[Congressional Record Volume 143, Number 92 (Thursday, June 26, 1997)]
[House]
[Pages H4668-H4816]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                      TAXPAYER RELIEF ACT OF 1997

  The SPEAKER pro tempore (Mr. Rogan). Pursuant to House Resolution 174 
and rule XXIII, the Chair declares the House in the Committee of the 
Whole House on the State of the Union for the consideration of the 
bill, H.R. 2014.

                              {time}  1155


                     In the Committee of the Whole

  Accordingly the House resolved itself into the Committee of the Whole 
House on the State of the Union for the consideration of the bill (H.R. 
2014) to provide for reconciliation pursuant to subsections (b)(2) and 
(d) of section 105 of the concurrent resolution on the budget for 
fiscal year 1998, with Mr. Goodlatte in the chair.
  The Clerk read the title of the bill.
  The CHAIRMAN. Pursuant to the rule, the bill is considered as having 
been read the first time.
  Under the rule, the gentleman from Texas [Mr. Archer] and the 
gentleman from New York [Mr. Rangel] each will control 90 minutes.
  The Chair recognizes the gentleman from Texas [Mr. Archer].
  Mr. ARCHER. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, it has been 16 years since the American people have 
received tax relief, 16 years. While taxes have not gone down for such 
a long time, they surely have gone up over and over again. For too many 
years, the Government has failed to listen to those who sent us here. 
For too many years, taxes went up, spending went up, and the size and 
power of Washington Government went up.
  But in the last 2\1/2\ years, since the American people elected a new 
Congress, I am proud to say that the era of big government is over and 
the era of big taxes is over. With the vote that we cast today, we will 
tell the American people that we have heard their message. It is time 
for Washington to tax less, so that the American people can do more.
  This plan provides tax relief for life. It lets people keep more of 
the money that they make so that they can spend it or save it as they 
see fit. This plan will be a helping hand from the childhood years to 
the education years, from the saving years to the retirement years.
  It offers a $500 per child tax credit, including teenagers. It 
provides educational tax relief so parents can send their children to 
college. It creates incentives for people to work hard and save by 
reducing the capital gains tax rate, and by expanding the individual 
retirement accounts. It even provides long overdue relief from the 
death tax.
  This plan is dedicated to America's forgotten middle-income 
taxpayers. Fully 76 percent of the tax relief in this plan goes to 
people with incomes between $20,000 and $75,000 a year.
  When it comes to taxes, my philosophy is simple. We must cut taxes 
because tax money does not belong to the government; it belongs to the 
middle-income workers of America who earned it, who made it and who are 
entitled to spend it in the way that they want to spend it. People in 
Washington, I think, sometimes forget that, but I never will.
  Yesterday a young couple working in Manassas, VA, came to Washington. 
They are middle income. The husband and wife both have to work in order 
to make ends meet. They are the backbone of this country. With two 
children, I told them yesterday and I repeat it today, tax relief is 
dedicated to them. A working mom and dad, they get up every morning, go 
to work, play by the rules and try every day to make ends meet. Because 
they are middle income, they should not lose this credit as they do on 
the suggested Democrat substitute.

                              {time}  1200

  Even with a strong economy they know how tough it can be to get by, 
especially with teenage children. They both have to work so they can 
live the American dream.
  Some Democrats in Washington consider them rich and want to take the 
$500-per-child credit away, but we will not let that happen. Like 
millions of other middle-income Americans they need and deserve tax 
relief, and that is what the vote today is all about.
  Today's vote is about providing tax relief to the people who pay 
taxes. We are not only providing tax relief to the couple I mentioned, 
Debbie and Phil Spindle, we are cutting wasteful Washington spending so 
we can balance the budget for their children, James and Philip, and for 
the grandchildren one day they will have.
  Remember, my colleagues, balancing the budget and providing tax 
relief are not matters of accounting; they are issues involving our 
values, our sense of right and wrong, how to be helpful and how to make 
the government work for a change. In the end what we are doing is 
downsizing the power and the scope of Washington, DC, and upsizing the 
power, responsibilities, and opportunities of the American people.
  So in closing I dedicate this vote to Debbie and Phil Spindle of 
Manassas and to the millions of other middle-income Americans who have 
their taxes raised and want relief. What we do today we do for Debbie 
and Phil and working couples across this country who are trying to make 
ends meet, trying to rear their children, trying to provide an 
education. They are the backbone of America.
  Mr. Chairman, I reserve the balance of my time.
  Mr. RANGEL. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, there is a lot of talk about this being the first tax 
cut in 16 years. We do not hear much about what President is the one 
that is advocating the tax cut. We do not hear much about how the 
economy has improved from a deficit that was inherited toward a 
balanced budget, and our major problem today is that people have a 
different concept of the middle class.
  President Clinton has reached out to my Republican friends and said, 
``Can't we work together?''
  Mr. Chairman, I think the President will speak for himself in saying 
what a terrible disappointment it has been where the White House, the 
policy makers, has been excluded from the Republican bill.
  Bipartisanship means Democrats and Republicans working together with 
the President of the United States, and the President now says that 
this has moved so far away from the issue of fairness that he would not 
be able to sign the Republican bill.
  Even in the State of Texas they have so skewed and increased the 
number of people that will be ineligible for the child credit that half 
of the kids in Texas and over half of the kids in the State of New York 
will be ineligible for the family tax credit.
  It seems to me that fairness is something that should govern, but 
somehow if we can find people who are working every day, paying taxes 
to local and State government, that when it comes to saying give them a 
break, the people on the other side think that people who work in low 
incomes are asking for welfare.
  Mr. Chairman, I think it is arrogant and all Americans ought to be 
indignant, when people do not even consider going on welfare and they 
work every day, they work with their families. We will hear cases like 
this, but we are saying, ``We have to pass over you because we want to 
make tax lighter on the very richest of Americans.''

[[Page H4669]]

