in the budget year caused by all direct 
     spending and receipts legislation (after adjusting for any 
     prior sequestration as provided by paragraph (2)) plus any 
     net deficit increase in the prior fiscal year caused by all 
     direct spending and receipts legislation not reflected in the 
     final OMB sequestration report for that year.
       ``(2) Calculation of deficit increase.--OMB shall calculate 
     the amount of deficit increase, if any, in the budget year by 
     adding--

[[Page H4373]]

       ``(A) all applicable estimates of direct spending and 
     receipts legislation transmitted under subsection (d) 
     applicable to the budget year, other than any amounts 
     included in such estimates resulting from--
       ``(i) full funding of, and continuation of, the deposit 
     insurance guarantee commitment in effect on the date of 
     enactment of this section; and
       ``(ii) emergency provisions as designated under subsection 
     (e); and
       ``(B) the estimated amount of savings in direct spending 
     programs applicable to the budget year resulting from the 
     prior year's sequestration under this section or section 253, 
     if any (except for any amounts sequestered as a result of any 
     deficit increase in the fiscal year immediately preceding the 
     prior fiscal year), as published in OMB's final sequestration 
     report for that prior year; and
       ``(C) all applicable estimates of direct spending and 
     receipts legislation transmitted under subsection (d) for the 
     current year that are not reflected in the final OMB 
     sequestration report for that year, other than any amounts 
     included in such estimates resulting from emergency 
     provisions as designated under subsection (e).'';
       (2) by amending subsection (c)(1)(B), by inserting ``and 
     direct'' after ``guaranteed'';
       (3) by amending subsection (d) to read as follows:
       ``(d) Estimates.--
       ``(1) CBO estimates.--As soon as practicable after Congress 
     completes action on any direct spending or receipts 
     legislation, CBO shall provide an estimate of the budgetary 
     effects of that legislation.
       ``(2) OMB estimates.--Not later than 5 calendar days 
     (excluding Saturdays, Sundays, or legal holidays) after the 
     enactment of any direct spending or receipts legislation, OMB 
     shall transmit a report to the House of Representatives and 
     to the Senate containing--
       ``(A) the CBO estimate of the budgetary effects of that 
     legislation;
       ``(B) an OMB estimate of the budgetary effects of that 
     legislation using current economic and technical assumptions; 
     and
       ``(C) an explanation of any difference between the two 
     estimates.
       ``(3) Scope of estimates.--The estimates under this section 
     shall include the amount of change in outlays or receipts, as 
     the case may be, for the current year (if applicable), the 
     budget year, and each outyear.
       ``(4) Scorekeeping Guidelines.--OMB and CBO, after 
     consultation with each other and the Committees on the Budget 
     of the House of Representatives and the Senate, shall--
       ``(A) determine common scorekeeping guidelines; and
       ``(B) in conformance with such guidelines, prepare 
     estimates under this section.''; and
       (4) in subsection (e), by striking ``, for any fiscal year 
     from 1991 through 1998,'' and by striking ``through 1995''.

     SEC. 11206. REPORTS AND ORDERS.

       Section 254 of the Balanced Budget and Emergency Deficit 
     Control Act of 1985 is amended--
       (1) by striking subsection (c) and redesignating 
     subsections (d) through (k) as (c) through (j), respectively;
       (2) in subsection (c)(2) (as redesignated), by striking 
     ``1998'' and inserting ``2002''; and
       (3)(A) in subsection (f)(2)(A) (as redesignated), by 
     striking ``1998'' and inserting ``2002''; and
       (B) in subsection (f)(3) (as redesignated), by striking 
     ``through 1998''.

     SEC. 11207. EXEMPT PROGRAMS AND ACTIVITIES.