  It seemed to me, too, that when my colleagues get a chance to see the 
Democratic substitute, we really believe that we should have strong law 
enforcement but we should concentrate on our school system the same way 
the other side of the aisle concentrates on death penalties and jail 
sentences. What we are talking about is that the Democratic bill 
improves our public educational system, brings in the private sector 
working as partners. We do not just talk about diplomas, we talk about 
jobs, and we are talking about getting America to move forward in this 
next century with productivity, effectiveness and the education to do 
the job we have to do.
  Mr. Chairman, I now would like to hold onto the time that we have for 
the other speakers that are here, and I do hope that people listen and 
see the difference between how we can deal with a tax bill in a 
bipartisan manner in which the President would want and how our 
Republican friends deserted and left him, locked him out of the room 
when these important decisions were made.
  Mr. Chairman, I reserve the balance of my time.
  Mr. ARCHER. Mr. Chairman, I yield 4 minutes to the gentleman from 
Ohio [Mr. Kasich] who has really brought us here, a gentleman who has 
spent so many untold hours working so we can achieve the goal of a 
balanced budget for our children and their children with tax relief.
  Mr. KASICH. Mr. Chairman, I have to take a moment to pay very high 
tribute to the gentleman from Texas [Mr. Archer], and I would like the 
Members of the House to note something that is very significant that 
sometimes goes unnoticed in this debate. Americans all of my lifetime 
argued that lobbyists, the special interest groups, should not be able 
to carve out special benefits for themselves because they had powerful 
lobbyists or fancy lawyers, and in fact for many, many years, the years 
in which we were in the minority, the Tax Code had benefits carved out 
for special interest groups who because of the slickness and because of 
their ability to meet with the right people, to gain access to the 
right people, were able to carve out in the Tax Code loopholes that 
were not fair.
  Now I listened to this from liberals all these years about the need 
to close loopholes, and it took the elevation of the gentleman from 
Texas [Mr. Archer] to become chairman of the Committee on Ways and 
Means so that over the course of the last 2 years we have closed 
loopholes, we have closed loopholes on those powerful special interest 
groups that were able to carve out benefits that should have flowed to 
all hard-working American taxpayers.
  Contained in this tax bill are the closing of loopholes to the rich 
and the powerful, and when we closed those loopholes we were able to, 
instead of giving special benefits to a select group of people, we were 
able to have a more broad-based tax cut program that would do a number 
of things:
  One, a child tax credit. Every family with kids who pay taxes under 
the income level $100,000 are going to get a $500 tax credit. Got two 
kids? Keeps $1,000 in their pockets. We do not want them to give it to 
the Government. We want them to be enhanced, we want them to be made 
more powerful. The child tax credit is all about putting power in the 
pockets of America's families and to reinforce that most precious 
American institution.
  Second, capital gains tax cut. Look, folks, I am the son of a blue 
collar worker. The bottom line on a capital gains tax cut is this: ``If 
you take a risk, if you work hard, if you put what you have on the 
table to build something, you ought to get a reward for it. You ought 
not to be punished for it.'' And there are millions upon millions of 
middle income Americans who will realize benefits under the capital 
gains tax cut, but it is about what is right about America, the idea 
that if someone takes a risk, they ought to get a reward.
  Estate taxes? We want to reduce estate taxes. Why? Mr. Chairman, for 
those men and women who build businesses, who have high blood pressure, 
who have bypasses, who have employed many, many people and help many 
families across this country . For those men and women that made the 
great sacrifice, at the end of the day they should not have to give 55 
percent of everything they earn to the Government. They ought to be 
able to give more to their families. They ought to be able to give more 
to their communities.
  The bottom line is today we are significantly beginning to shift not 
just power and not just influence but our constituents' money away from 
this city, back into their hands.
  Now as we get these tax cuts, as we get more personal power, it is 
not good enough. It is not good enough to bury that money in the 
backyard and just buy a fancy boat. Part of the responsibility as we 
get more of our money back is not just to take care of our family, but 
to help in our own communities, to help heal the communities across 
this country.
  The gentleman from Texas [Mr. Archer] has done a terrific job. He has 
fought the powerful special interests, he has closed loopholes, he has 
provided tax relief to the American people. He has helped people who 
take risks, he has helped people who have built businesses, and he has 
given them a reason to let every boy and girl in this country know that 
in America if someone works hard, if they sacrifice, they can get 
ahead, and if we can couple that with some good old fashioned American 
values, America will shine on.
  Mr. RANGEL. Mr. Chairman, I yield 15 minutes to the gentleman from 
Washington [Mr. McDermott].
  Mr. McDERMOTT. Mr. Chairman, I would like to begin by saying that the 
last speaker talked about the child credit. I think everyone should 
know that 50 percent of the children in Ohio, the State he represents, 
will not get the child credit. That is more than 1.4 million children 
in that State will not get this so-called fair tax credit.
  Mr. Chairman, I want to talk about the fact that Democrats always 
want to reduce taxes but they want to do it fairly, and that is, 
really, I think, we ought to have a little discussion out here about 
this question because fairness is a central issue in taxation in this 
country, in a democracy.
  We started on taxation without representation. That was what the 
whole thing was about. That is how we came into existence. But in this 
debate we have to have honesty.
  I listen to the special orders that go on in this place, and a couple 
of nights ago one of the Members got up and said it is important for 
the American people to understand when they hear things like, ``If 
you're earning $20,000, you're not going to get a tax cut,'' there is a 
very good reason that a family of four earning $20,000 is not going to 
get a tax cut. Listen to this: They do not pay Federal taxes.
  Now since I was 16 years old I have been working. I started at the 
National Tea Store in Illinois, and every week we got a check and 
always got a tax stub with it, and I have always looked at my tax stub. 
And everybody watching and thinking about this should take out their 
tax stub and look at it. On my tax stub it says I pay Federal tax. That 
is withholding tax on the income.
  Then there is something called FICA.
  In my FICA tax, 7 percent of what I pay is Federal taxes. It goes to 
pay for Medicare and Social Security. Anybody who is paying FICA is 
paying taxes. They are paying Federal taxes. The other side here wants 
to say, ``If you don't have to pay income tax on a 1040, you're not 
paying taxes.'' But if someone is a $20,000 worker in this country and 
they are paying 7 percent of their $20,000 on FICA taxes, they are 
paying Federal taxes, and they ought to be able to get the tax breaks 
in this bill.
  There are a number of issues that I think we ought to talk about, 
and, Mr. Chairman, the gentleman from Louisiana [Mr. Jefferson] knows 
about capital gains. Let us talk about the fairness of capital gains in 
this bill that the Republicans have put out here.
  Mr. JEFFERSON. Mr. Chairman, will the gentleman yield?
  Mr. McDERMOTT. I yield to the gentleman from Louisiana.
  Mr. JEFFERSON. Mr. Chairman, I appreciate the gentleman yielding to 
me.
  The question is whether ordinary working families, ordinary working 
people, will benefit from this capital gains tax relief. The answer is 
very few of them will, because to get tax relief they have to own 
capital assets, and very, very few working families own capital assets 
in this country.

[[Page H4670]]

  For instance last year if someone made between zero and $25,000, they 
paid 2.2 percent of all the capital gains taxes paid in the country. If 
they earned between $50,000 and $100,000, they paid 8 percent of all 
the capital gains taxes.
  Mr. McDERMOTT. The gentleman means up to 50 percent.
  Mr. JEFFERSON. Up to $50,000, 10 percent of the capital gains taxes 
were paid, and between $50,000 and $100,000, another 16 percent of 
those persons paid capital gains tax. So between zero and $100,000, 26 
percent of the capital gains taxes were paid, which means that above 
$100,000, 74 percent of all the capital gains taxes were paid in the 
country. Which means, to put it another way, if we give a break in 
capital gains, we are going to give a break that is going to affect, 76 
percent of the capital gains tax is going to affect 4 to 5 percent of 
the taxpayers in this country.