       (a) Veterans Programs.--Section 255(b) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     as follows:
       (1) In the item relating to Veterans Insurance and 
     Indemnity, strike ``Indemnity'' and insert ``Indemnities''.
       (2) In the item relating to Veterans' Canteen Service 
     Revolving Fund, strike ``Veterans'''.
       (3) In the item relating to Benefits under chapter 21 of 
     title 38, strike ``(36-0137-0-1-702)'' and insert ``(36-0120-
     0-1-701)''.
       (4) In the item relating to Veterans' compensation, strike 
     ``Veterans' compensation'' and insert ``Compensation''.
       (5) In the item relating to Veterans' pensions, strike 
     ``Veterans' pensions'' and insert ``Pensions''.
       (6) After the last item, insert the following new items:
       ``Benefits under chapter 35 of title 38, United States 
     Code, related to educational assistance for survivors and 
     dependents of certain veterans with service-connected 
     disabilities (36-0137-0-1-702);
       ``Assistance and services under chapter 31 of title 38, 
     United States Code, relating to training and rehabilitation 
     for certain veterans with service-connected disabilities (36-
     0137-0-1-702);
       ``Benefits under subchapters I, II, and III of chapter 37 
     of title 38, United States Code, relating to housing loans 
     for certain veterans and for the spouses and surviving 
     spouses of certain veterans Guaranty and Indemnity Program 
     Account (36-1119-0-1-704);
       ``Loan Guaranty Program Account (36-1025-0-1-704); and
       ``Direct Loan Program Account (36-1024-0-1-704).''.
       (b) Certain Program Bases.--Section 255(f) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     to read as follows:
       ``(f) Optional Exemption of Military Personnel.--
       ``(1) The President may, with respect to any military 
     personnel account, exempt that account from sequestration or 
     provide for a lower uniform percentage reduction than would 
     otherwise apply.
       ``(2) The President may not use the authority provided by 
     paragraph (1) unless he notifies the Congress of the manner 
     in which such authority will be exercised on or before the 
     date specified in section 254(a) for the budget year.''.
       (c) Other Programs and Activities.--(1) Section 
     255(g)(1)(A) of the Balanced Budget Emergency Deficit Control 
     Act of 1985 is amended as follows:
       (A) After the first item, insert the following new item:
       ``Activities financed by voluntary payments to the 
     Government for goods or services to be provided for such 
     payments;''.
       (B) Strike ``Thrift Savings Fund (26-8141-0-7-602);''.
       (C) In the first item relating to the Bureau of Indian 
     Affairs, insert ``Indian land and water claims settlements 
     and'' after the comma.
       (D) In the second item relating to the Bureau of Indian 
     Affairs, strike ``miscellaneous'' and insert 
     ``Miscellaneous'' and strike ``, tribal trust funds''.
       (E) Strike ``Claims, defense (97-0102-0-1-051);''.
       (F) In the item relating to Claims, judgments, and relief 
     acts, strike ``806'' and insert ``808''.
       (G) Strike ``Coinage profit fund (20-5811-0-2-803)''.
       (H) Insert ``Compact of Free Association (14-0415-0-1-
     808);'' after the item relating to the Claims, judgments, and 
     relief acts.
       (I) Insert ``Conservation Reserve Program (12-2319-0-1-
     302);'' after the item relating to the Compensation of the 
     President.
       (J) In the item relating to the Customs Service, strike 
     ``852'' and insert ``806''.
       (K) In the item relating to the Comptroller of the 
     Currency, insert ``, Assessment funds (20-8413-0-8-373)'' 