                              {time}  1215

  Put another way, if one makes over $200,000, one paid 60 percent of 
the capital gains taxes last year. That is 1 percent of all of the 
taxpayers in this country; 110,000 taxpayers out of 110 million 
taxpayers in America.
  So a great part of this bill, $8 billion a year, is going to end up 
in benefits for the top 1 percent of the earners in our country, people 
who make over $200,000 and who, on the average, make $650,000 a year. 
So if people are watching this television program now and are expecting 
a capital gains tax cut and are making $30,000 or less, even if one 
makes $50,000, as we just talked about, they can turn the TV off and go 
and do something more meaningful, because there is nothing in this bill 
that is really going to help those people.
  But if one makes over $200,000, they want to stay tuned, because 
there is a whole lot here that is going to get them out of a big bunch 
of trouble. Those people are going to save collectively, as a group, $7 
billion to $8 billion a year out of this bill just on the capital gains 
issue.
  On the estate tax, it does not get any better. Out of the 2.5 million 
people who died last year, only 39,000 paid estate taxes. That is less 
than 2 percent.
  Mr. McDERMOTT. Mr. Chairman, reclaiming my time, is the gentleman 
saying that we are writing this provision on estate taxes for 1.8 
percent of the people?
  Mr. JEFFERSON. Mr. Chairman, if the gentleman will yield, those are 
the only people who are affected by this whole discussion about estate 
taxes.
  Mr. McDERMOTT. Mr. Chairman, I would ask the gentleman, is that fair?
  Mr. JEFFERSON. Mr. Chairman, it is not fair, because it leaves out, 
as the gentleman can see, 98 percent of the taxpayers in one case, and 
in another case leaves out almost 99 percent for any meaningful tax 
relief.
  This is a bill for people who make a lot of money and who have a 
great deal in their estates, and that is about it. It is not a bill 
that is going to help middle-income people or working families.
  Mr. McDERMOTT. Mr. Chairman, once again reclaiming my time, what is 
the level that the gentleman would say that people should stay and 
watch this program and it is going to do some good for them? What kind 
of income level would it really mean?
  Mr. JEFFERSON. Mr. Chairman, if one makes more $200,000 a year, stay 
tuned on capital gains taxes. If one makes more than $100,000, they 
might want to watch part of the program. But $200,000 should really 
stay tuned.
  Mr. McDERMOTT. Mr. Chairman, how much money would the gentleman say 
one would have to have to stay tuned for the estate taxes?
  Mr. JEFFERSON. Mr. Chairman, for the estate taxes, if one's estate 
net is over $600,000 last year, of course one paid estate taxes. This 
is going to raise it about to $700,000 or so on their side; $750,000 I 
think it goes this year.
  So I suppose that if one has net estates of over that amount of 
money, less than 1 percent of the people in the country, then those 
people want to stay tuned also. But for everybody else, if people are 
watching this thing on TV to see what is in it for them on estate taxes 
and capital gains taxes, they might want to turn the TV off and engage 
in something else more meaningful.
  Mr. McDERMOTT. Mr. Chairman, reclaiming my time, I think that goes to 
the whole question of fairness and it really says this whole thing is 
skewed to the people at the top.
  Mr. Chairman, we were talking before about the issue of, let us take 
a family making $23,000, living in Georgia, a police officer. What is 
he going to get out of this tax bill?
  Mrs. THURMAN. Mr. Chairman, will the gentleman yield?
  Mr. McDERMOTT. I yield to the gentlewoman from Florida.
  Mrs. THURMAN. Mr. Chairman, he gets nothing out of this tax bill.
  Mr. McDERMOTT. Nothing? Wait a minute. The gentlewoman is telling me 
a police officer who makes $23,000 is going to get nothing out of this 
tax bill?
  Mrs. THURMAN. Mr. Chairman, he certainly will not get the part that 
has been debated over the last couple of years, and it has been the 
last couple of years where we have begun to talk about this $500 child 
credit or family credit so that we could make sure that every child was 
given the same advantages.
  Under this, it is my understanding, unless somebody can correct me, 
that somebody even under $30,000 would not be eligible or would not 
have the advantage of that $500 tax credit. So if one has two children, 
it is not there.
  In fact, for those who read the article this morning, it actually 
goes through a situation about a police officer who might be being paid 
about $23,078 a year starting off, has two kids, he does get an earned 
income tax credit, and he gets the earned income tax credit not because 
he is staying home, but because he is out there working every day.
  Mr. McDERMOTT. Mr. Chairman, I would reclaim my time and inquire of 
the gentlewoman, we are talking always about working people here?
  Mrs. THURMAN. Mr. Chairman, absolutely. Working, every day getting 
up, or they are not eligible for any of this.
  That is something that goes back to the Reagan years when it started 
and everybody believed that for hard-working people this was important 
that this happened. So now they are going to get up and they are going 
to believe that next April, they have two children and they think, 
guess what? I am actually going to receive possibly $1,000 because I 
have two children. They are going to be sorely displeased with what 
happens in their tax next year.
  Mr. Chairman, the other thing that is interesting to me, it is the 
only place in this bill at all that one is penalized for taking 
advantage of what is available to people in the Tax Code today. Let me 
just say this. If one gets the example of having an IRA, which is also 
in this piece of legislation, which most of us support is a good idea 
to invest and to do those kinds of things.
  Mr. McDERMOTT. Mr. Chairman, does the gentlewoman think the average 
policeman making $23,000 has the money to put into an IRA?
  Mrs. THURMAN. Oh, no, no. Or probably they are trying to buy their 
first house, so they do not have anything to sell. I would love the 
gentleman from Louisiana [Mr. Jefferson] to talk about just what a 
capital gains is, because I think sometimes we get lost in words up 
here. What is a capital gains? Where does that capital gains come from? 
Generally, for these folks, it could have been the sale of a house.
  Well, if one is just starting off and trying to buy a house, one is 
not going to have a capital gains in this. So here we go. We have an 
IRA issue in here that is being proposed, we have a capital gains issue 
in here, and then on top of that, we have an education savings account 
that we can do up to $10,000 a year.
  Now, I do not know very many people at that $23,000 level that will 
have the advantage of any of those, but those folks that can take 
advantage of that part of the tax structure get no penalty at all. I 
mean they continue to get everything, plus the $500 child credit.
  The only people that are getting penalized would be those below 
$30,000 that really would have no access to some of these other areas 
of the tax bill.
  Mr. BECERRA. Mr. Chairman, will the gentleman yield?
  Mr. McDERMOTT. I yield to the gentleman from California.
  Mr. BECERRA. Mr. Chairman, listening to all of this, for those of us 
in a place like Los Angeles, a State as big

[[Page H4671]]

as California is, to know that more than half of the children in 
California will not get a child tax credit through this bill.
  Mr. McDERMOTT. Mr. Chairman, reclaiming my time, the gentleman is 
talking now about families who are working, with children, working 
families?
  Mr. BECERRA. Mr. Chairman, working families.
  Mr. McDERMOTT. Mr. Chairman, half the kids in California do not get 
the tax break.
  Mr. BECERRA. Mr. Chairman, if the gentleman will continue to yield, 
more than half of the kids, from what we have been able to determine, 
in this tax bill, they will not have an opportunity to take advantage 
of this child tax credit, even though they work full time.
  Mr. McDERMOTT. And pay FICA taxes. They are paying Federal taxes.
  Mr. BECERRA. Mr. Chairman, what is more interesting, I have a 
district in Los Angeles where it is mostly working class. The median 
income is somewhere around $25,000.
  Mr. McDERMOTT. Mr. Chairman, I would say to the gentleman, just like 
the policeman in Georgia.
  Mr. BECERRA. Yes, Mr. Chairman, just like the policeman there.
  Mr. Chairman, if the gentleman will yield further, to know that 
70,000 or so families, working families in my district are probably at 
risk of not being able to participate in something that is being touted 
as something for all families with children is unconscionable, but that 
is where we are heading.
  If we could put a name to some of those faces. This individual does 
not live in my district, she happens to live in Missouri. Her name is 
Robin Acree. She earns about $21,000. She is divorced, she has three 
kids, age 14, 17, and 19. Now, it is interesting, under the 1995 bill 
that this Republican House passed, Robin would have qualified for a 
$500 tax credit, child tax credit. Under this year's bill, she does not 
get a cent. Even though she pays somewhere over $2,100 in taxes, income 
taxes, payroll taxes, she will get zero out of this.
  Now, Robin lives in Missouri, she is not in my district in 
California, but she works just as hard, I imagine, as any of the folks 
and the families in my district that are also to be left out. I do not 
understand why under one bill this House was willing to give her a $500 
tax credit, but now this year she gets zero, even though she pays more 
than $2,200 in taxes.
  Mr. McDERMOTT. Mr. Chairman, reclaiming my time, maybe they needed 
the money that would have gone to this lady to give the tax breaks to 
the people who need the estate tax break up at the top.
  Mr. BECERRA. Mr. Chairman, certainly we are going to do away with 
$135 billion worth of money.
  Mr. McDERMOTT. And she does not get a nickel.
  Mr. BECERRA. Not a nickel of it, Mr. Chairman.
  Mr. McDERMOTT. And she is working.
  Mr. BECERRA. Working full time.
  Mr. McDERMOTT. Paying taxes.
  Mr. BECERRA. Paying taxes. Has one child in college.
  Mr. McDERMOTT. Mr. Chairman, how could that be fair?
  Mr. BECERRA. Mr. Chairman, if the gentleman will continue to yield, I 
know it is not fair to Robin. I am fortunate, I got myself a good 
education, I am making a decent salary. She is working just as hard as 
any one of us, and there is no reason why she should not be able to 
take advantage of that.
  Mr. McDERMOTT. Mr. Chairman, reclaiming my time again, if I could 
inquire of the gentleman from Louisiana [Mr. Jefferson], we were 
talking before about the whole issue of what a really smart person 
would do with this tax bill if they wanted to make a lot of money. Tell 
us about how one could play the game with this bill.
  Mr. JEFFERSON. Mr. Chairman, this is what we might call a back-to-
the-future kind of an idea here in this tax bill that takes us back to 
the idea of tax loopholes and tax shelters.
  Now, there are any number of ways this game could be played out, but 
any time one has a marginal tax rate on individual income that is 39 
percent and a capital gains rate that is 20 percent, which is roughly 
20 points in the differential, one is going to have a great incentive 
for people to find and cover ways to avoid paying taxes on salaries and 
to find a way to pay taxes on capital gains. So it is a natural 
incentive and it is made far greater under this bill.
  There are any number of ways that people can take advantage of this. 
Let us just talk about a couple. If one has a high income, then one has 
a higher capability, ordinarily speaking, of borrowing money. And one 
probably has a home that is worth a lot more than somebody that does 
not have a high income. So right now to make a home loan, the interest 
on the home loan is deductible. If one wants to get involved in a big 
capital acquisition like a stock purchase, one could take a home loan 
with deductible interest and buy a big stock purchase with it and take 
advantage of this huge capital gains break we are going to give the 
folks who are dealing in stocks.
  Mr. McDERMOTT. Mr. Chairman, does the gentleman think that a 
policeman in Georgia could take a loan on his house and buy a big stock 
purchase?
  Mr. JEFFERSON. Mr. Chairman, a policeman in Georgia probably has a 
smaller house, probably would take a loan to send his kids to college, 
is not going to be for some big differential like that, plus there is 
not going to be enough money to play that much in the stock market 
with. So it will not be available for that person. At the very top of 
that level, if a person has a big salary from a big company, he can 
take his salary in stocks rather than take it in ordinary income, and 
therefore avoid paying the tax on the stock.
  Mr. McDERMOTT. Mr. Chairman, it is not fair.