     before the semicolon.
       (L) Strike ``Director of the Office of Thrift 
     Supervision;''.
       (M) Strike ``Eastern Indian land claims settlement fund 
     (14-2202-0-1-806);''.
       (N) After the item relating to the Exchange stabilization 
     fund, insert the following new items:
       ``Farm Credit Administration, Limitation on Administrative 
     Expenses (78-4131-0-3-351);
       ``Farm Credit System Financial Assistance Corporation, 
     interest payment (20-1850-0-1-908);''.
       (O) Strike ``Federal Deposit Insurance Corporation;''.
       (P) In the first item relating to the Federal Deposit 
     Insurance Corporation, insert ``(51-4064-0-3-373)'' before 
     the semicolon.
       (Q) In the second item relating to the Federal Deposit 
     Insurance Corporation, insert ``(51-4065-0-3-373)'' before 
     the semicolon.
       (R) In the third item relating to the Federal Deposit 
     Insurance Corporation, insert ``(51-4066-0-3-373)'' before 
     the semicolon.
       (S) In the item relating to the Federal Housing Finance 
     Board, insert ``(95-4039-0-3-371)'' before the semicolon.
       (T) In the item relating to the Federal payment to the 
     railroad retirement account, strike ``account'' and insert 
     ``accounts''.
       (U) In the item relating to the health professions graduate 
     student loan insurance fund, insert ``program account'' after 
     ``fund'' and strike ``(Health Education Assistance Loan 
     Program) (75-4305-0-3-553)'' and insert ``(75-0340-0-1-
     552)''.
       (V) In the item relating to Higher education facilities, 
     strike ``and insurance''.
       (W) In the item relating to Internal revenue collections 
     for Puerto Rico, strike ``852'' and insert ``806''.
       (X) Amend the item relating to the Panama Canal Commission 
     to read as follows:
       ``Panama Canal Commission, Panama Canal Revolving Fund (95-
     4061-0-3-403);''.
       (Y) In the item relating to the Medical facilities 
     guarantee and loan fund, strike ``(75-4430-0-3-551)'' and 
     insert ``(75-9931-0-3-550)''.
       (Z) In the first item relating to the National Credit Union 
     Administration, insert ``operating fund (25-4056-0-3-373)'' 
     before the semicolon.
       (AA) In the second item relating to the National Credit 
     Union Administration, strike ``central'' and insert 
     ``Central'' and insert ``(25-4470-0-3-373)'' before the 
     semicolon.
       (BB) In the third item relating to the National Credit 
     Union Administration, strike ``credit'' and insert ``Credit'' 
     and insert ``(25-4468-0-3-373)'' before the semicolon.
       (CC) After the third item relating to the National Credit 
     Union Administration, insert the following new item:
       ``Office of Thrift Supervision (20-4108-0-3-373);''.
       (DD) In the item relating to Payments to health care trust 
     funds, strike ``572'' and insert ``571''.
       (EE) Strike ``Compact of Free Association, economic 
     assistance pursuant to Public Law 99-658 (14-0415-0-1-
     806);''.
       (FF) In the item relating to Payments to social security 
     trust funds, strike ``571'' and insert ``651''.
       (GG) Strike ``Payments to state and local government fiscal 
     assistance trust fund (20-2111-0-1-851);''.
       (HH) In the item relating to Payments to the United States 
     territories, strike ``852'' and insert ``806''.
       (II) Strike ``Resolution Funding Corporation;''.
       (JJ) In the item relating to the Resolution Trust 
     Corporation, insert ``Revolving Fund (22-4055-0-3-373)'' 
     before the semicolon.
       (KK) After the item relating to the Tennessee Valley 
     Authority funds, insert the following new items:
       ``Thrift Savings Fund;