                      Announcement by the Chairman

  The CHAIRMAN. The Chair will remind all Members engaging in dialog to 
yield and reclaim time each time that they yield or reclaim time.
  Mr. ARCHER. Mr. Chairman, I yield myself such time as I may consume 
briefly to say that the bottom line of all of the colloquy that we just 
heard is that the Democrats want to take money away from families who 
are middle income with children, who pay taxes, pay income taxes, and 
they want to give it to people who do not pay any income taxes.
  This bill should be a middle-income taxpayer relief bill that was 
promised by the President in 1992 and not be siphoning money away from 
them and giving it to people who pay no income tax.
  Mr. Chairman, I yield 2 minutes to the gentleman from Pennsylvania 
[Mr. English], a respected member of the Committee on Ways and Means.
  Mr. ENGLISH of Pennsylvania. Mr. Chairman, I rise in very strong 
support of the Taxpayer Relief Act, legislation that will provide tax 
relief to people who pay taxes. Under this plan, 76 percent of the tax 
relief goes to people who make less than $75,000 a year, and over $100 
billion of the tax relief out of $135 billion in our bill goes to the 
child tax credit and education tax relief.
  Our tax cut plan makes the Tax Code a little fairer, not only by 
helping families, but also by encouraging economic growth and by 
creating and protecting good paying American jobs.
  One of the ways we do this is by reforming the AMT. Now, the AMT is 
what is called the alternative minimum tax, but it should be called the 
anti-manufacturing tax. The AMT is one of the biggest tax barriers to 
the competitiveness of the American manufacturing sector. It penalizes 
companies that try to invest in jobs and improve their productivity. It 
directly penalizes companies that create the most desirable jobs in 
America by taxing companies when they buy equipment rather than taxing 
them on their profits. The AMT tax penalty directly encourages 
companies to create new jobs offshore. It is a job killer, stunting new 
job creation and imperiling existing good paying jobs right here in 
America.
  The AMT even hurts the environment. It imposes what amounts to a 22 
percent tax penalty on companies that invest in pollution control 
equipment. Because it does all of these things to companies in a down 
cycle, the AMT is really the ``kick-them-when-they-are-down'' tax, 
hitting basic industries and union workers when they are more 
vulnerable.
  If we reform the AMT as proposed in this bill, studies have shown 
that it will increase the GDP growth by 1.6

[[Page H4672]]

percent and increase business investment by 7.9 percent. That will 
allow us to build a high-wage economy for the next century and restore 
the American dream for millions of working families.
  If my colleagues care about these things, I urge you to vote for this 
bill.

                              {time}  1230

  Mr. ARCHER. Mr. Chairman, will the gentleman yield?
  Mr. ENGLISH of Pennsylvania. I yield to the gentleman from Texas.
  Mr. ARCHER. Mr. Chairman, I ask the gentleman, Is it not also true 
that as this negative impact on buying equipment occurs, does it not 
work against antipollution equipment also, and therefore make it more 
difficult to clean up the air and the water?
  Mr. ENGLISH of Pennsylvania. That is exactly my point, Mr. Chairman. 
And this should be a good green vote, to vote for this tax act.
  Mr. RANGEL. I yield myself 5 seconds, Mr. Chairman.
  I would just like to point out that we can get all the statistics we 
want, but if we ask the Governors of the States, under the Republican 
bill almost half of the children will not get the credit that the 
President wants, and that is more than 1.6 million children.
  Mr. Chairman, I reserve the balance of my time.
  Mr. ARCHER. Mr. Chairman, I yield 2 minutes to the gentleman from 
Kentucky [Mr. Bunning], a respected member of the Committee on Ways and 
Means.
  (Mr. BUNNING asked and was given permission to revise and extend his 
remarks.)
  Mr. BUNNING. Mr. Chairman, I rise in strong support of the Taxpayers 
Relief Act.
  It has been 16 years since Americans got real tax relief. Now it is 
time we start letting them keep more of their own money instead of 
being forced to send it to Washington, D.C.
  By giving families a child tax credit, by cutting the death tax that 
ruins small business and family-owned farms, by cutting capital gains 
taxes for families who sell their homes, by making education more 
affordable, we are saying that Washington needs to tax less so 
Americans can spend more.
  Two specific parts of this package that I have been pushing really 
help illustrate this point. The first is the tax cut for withdrawals 
from State-run prepaid education plans. This bill lets families who 
save for their kids' college education to withdraw up to $40,000 tax-
free with these plans. This means that in Kentucky, where the families 
of over 2,600 students are already saving in our plan, it is about to 
become a whole lot easier to educate their children with this plan.
  Another exciting part of this tax package is the reform of the home 
office deduction. Fourteen million men and women, mostly women, are now 
making a living working at home. But because of the snafu in the tax 
law, they cannot deduct the expenses like other businesses.
  At a time when companies are downsizing and workers are striking out 
on their own, this does not make any sense. We should not be penalizing 
these entrepreneurs. We ought to be encouraging them. This bill reforms 
the tax rules to do just that.
  Last, both of these examples highlight the pivotal ideas behind this 
bill. We are getting Government off the backs of the people so they can 
do more on their own.
  Mr. Chairman, it has been 16 years since the average American got 
some tax relief. It is time to do more. I support this bill and urge 
Members to do the same.
  Mr. ARCHER. Mr. Chairman, I yield 2 minutes to the gentleman from 
Michigan [Mr. Camp], another respected member of the Committee on Ways 
and Means.
  Mr. CAMP. Mr. Chairman, I thank the chairman of the committee for 
yielding time to me.
  Mr. Chairman, I rise in strong support of the tax relief bill before 
us today. This bill, the first tax relief in 16 years, represents a 
significant first step in our efforts to allow middle-income taxpayers 
to keep more of what they earn.
  Today the average American pays more in taxes than they do for food, 
clothing, and housing combined. This tax relief bill will help stem 
this tide. This bill provides a $500-per-child tax credit, which will 
help 41 million children. Some people want to stop the tax credit once 
a child reaches 13. Our bill realizes that the cost of raising a child 
does not get any cheaper; in fact, costs rise.
  This bill also eases the death tax, so our Nation's farmers and small 
business owners can pass their legacy on to their children. More than 
60 percent of the family-owned businesses fold before reaching the 
second generation, not because of poor management, but because the 
Government taxes them at up to 50 percent.
  We also make it easier for children to realize the goal of a college 
education by including and improving the President's HOPE scholarship 
proposal. We are hearing a lot about distribution charts that show who 
benefits from tax relief, and by how much.
  In order to cook the numbers, the administration calculates how much 
you could earn if you rented your house and then adds this amount to 
your income. This is how they make you seem richer than you really are. 
In addition, they include your pension fund, your health benefits, and 
your life insurance to your income. The result is that the number of 
families with incomes between $50,000 and $75,000 rises by 25 percent 
under that plan.
  The nonpartisan Joint Committee on Taxation estimates that 76 percent 
of the tax relief in this bill goes to Americans earning under $75,000 
a year. Lost in this debate is a fundamental idea that Washington has 
ignored for 16 years. It is the idea that it is your money. The 
Government is not entitled to it, you are. You earned it. You know how 
best to spend it, and you deserve to keep it.
  Mr. ARCHER. Mr. Chairman, I yield 2 minutes and 15 seconds to the 
gentleman from California [Mr. Herger], another respected member of the 
Committee on Ways and Means.
  Mr. HERGER. Mr. Chairman, this legislation provides tax relief to 
Americans who pay taxes. Under this plan, 76 percent of the tax relief 
goes to Americans who make less than $75,000. American families are 
struggling under the burden of increasing taxes and deserve relief.
  The average American now pays almost 40 percent of their income to 
local, State, and Federal taxes, more than they spend on food, 
clothing, and shelter combined. Our tax plan provides needed relief by 
allowing families to keep more of their money through a $500 per child 
tax credit.
  In my northern California congressional district alone, 89,000 
children will benefit from the child tax credit, and more than 41 
million children will benefit from it nationwide. A family with one 
child will get $500 taken off the top of their tax bill. A family with 
two children will get $1,000 taken off of their tax bill, and so on.
  Mr. Chairman, voting against this tax plan is to look into the faces 
of 41 million children and say, sorry, we are not going to help you. 
Voting against this tax cut is saying no to giving Americans more 
freedom to spend their own money, and voting against this tax cut is 
saying no to helping struggling families that are just trying to get 
by.
  Mr. Chairman, families have not had significant tax relief since 
1981, 16 long years. Is it not about time we give them a break? They 
deserve it. I urge my colleagues to support this measure.
  Mr. ARCHER. Mr. Chairman, will the gentleman yield?
  Mr. HERGER. I yield to the gentleman from Texas.
  Mr. ARCHER. Mr. Chairman, I ask the gentleman if he can point out for 
the Members here from these charts precisely where this tax relief 
goes. The first chart shows that 90 percent of the tax relief over 10 
years goes to families and to education, with $23 billion as a small 
item that goes to the other areas of relief.
  The second chart shows 76 percent of the tax relief goes to people 
with annual earnings under $75,000.
  Mr. HERGER. I thank the chairman.
  Mr. ARCHER. Mr. Chairman, I yield 3 minutes and 50 seconds to the 
respected gentlewoman from Connecticut [Mrs. Johnson], a member of the 
Committee on Ways and Means and the chairman of the Subcommittee on 
Oversight.
  Ms. JOHNSON of Connecticut. Mr. Chairman, I thank the chairman for 
yielding time to me.
  Mr. Chairman, I am proud to rise in strong support of the first tax-
cutting