[[Page H4374]]

       ``United States Enrichment Corporation (95-4054-0-3-271);
       ``Vaccine Injury Compensation (75-0320-0-1-551);
       ``Vaccine Injury Compensation Program Trust Fund (20-8175-
     0-7-551);''.
       (2) Section 255(g)(1)(B) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended as follows:
       (A) Strike ``The following budget'' and insert ``The 
     following Federal retirement and disability''.
       (B) In the item relating to Black lung benefits, strike 
     ``lung benefits'' and insert ``Lung Disability Trust Fund''.
       (C) In the item relating to the Court of Federal Claims 
     Court Judges' Retirement Fund, strike ``Court of Federal''.
       (D) In the item relating to Longshoremen's compensation 
     benefits, insert ``Special workers compensation expenses,'' 
     before ``Longshoremen's''.
       (E) In the item relating to Railroad retirement tier II, 
     strike ``retirement tier II'' and insert ``Industry Pension 
     Fund''.
       (3) Section 255(g)(2) of the Balanced Budget and Emergency 
     Deficit Control Act of 1985 is amended as follows:
       (A) Strike the following items:
       ``Agency for International Development, Housing, and other 
     credit guarantee programs (72-4340-0-3-151);
       ``Agricultural credit insurance fund (12-4140-0-1-351);''.
       (B) In the item relating to Check forgery, strike ``Check'' 
     and insert ``United States Treasury check''.
       (C) Strike ``Community development grant loan guarantees 
     (86-0162-0-1-451);''.
       (D) After the item relating to the United States Treasury 
     Check forgery insurance fund, insert the following new item:
       ``Credit liquidating accounts;''.
       (E) Strike the following items:
       ``Credit union share insurance fund (25-4468-0-3-371);
       ``Economic development revolving fund (13-4406-0-3);
       ``Export-Import Bank of the United States, Limitation of 
     program activity (83-4027-0-1-155);
       ``Federal deposit Insurance Corporation (51-8419-0-8-371);
       ``Federal Housing Administration fund (86-4070-0-3-371);
       ``Federal ship financing fund (69-4301-0-3-403);
       ``Federal ship financing fund, fishing vessels (13-4417-0-
     3-376);
       ``Government National Mortgage Association, Guarantees of 
     mortgage-backed securities (86-4238-0-3-371);
       ``Health education loans (75-4307-0-3-553);
       ``Indian loan guarantee and insurance fund (14-4410-0-3-
     452);
       ``Railroad rehabilitation and improvement financing fund 
     (69-4411-0-3-401);
       ``Rural development insurance fund (12-4155-0-3-452);
       ``Rural electric and telephone revolving fund (12-4230-8-3-
     271);
       ``Rural housing insurance fund (12-4141-0-3-371);
       ``Small Business Administration, Business loan and 
     investment fund (73-4154-0-3-376);
       ``Small Business Administration, Lease guarantees revolving 
     fund (73-4157-0-3-376);
       ``Small Business Administration, Pollution control 
     equipment contract guarantee revolving fund (73-4147-0-3-
     376);
       ``Small Business Administration, Surety bond guarantees 
     revolving fund (73-4156-0-3-376);
       ``Department of Veterans Affairs Loan guaranty revolving 
     fund (36-4025-0-3-704);''.
       (d) Low-Income Programs.--Section 255(h) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     as follows:
       (1) Amend the item relating to Child nutrition to read as 
     follows:
       ``State child nutrition programs (with the exception of 
     special milk programs) (12-3539-0-1-605);''.
       (2) Amend the item relating to the Women, infants, and 
     children program to read as follows:
       ``Special supplemental nutrition program for women, 
     infants, and children (WIC) (12-3510-0-1-605).''.
       (e) Identification of Programs.--Section 255(i) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended to read as follows:
       ``(i) Identification of Programs.--For purposes of 
     subsections (b), (g), and (h), each account is identified by 
     the designated budget account identification code number set 
     forth in the Budget of the United States Government 1996-
     Appendix, and an activity within an account is designated by 
     the name of the activity and the identification code number 
     of the account.''.
       (f) Optional Exemption of Military Personnel.--Section 
     255(h) of the Balanced Budget and Emergency Deficit Control 
     Act of 1985 (relating to optional exemption of military 
     personnel) is repealed.

     SEC. 11208. GENERAL AND SPECIAL SEQUESTRATION RULES.

       (a) Section Heading.--(1) The section heading of section 
     256 of the Balanced Budget and Emergency Deficit Control Act 
     of 1985 is amended by striking ``exceptions, limitations, and 
     special rules'' and inserting ``general and special 
     sequestration rules''.
       (2) The item relating to section 256 in the table contents 
     set forth in section 250(a) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended to read as 
     follows:

``Sec. 256. General and special sequestration rules.''.

       (b) Automatic Spending Increases.--Section 256(a) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended by striking paragraph (1) and redesignating 
     paragraphs (2) and (3) as paragraphs (1) and (2), 
     respectively.
       (c) Guaranteed and Direct Student Loan Programs.--Section 
     256(b) of the Balanced Budget and Emergency Deficit Control 
     Act of 1985 is amended to read as follows:
       ``(b) Student Loans.--(1) For all student loans under part 
     B or D of title IV of the Higher Education Act of 1965 made 
     during the period when a sequestration order under section 
     254 is in effect, origination fees under sections 438(c)(2) 
     and 455(c) of that Act shall be increased by a uniform 
     percentage sufficient to produce the dollar savings in 
     student loan programs (as a result of that sequestration 
     order) required by section 252 or 253, as applicable.
       ``(2) For any loan made during the period beginning on the 
     date that an order issued under section 254 takes effect with 
     respect to a fiscal year and ending at the close of such 
     fiscal year, the origination fees which are authorized to be 
     collected pursuant to sections 438(c)(2) and 455(c) of such 
     Act shall be increased by 0.50 percent.''.
       (d) Health Centers.--Section 256(e)(1) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     by striking the dash and all that follows thereafter and 
     inserting ``2 percent.''.
       (e) Federal Pay.--Section 256(g)(1) of the Balanced Budget 
     and Emergency Deficit Control Act of 1985 is amended by 
     inserting ``(including any amount payable under section 5303 
     or 5304 of title 5, United States Code)'' after ``such 
     statutory pay system''.
       (f) Treatment of Federal Administrative Expenses.--Section 
     256(h)(4) of the Balanced Budget and Emergency Deficit 
     Control Act of 1985 is amended by striking subparagraphs (D) 
     and (H), by redesignating subparagraphs (E), (F), (G), and 
     (I), as subparagraphs (D), (E), (F), and (G), respectively, 
     and by adding at the end the following new subparagraph:
       ``(H) Farm Credit Administration.''.
       (g) Commodity Credit Corporation.--Section 256(j)(5) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended to read as follows:
       ``(5) Dairy program.--Notwithstanding other provisions of 
     this subsection, as the sole means of achieving any reduction 
     in outlays under the milk price support program, the 
     Secretary of Agriculture shall provide for a reduction to be 
     made in the price received by producers for all milk produced 
     in the United States and marketed by producers for commercial 
     use. That price reduction (measured in cents per hundred 
     weight of milk marketed) shall occur under section 
     201(d)(2)(A) of the Agricultural Act of 1949 (7 U.S.C. 
     1446(d)(2)(A)), shall begin on the day any sequestration 
     order is issued under section 254, and shall not exceed the 
     aggregate amount of the reduction in outlays under the milk 
     price support program that otherwise would have been achieved 
     by reducing payments for the purchase of milk or the products 
     of milk under this subsection during the applicable fiscal 
     year.''.
       (h) Effects of Sequestration.--Section 256(k) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended as follows:
       (1) In paragraph (1), strike ``other than a trust or 
     special fund account'' and insert ``, except as provided in 
     paragraph (5)'' before the period.
       (2) Strike paragraph (4), redesignate paragraphs (5) and 
     (6) as paragraphs (4) and (5), respectively, and amend 
     paragraph (5) (as redesignated) to read as follows:
       ``(5) Budgetary resources sequestered in revolving, trust, 
     and special fund accounts, and offsetting collections 
     sequestered in appropriation accounts shall not be available 
     for obligation during the fiscal year in which the 
     sequestration occurs, but shall be available in subsequent 
     years to the extent otherwise provided in law.''.

     SEC. 11209. THE BASELINE.