[[Page H4673]]

bill in 16 years. Today we adopt tax relief for working, tax-paying 
families, and powerful incentives for economic growth and job creation.
  How does the bill help women, children, and fathers? It delivers 
benefits sooner and provides more generous benefits than the Democrats' 
alternative. True, it does not help nontaxpaying working families. That 
is because they were our first priority. That is because a few years 
ago we adopted legislation that wipes out the burden of payroll taxes 
for working families who do not earn enough to pay any income taxes.
  Now we move to relieve the tax burden of families earning enough to 
pay income taxes. We do not wipe out their payroll tax benefit, as we 
have done for families receiving the EITC. We merely offer them a 
modest $500-per-child reduction in their income tax liability in 
recognition of the fact that they are hard-working, tax-paying families 
in America.
  Second, this tax bill increases the maximum deduction for child care 
costs. While for families over $60,000 we gradually reduce half of this 
benefit, that is far less than the Democrats' draconian repeal of the 
$500-per-child tax credit for families over $60,000. Again, the 
Republican bill provides a more generous bill sooner than does the 
alternative.
  Third, this bill helps families save for college, helps kids through 
HOPE scholarships, helps women who want to set up a business in their 
home through the home office deduction, and helps senior women, who are 
the biggest winners, through capital gains benefits.
  Further, Mr. Chairman, there are many important provisions in this 
bill that will help our economy grow more rapidly and create high-
paying jobs.
  Mr. Chairman, the R&D tax credit helps businesses develop new 
products, the kind of products they need to compete in a global 
economy. Capital gains cuts will shift capital to job-creating growth 
industries and particularly help our seniors, who hold 80 percent of 
America's assets. It also makes the orphan drug tax credit permanent, 
which will truly explode the research projects focused on rare 
diseases.
  It helps teachers exercise their current rights to increase their 
pension benefits by buying back service years at a time in their lives 
when they can afford it. Finally, it helps States collect their taxes 
so that can be controlled at the State level as well as the Federal 
level.
  Mr. Speaker, this is a great tax bill, a great step forward. I am 
proud to support it. I call Members' attention to the charts.
  Mr. ARCHER. Mr. Chairman, will the gentlewoman yield?
  Mrs. JOHNSON of Connecticut. I yield to the gentleman from Texas.
  Mr. ARCHER. Mr. Chairman, I ask that the gentlewoman point out on the 
chart the part that supports the comments she has made, that the 
Republican plan gives more money to families with dependent care 
expenses, which is over in the right-hand chart, and that the 
Republican plan gives more money to families with children compared to 
the Democrat plan or to the Clinton plan.
  Mrs. JOHNSON of Connecticut. Mr. Chairman, we are far more generous 
to families. We give them the benefits sooner, give them to more 
families, and we retain it longer.
  I am proud to rise in strong support of the first tax cutting bill in 
16 years. Today we adopt tax relief for working, tax-paying families, 
and powerful incentives for economic growth and job creation.
  How does this bill help women, children, and fathers? It delivers 
benefits sooner and provides more generous benefits than the Democrats' 
alternative. True, it doesn't help nontax-paying working families. 
That's because they were our first priority. We adopted legislation to 
wipe out the burden of payroll taxes for those working families. Now we 
just relieve--modestly--just the income tax burden of those above the 
tax subsidy level who work and pay taxes. Unfortunately, the Democrats 
pay for additional benefits for working people who pay no income or 
payroll taxes by limiting to $300 the credit for tax-paying, working 
families until 2001.
  Second, this tax bill increases the maximum deduction for child care 
costs. And while families over $60,000 will gradually lose half of this 
benefit that is far less than the Democrats' draconian repeal of the 
$500 child credit for all families over $60,000. Again the Republican 
bill provides more generous benefits sooner.
  Third, this bill helps families save for college, helps kids through 
HOPE scholarships, helps women who want to set up a business in their 
home through the home office deduction, and helps senior women who are 
the biggest winners through capital gains reductions.
  Further, Mr. Chairman, there are many important provisions in this 
bill that will help our economy grow more rapidly and create high-
paying jobs. The research and development tax credit is an important 
incentive that encourages U.S. corporations to develop the products 
they need to compete globally. If the United States fails to provide 
some assistance to American companies, many--such as the aerospace, 
electronics, chemical, health technology, and telecommunications 
industries--will find it difficult to compete in an increasingly 
globalized marketplace. With Federal dollars in basic and applied 
research shrinking--and R&D a strong priority of our major foreign 
trade competitors--the extension of the R&D credit is critical. In 
fact, studies show that United States firms spend only about one-third 
as much as their German counterparts, and only two-thirds as much as 
Japan on research and product and development.
  Capital gains reductions will shift capital to job creation, growth 
industries, and particularly help our seniors who hold 80 percent of 
the assets in our country. It is estimated that nearly $8 trillion of 
capital gains are locked in by people unwilling to sell their assets 
and be hit with a punitive tax. It is the sale and reinvestment of 
these very assets which creates the new capital needed to start up, 
modernize, or expand the businesses of the future. Many countries do 
not tax their long-term capital gains, giving foreign companies a 
competitive edge over their American counterparts. And this provision 
is particularly important to America's retirees, most of whom are 
women. Seniors hold 80 percent of our assets and 50 percent of those 
benefiting from capital gains have incomes under $50,000. So this 
capital gains relief will really help the retiree who needs to replace 
a roof and sell some stock to do it. Capital gains, the research and 
development credit, and reform of the alternative minimum tax will put 
Americans' capital where jobs can be created.
  The bill also makes the orphan drug tax credit permanent, which will 
explode the research projects focused on cures for rare diseases. In 
the past, while the year-to-year extension of this widely-supported tax 
credit has helped encourage research on rare diseases, I believe the 
certainty of a permanent extension will cause an explosion in those 
critical projects. When Congress made the low-income-housing tax credit 
permanent several years ago, interest in the program skyrocketed, 
resulting in better quality housing and yielding 25 percent greater 
benefit for our tax dollars. The permanent extension of the orphan drug 
tax credit, in my view, will result in a similar explosion of new drugs 
to treat rare diseases.
  Finally, I would like to mention two lesser-known but important 
provisions that are included in H.R. 2014. One helps teachers exercise 
their current rights to increase their pension benefits by buying back 
service years when they can afford it. For example, a teacher who 
worked for several years in New York but spent most of her career in 
Connecticut would receive a pension based on years of service in 
Connecticut. Under State law, she has the option to purchase the years 
worked in other States, however, her ability to do so is limited by 
annual contribution restrictions. This bill gives greater flexibility 
to teachers and other public employees to be able to buy back years of 
service, thereby raising their pension benefit.
  And finally, this bill helps States collect their taxes so tax 
burdens can be held down on America's hard-working folks at the State 
as well as Federal level. Currently, 32 States already allow the 
Federal Government to participate in their State income tax refund 
offset programs. This provision reciprocates, providing a great benefit 
to States while actually saving the Federal Government a small amount 
of revenue.
  Mr. Speaker, this tax bill takes many important steps forward to 
stimulate economic growth and high-paying jobs and to help working, 
tax-paying families. I urge my colleagues to support it.
  Mr. RANGEL. Mr. Chairman, I yield myself 1 minute.
  The President said he wanted working families, not welfare families, 
to get a tax break for their kids. So no matter how we cut it with 
charts, the bottom line is going to be how many kids are going to be 
denied because certain people thought they did not make enough money.
  Almost half of the children in Connecticut, 44 percent, more than 
430,000 children, will be denied because these working families are not 
entitled to the benefits under the Republican bill; and 56 percent in 
California, that is over 5 million children, will be denied. These are 
working families.

[[Page H4674]]

  Half of the children in Michigan, 1.3 million children of working 
families, will be denied under the Republican plan; and 50 percent in 
the State of Kentucky, children of working families, will be denied the 
benefit that the President thought he had a promise made on when he 
went into a dialog with the Republicans.
  For these reasons the President finds the unfairness, and for these 
reasons, he would veto.
  Mr. Chairman, I yield 15 minutes to the gentleman from Michigan [Mr. 
Bonior], the Democratic whip.

                              {time}  1245

  Mr. BONIOR. Mr. Chairman, I thank my colleague for yielding me this 
time and for the outstanding job that he has done on this piece of 
legislation, the Democratic alternative.
  Let me point out, before I begin my remarks, that the charts that we 
have just seen on this side of the aisle, when they talked about the 
child tax credit, let me just reinforce the comments by the gentleman 
from New York [Mr. Rangel]. The percentage of dependent children 
ineligible for this $500 child tax credit in the State of Texas, 54 
percent; 54 percent of kids from families in the State of Texas do not 
get it. In Connecticut, 44 percent of the children would not be able to 
get it. So when they put up these charts, it is just for a select few. 
It is not for the hardworking, middle-income folks that really need it 
the most.
  America's working families deserve a tax cut. The Democratic tax plan 
gives it to them. Under the Democratic plan, 71 percent of the tax cuts 
go to households earning less than $100,000. Under the Democratic plan, 
the $500 child care credit goes to lower- and middle-income families, 
the teachers, the police officers, the nurses, the people who are 
working harder than ever to achieve the American dream. Under the 
Democratic plan, the HOPE scholarship is fully funded, making it 
possible for people from working families to afford that 13th and 14th 
year of education. The Democratic plan helps America's working 
families.
  The Republican bill we are debating does just the opposite. It 
punishes America's working families and rewards the wealthy and the 
biggest corporations. The New York Times said this bill, the Republican 
bill, showers tax cuts on the Nation's wealthiest families.
  Conservative commentator Kevin Phillips said, this bill is a payback 
to big contributors. Speaker Gingrich admitted this last month, when he 
spoke to hundreds of wealthy contributors at a black tie dinner given 
by the Republican Party. People paid as much as a quarter of a million 
dollars each to go to that dinner. He said, whatever you have given, 
this is the Speaker to these wealthy contributors, whatever you have 
given is a tiny token of what you have saved.
  That is what he is paying them back with today, their bill, what they 
have saved.
  Who is paying for this giveaway to the rich? America's working 
families. Under the Republican tax bill, the working parents of almost 
1.4 million children in Michigan, in my State, will be excluded from 
the child care credit. That is almost half the children in Michigan. 
Under the Republican tax bill, the value of the HOPE scholarships is 
slashed, in direct violation of the budget agreement. The Republicans 
are taking money away from family credit, away from education credit, 
away from working Americans, so that the corporate interests, the 
corporate titans can avoid paying taxes at all.
  According to the Treasury Department, the Republican tax bill gives 
more benefits to the richest 1 percent, listen to this figure, the 
richest 1 percent of Americans, than to the bottom 60 percent combined. 
Today's Wall Street Journal described the Republican plan as, and I 
quote, a bonanza for the affluent, crumbs for the working class.
  If the Republicans were not writing this lopsided tax bill into law, 
we would call it robbery. This tax bill rolls back the corporate 
minimum tax which says to big corporations, you have got to pay 
something like the rest of us. We had in the 1980's corporations like 
Texaco and Boeing and AT&T that were not paying any Federal income 
taxes. The corporations in the early 1960's would pick up about 25 
percent of the tax load in this country. That has decreased because 
these large corporations paid no income taxes to the point that they 
were down to about 7 percent of the load in the mid-1980's. Everybody 
was embarrassed so we passed a corporate minimum tax where they were 
required to pay something. Now under this bill, the Republicans want to 
give them a $22 billion tax break to get that percentage back down to 
the low disgraceful numbers.
  Mr. RANGEL. Mr. Chairman, will the gentleman yield?
  Mr. BONIOR. I yield to the gentleman from New York.
  Mr. RANGEL. Mr. Chairman, the gentleman is saying that successful 
corporations enjoying tax welfare benefits that now are forced by laws 
of the Congress to pay taxes, that in the Republican bill is just wiped 
out.
  Mr. BONIOR. They move away from responsibility on the part of the 
corporations in paying any taxes at all in this country at the Federal 
level.
  Mr. RANGEL. Mr. Chairman, if the gentleman will continue to yield, 
and for years all we have said is that they have a responsibility to 
pay something.
  Mr. BONIOR. Mr. Chairman, they need to be part of the community of 
people who support our economy, our country and share the load. If they 
are not paying it, working people are going to pick up the difference. 
That is the problem here. Their bill is top-heavy in terms of benefits 
to those at the top; crumbs, as the Wall Street Journal and the New 
York Times and others have scribbled it, for working people.
  There is no equity in their bill. That is why the poll that came out 
this morning said the American people support the Democratic bill over 
the Republican bill by a 2-to-1 margin, 60 to 30 percent. On top of all 
of this, their bill, this tax bill that the Republicans are offering 
actually raises taxes on the bottom 40 percent of Americans. Raises 
taxes.
  This Republican bill also includes and encourages big corporations to 
redefine their employees as contract workers. What does that mean? That 
means you can define your people who work for you as contract workers 
and you do not have to worry about paying them the minimum wage. You do 
not have to worry about paying them health benefits or pension 
benefits. Under the Republican plan, the rich get richer, America's 
middle-income families have to work twice as hard just to stay even.
  The Republicans tout their $500 child care credit. It is a good idea, 
but only if you actually give it to the families who need it. Today's 
Wall Street Journal notes that in Speaker Gingrich's suburban district, 
a newly-hired police officer earning $23,000 a year, married with two 
kids, would not qualify for the child care credit under the Republican 
plan. Why? Well, the Republicans say that is because this police 
officer already receives the earned income tax credit. The child care 
credit would constitute welfare, they say. That is right. The 
Republicans are saying that a young police officer who is trying to 
raise a family, who puts his life on the line every day for $23,000 a 
year and pays thousands of dollars in taxes, payroll taxes, excise 
taxes, does not deserve a tax credit to help his family. None, zip, 
nothing, zero.
  The richest 1 percent of Americans get a tax break that is worth more 
than that police officer makes all year under their bill. The richest 1 
percent get more than the police officer makes all year. That is an 
absolute outrage. It is not right. It is not what this country is all 
about. It is America's working families who need this tax cut. 
According to a poll, as I said today, the American people agree with 
our position. Let us give them a tax cut that they can use and be proud 
of and we can help working families with.
  Mr. GREEN. Mr. Chairman, will the gentleman yield?
  Mr. BONIOR. I yield to the gentleman from Texas.
  Mr. GREEN. Mr. Chairman, I have sat here on the floor and listened 
this morning, and time and time again we have had folks come up and 
say, we are going to help the struggling families with the first tax 
cut in 16 years. The gentleman said, and I know we have had Members 
come up on the floor, for example, the $500 child tax credit in 
Kentucky, over 50 percent, over 50 percent of the children will not be 
eligible for it. In my State of Texas, 54 percent of the children will 
not be able to enjoy that child care credit. And I know that is 
correct.