       Section 257 of the Balanced Budget and Emergency Deficit 
     Control Act of 1985 is amended--
       (1) in subsection (b)(2) by amending subparagraph (A) to 
     read as follows:
       ``(A)(i) Except as provided in clause (ii), no program with 
     estimated current year outlays greater than $50,000,000 shall 
     be assumed to expire in the budget year or the outyears.
       ``(ii) Clause (i) shall not apply to a program if 
     legislation establishing or modifying that program contains a 
     provision stating `Section 257(b)(2) of the Balanced Budget 
     and Emergency Deficit Control Act of 1985 shall not apply to 
     the program specified in ____ of this Act.', the blank space 
     being filled in with the appropriate section or sections of 
     that legislation.
       ``(iii) No bill, resolution, amendment, motion, or 
     conference report shall be subject to a point of order under 
     section 306 of the Congressional Budget Act of 1974 solely 
     because it includes the provision specified in clause (ii).
       ``(iv) Upon the expiration of the suspensions contained in 
     section 171 of Public Law 104-193 with regard to a program in 
     such Act with estimated fiscal year outlays greater than 
     $50,000,000, that program shall be assumed to operate under 
     that Act as in effect immediately before reversion to the 
     laws suspended by such Act.''
       (2) by adding the end of subsection (b)(2) the following 
     new subparagraph:
       ``(D) If any law expires before the budget year or any 
     outyear, then any program with

[[Page H4375]]

     estimated current year outlays greater than $50 million which 
     operates under that law shall be assumed to continue to 
     operate under that law as in effect immediately before its 
     expiration.'';
       (3) in the second sentence of subsection (c)(5), by 
     striking ``national product fixed-weight price index'' and 
     inserting ``domestic product chain-type price index''; and
       (4) by striking subsection (e) and inserting the following:
       ``(e) Asset Sales.--Amounts realized from the sale of an 
     asset other than a loan asset shall not be counted against 
     legislation if that sale would result in a financial cost to 
     the Federal Government.''.

     SEC. 11210. TECHNICAL CORRECTION.

       Section 258 of the Balanced Budget and Emergency Deficit 
     Control Act of 1985, entitled ``Modification of Presidential 
     Order'', is repealed.

     SEC. 11211. JUDICIAL REVIEW.

       Section 274 of the Balanced Budget and Emergency Deficit 
     Control Act of 1985 is amended as follows:
       (1) Strike ``252'' or ``252(b)'' each place it occurs and 
     insert ``254''.
       (2) In subsection (d)(1)(A), strike ``257(l) to the extent 
     that'' and insert ``256(a) if'', strike the parenthetical 
     phrase, and at the end insert ``or''.
       (3) In subsection (d)(1)(B), strike ``new budget'' and all 
     that follows through ``spending authority'' and insert 
     ``budgetary resources'' and strike ``or'' after the comma.
       (4) Strike subsection (d)(1)(C).
       (5) Strike subsection (f) and redesignate subsections (g) 
     and (h) as subsections (f) and (g), respectively.
       (6) In subsection (g) (as redesignated), strike ``base 
     levels of total revenues and total budget outlays, as'' and 
     insert ``figures'', and ``251(a)(2)(B) or (c)(2),'' and 
     insert ``254''.

     SEC. 11212. EFFECTIVE DATE.

       (a) Expiration.--Section 275(b) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended--
       (1) by striking ``Part C of this title, section'' and 
     inserting ``Sections 251, 253, 258B, and'';
       (2) by striking ``1995'' and inserting ``2002''; and
       (3) by adding at the end the following new sentence: ``The 
     remaining sections of part C of this title shall expire 
     September 30, 2006.''.
       (b) Expiration.--Section 14002(c)(3) of the Omnibus Budget 
     Reconciliation Act of 1993 (2 U.S.C. 900 note) is repealed.

     SEC. 11213. REDUCTION OF PREEXISTING BALANCES AND EXCLUSION 
                   OF EFFECTS OF THIS ACT FROM PAYGO SCORECARD.

       Upon the enactment of this Act, the Director of the Office 
     of Management and Budget shall--
       (1) reduce any balances of direct spending and receipts 
     legislation for any fiscal year under section 252 of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 to 
     zero; and
       (2) not make any estimates of changes in direct spending 
     outlays and receipts under subsection (d) of such section 252 
     for any fiscal year resulting from the enactment of this Act 
     or the Revenue Reconciliation Act of 1997.
       In the table of contents set forth in section 2, after the 
     item relating to title X, add the following new item:

``Title XI--Budget Enforcement.''.