[[Page H4675]]

  The other thing that I wanted to ask about is, a lot of us support a 
capital gains tax cut. But in the Democratic alternative, we have a 
solution in there. The small investor, the person who is not making a 
living investing but is really the person who is investing in it and we 
set a cap of $600,000 as a lifetime on capital gains tax cuts. So if 
somebody is making a living investing, if they are playing the stock 
market and that is their living, they are not getting a benefit from 
the person maybe working in a factory in Michigan or working in on a 
ship channel in Houston. We are encouraging people who are the workers 
to also invest and they get that capital gains tax cut. That is what I 
hear.
  When I talk to people who say we want a capital gains tax cut and I 
say, what if you make your living as a stockbroker; no, they ought to 
pay regular income. Well, that is what the Democratic alternative is 
doing. It is making sure that that individual who is investing in part 
of this great country and this great free enterprise system will be 
able to take a tax cut. That is why the Democratic alternative is so 
important.
  Mr. BONIOR. The gentleman has aptly described the difference between 
the capital gains provisions in our bill and their bill. In addition to 
that, of course, the problem with their capital gains provision is that 
it is indexed and it explodes in the outyears and creates these 
humongous deficits, $650 billion drained in the outyears, which will 
put us right back to where we were when this Congress unfortunately did 
the 1982 tax and spending bills that put us into debt for so many 
years. The gentleman is absolutely right. Ours is targeted to working 
families, to people who invest for a decent length of time and who are 
interested in the future of their families and their communities and 
who are not there to make it on a rollover basis, on a daily basis.
  Mr. WISE. Mr. Chairman, will the gentleman yield?
  Mr. BONIOR. I yield to the gentleman from West Virginia, who under 
the Republican plan would have 56 percent of his children ineligible 
for the child credit.
  Mr. WISE. Mr. Chairman, I support tax cuts for rewarding work, 
particularly to those people who are getting up every morning, getting 
their kids off to school, driving to work, putting in a full day, 
playing by the rules. And at the end of the day they are going to find 
out, 56 percent of them are going to find out at least that their 
children did not qualify for the guts of this bill, which is a child 
care tax credit.
  In West Virginia, where two-thirds of our working families, working 
families make $30,000 or less and we know that those making $25,000 or 
less, if they have two children, most likely will not see one dime of 
the child care credit. This thing is just a figment. This is illusory; 
it is a hoax. What do I tell the coal miner, the steel worker? What do 
I tell the State troopers, computer technicians, the chemical worker, 
the school teachers, all of those who think that there is something for 
them under this bill?
  Yet if they are under $57,000 a year, according to the Treasury 
Department, they are only receiving 22 percent of the benefits in that 
package, while those over $100,000 a year get over 60 percent of the 
benefits of this package. It is simply not appropriate.
  So that is why I support, and I have to ask, how can we say that this 
bill is about giving children tax relief when most of our States and in 
West Virginia, it is 56 percent, 56 percent of the children get no tax 
relief under the child care credit?
  So this is why this is a bad bill, why I am voting today for the 
Democratic alternative which does give tax relief to the working people 
who need it most. But I am not voting for a bill that denies 56 percent 
of children of working parents a child care tax credit.
  Mr. BONIOR. Mr. Chairman, I thank the gentleman. I might remind 
Members today that originally those 56 percent of the kids under the 
original Contract for America were going to get some of those dollars. 
But all of a sudden, all the big boys came in and they said, wait a 
minute, we want to make sure we get our capital gains index. We want to 
make sure we get this taken care of and that taken care of.
  Of course, in the New York Times today there was an article that I do 
not believe I have with me right here, but they point out a special 
rifle-shot provision which will provide huge amounts of money. Right 
here, a break for a rich few snuck into the bill. They talk about $9 
million a year in lost revenue and giving a bonanza worth thousands of 
dollars to about 1,000 wealthy taxpayers. That is what was snuck into 
this bill overnight and that is why kids in huge percentages, 56 
percent from West Virginia, 50 percent from Michigan, New Jersey, my 
friend from New Jersey is standing up today, 48 percent of the kids 
will not be eligible for a child tax credit in his State. That is who 
is getting short cut today to take care of the fat cats and the big 
boys.
  Mr. MENENDEZ. Mr. Chairman, will the gentleman yield?
  Mr. BONIOR. I yield to the gentleman from New Jersey.
  Mr. MENENDEZ. Mr. Chairman, I thank the gentleman for yielding to me.
  No wonder 60 percent of the American public said the Democratic tax 
cutting plan is the plan that they want, because we address working and 
tax-paying families in our plan.
  What we do in that respect is try to provide greater tax relief for 
lower- and middle-income families, immediate estate tax relief for 
farms and small family owned businesses, a capital gains tax cut for 
small businesses and also for being able to sell your home. To the 
extent that over 1.1 million New Jerseyans, children, get absolutely no 
relief under this bill and to the extent that there are real families 
like Anna Gonzalez, who just sent me a fax and said, I am employed as a 
medical office technologist for the Bayonne Dental Group. I have been 
working there for a year, making over $20,000 in 1997. I have three 
kids. I pay for child care. Unfortunately, the Republican child tax 
credit gives me no benefit at all.
  That is a real person, a real family struggling to stay off welfare, 
to be working, to produce for this country. This is the family-friendly 
Congress supposedly. Yet the Republican tax plan works against working 
families, tax-paying families, families who we should be preserving in 
this tax cutting bill. That is why Democrats stand up for tax cutting 
for working families.
  Mr. Chairman, I include for the Record the letter to which I 
referred:


                                             Anna L. Gonzalez,

                                       Bayonne, NJ, June 23, 1997.
       Due to my job responsibilities, I am unable to appear in 
     person for this News Conference. I would like to show my 
     concern in regard to the guidelines for receiving the 
     proposed Child Tax Credit. As a single mother of three 
     children, living on a single income, I would like to stress 
     the importance of how a Child Tax Credit would help to 
     alleviate some of the financial burdens that come with 
     raising a family on a single income.
       I am employed as a Medical Office Technologist for the 
     Bayonne Group of Bayonne, New Jersey. I've been working there 
     for 1 year, and will earn $20,202 in 1997. I pay $93 per week 
     for child care which totals to $4,836 per year. I pay for the 
     child care in order to be able to work.
       Unfortunately, the Republican Child Tax Credit proposal is 
     targeted against those who need it most, those who are an 
     inch away from going into the welfare system. We are the 
     working poor, who work to pay for child care, food, and a 
     roof over our family's heads and not much more. The Child Tax 
     Credit should be given to financially benefit the children, 
     and I think the children from a low-income family would 
     benefit greatly by receiving this Credit. However, my family 
     would receive NO BENEFIT AT ALL from the proposed Child Tax 
     Credit.
       I am eligible for a Dependent Care Tax Credit that reduces 
     my income tax liability to zero. Therefore, I would receive 
     no benefit from the Child Tax Credit passed by the Ways and 
     Means Committee.
           Sincerely,
                                                 Anna L. Gonzalez.

  Mr. Chairman, Democrats want greater tax relief for lower- and 
middle-income families, immediate estate tax relief for farms and small 
family-owned businesses, a capital gains tax cut for small businesses, 
and help for post-secondary education.
  The Republican tax bill is like the deal to divide the gold mine. The 
rich Republicans get the gold and the American people get the shaft.
  More than half of the benefits of the Republican tax plan go to the 
wealthiest 5 percent--people making an average of $250,000 a year.
  Under the Democratic plan 71 percent of the tax benefits go to 
families earning less than $100,000.
  The Republican plan would cover only half of tuition costs for the 
first 2 years of college. The only tax relief for the third and fourth 
years comes from savings plans that only wealthier families can afford 
to join.

[[Page H4676]]

  Under the Democratic plan, HOPE Scholarship credits would be 
available for all 4 years of post-secondary-education. After the first 
2 years, a scholarship credit of 20 percent of tuition costs is 
available. These HOPE scholarship credits are available to all students 
who live in families with incomes under $80,000. The HOPE scholarship 
credits are not reduced by a student's Pell Grant and other nontaxable 
Federal scholarships. The Democratic plan makes permanent the tax-free 
treatment of employer-provided education assistance.
  The Republican bill denies the $500 per child tax credit to 15 
million families, by refusing to extend the credit to many working 
parents who qualify for an earned income tax credit, or to families who 
only pay payroll taxes. More than one-half of the children in New 
Jersey would be completely ineligible.
  The Democratic plan allows families to offset payroll and income 
taxes and would continue the existing day care credit.
  The Republican plan grants massive tax breaks to wealthy people who 
make money by selling their stocks, bonds, art works and antiques. 
Republicans also have designed their proposal so that it explodes over 
time and could wreck the balanced budget.
  The Democratic Plan targets capital gains relief to homeowners, not 
mansion owners.
  The Republican plan provides large estate tax breaks to very wealthy 
families. Only 1.5 percent of families currently pay any estate taxes.
  The Democratic plan gives relief for those who dedicated their lives 
to building the family farm or small business.
  The Democratic tax package is a better deal for more people. It gives 
the most tax relief to lower and middle-income families: immediate 
estate tax relief for farms and mom-and-pop businesses, a capital gains 
tax cut for small businesses, and provides $40 billion in for kids to 
get a college education.
  Remember who is making the greatest contribution to reducing the 
deficit, it is the vast majority of Americans. I can only speak for my 
district. Most of my people are honest, hard working people who don't 
have capital gains on their art collectibles. They don't have lavish 
deductions for business expenses. They will never make enough money to 
ever worry about estate taxes. They would love the opportunity to pay a 
minimum alternative tax.
  The Republican tax bill abandons 60 percent of all families, giving 
them a miserly 12 percent of the tax cuts. The Democratic tax cut 
substitute looks out for my people and their families. That is why the 
American people favored the Democratic tax plan by more than 2 to 1 
when asked by the Wall Street Journal/NBC new poll. Support the 
Democratic substitute.
  Ms. KILPATRICK. Mr. Chairman, will the gentleman yield?
  Mr. BONIOR. I yield to the gentlewoman from Michigan.
  Ms. KILPATRICK. Mr. Chairman, did I understand the gentleman to say 
that over 1.3 million children in Michigan will not be able to take 
advantage of this child credit?
  Mr. BONIOR. Mr. Chairman, the gentlewoman is absolutely correct.
  Ms. KILPATRICK. Mr. Chairman, did I further understand the gentleman 
to say that only 1 percent of Americans, the wealthy Americans, will be 
able to take advantage, and that 60 percent of the bottom rung of 
Americans will not take advantage of this?
  Mr. BONIOR. The benefits in this tax bill for the top 1 percent equal 
that for the bottom 60 percent, so that 1 percent of the taxpayers in 
this country are getting as much as the 60 percent at the bottom in 
this country.
  Ms. KILPATRICK. Mr. Chairman, the Republican tax bill would deny tax 
credits for another 4 million lower middle-income children. Forty 
percent--two out of every five children--would be ineligible for the 
credit because their family's incomes are not high enough. The total 
number of children denied this credit because their families do not 
make enough money would be 28 million. The Republican's highly touted 
$500 tax credit that is nonrefundable allegedly gives tax relief to 
families. While corporations will reap a $22 billion windfall in this 
bill, 28 million children would get nothing.

  The Republican tax bill denies tax credits to working families. For 
example, a family of four with two children with no child care expenses 
would not receive any credit unless its income exceeded $24,385. 
Moreover, if the family had child care expenses, it could earn as much 
as $27,180 and fail to qualify for the credit. Also, families that have 
more than two children, or have high mortgage or health care costs and 
itemize their deductions, could make close to $30,000 and still not 
qualify for the credit.
  The Democratic tax bill has real child care tax credits. The 
Democratic bill does not compute a family's child care tax credit after 
the earned income tax credit [EITC] is figured. This is a significant 
difference--millions of lower- to middle-income families owe income tax 
before EITC is calculated, but have little or no income tax obligation 
remaining after EITC is calculated. Under the Democratic bill, these 
families would be covered.
  The Republican tax bill's largest tax cuts--capital gains, individual 
retirement accounts, estate, and corporate taxes--provide most of their 
benefits to the rich. The richest 1 percent get more of the overall tax 
break than the bottom 60 percent combined. According to the Center on 
Budget and Policy Priorities, the Joint Tax Committee's distribution 
tables do not reflect any of the benefits that taxpayers would receive 
from these four provisions.
  The Democratic tax bill makes the benefits in these four areas, 
especially for working people, fair. It provides 71 percent of the tax 
breaks to families earning $100,000 or less. It provides a capital 
gains tax cut, an estate tax cut, and tax cuts for small businesses, 
family farms, and homeowners. The only way that you are eligible for 
these tax breaks is if you work and pay taxes.
  Mr. RANGEL. Mr. Chairman, the official count of Democratic and 
Republican votes, how many Republicans voted for the Clinton budget 
that created the atmosphere so that we can even think about tax cuts?
  Mr. BONIOR. Mr. Chairman, let me see here. I have my old 1993 count 
here, and there was not one Republican who voted for the 1993 budget 
that got us down from $300 billion.
  Mr. RANGEL. Mr. Chairman, we really cannot cut taxes when we have a 
deficit, can we?
  Mr. BONIOR. Mr. Chairman, the gentleman is right.


                      Announcement by the Chairman

  The CHAIRMAN. The gentleman from Michigan [Mr. Bonior] has the time 
and should indicate each time he yields or reclaims the time.

                              {time}  1300

  Mr. ARCHER. Mr. Chairman, I yield 3 minutes to the gentleman from 
Mississippi [Mr. Parker].
  (Mr. PARKER asked and was given permission to revise and extend his 
remarks.)
  Mr. PARKER. Mr. Chairman, I thank the gentleman from Texas [Mr. 
Archer], the chairman, for yielding me the time.
  Mr. Chairman, I was very interested in the comments made by the 
minority whip and by the ranking member talking about one particular 
aspect of the committee's bill dealing with AMT. I think a very wise 
part of this bill has been the removal of the depreciation penalty from 
AMT.
  It is fascinating to me that people always come to the floor of this 
House and they scream and yell about jobs going overseas, about 
companies leaving our Nation and us losing jobs. It is fascinating to 
me that people talk about that and at the same time they scream about 
the companies in this country that are not investing in their own 
companies and staying up, being modern, being able to produce, increase 
their productivity. Let me tell my colleagues what the most burdensome 
part of AMT is and how it has been removed from this bill.
  In order for any company to modernize and be able to create new jobs 
and increase productivity, they must put money into the company. You do 
that by using depreciation, because equipment is just like people: It 
gets old, it wears out, and it eventually dies.
  Depreciation is not a gift, it is an allowance to a company to 
modernize and to buy new equipment and to be state of the art. But what 
we did when we implemented AMT, and it was a terrible mistake, is we 
told companies we are going to allow to have depreciation, ``But, by 
the way, if you invest in your company, what we are going to do is we 
are going to say that does not count.''
  So what we say to these companies is, ``We are going to penalize you, 
take away your depreciation, and force you to pay money to the 
Government in taxes,'' and companies are penalized for investing. That 
is a fascinating situation in which we put companies on a day-to-day 
basis in this Nation. As a matter of fact, they are rewarded for not 
investing.
  Every union member in this Nation should rise up in revolt when 
leaders in this country say we should have a penalty on depreciation. 
It keeps them from having more productivity. It prevents them from 
losing jobs overseas. It prevents their salaries from raising. It is 
the most ridiculous, asinine piece of any tax legislation I have ever 
seen.
  It needs to be changed. And the gentleman from Texas [Mr. Archer], 
the

[[Page H4677]]

chairman, in this bill has changed it. It will mean more jobs in this 
country than anything else in this bill.
  Mr. RANGEL. Mr. Chairman, I yield myself 30 seconds to tell the 
gentleman from Mississippi [Mr. Parker] that Democrats apologize to him 
that the corporations, because we are asking them to pay some minimum 
tax and they wipe that out, but the reason we do it is because two-
thirds of the children in Mississippi will not get the child credit 
under the Republican bill, and that is over a half million children. 
That is why we cannot be that generous in excluding corporations from 
paying taxes.
  Mr. ARCHER. Mr. Chairman, I yield myself 1\1/2\ minutes simply to 
respond to some of the information that has been misrepresented to this 
House.
  The gentleman from Michigan [Mr. Bonior] said, and it is a broken 
record, he has used it for so many years, it does not matter what the 
tax bill is before the Congress, it is always the rich get richer and 
all of these breaks go to the rich.
  It is unfortunate we have to deal with this economic class warfare 
rhetoric over and over again. Frankly, I am offended by it at a time 
when this President and all of us should be pulling all Americans 
together instead of dividing them. But the Joint Committee evaluation 
of this bill, and bear in mind they are the official estimator, bear in 
mind they are nonpartisan, they advise Democrats and Republicans, House 
and Senate, shows that in the top 1 percent of income category, they 
will pay more under this bill. Their effective rate will go up from 
29.9 to 30.5 percent. I do not know where these numbers come from that 
say the rich get richer.
  The article in the New York Times which said that there would be 
1,000 taxpayers who would get some kind of relief is a proposal made by 
the administration for simplification of the Tax Code. We put it in the 
bill because it was sent to us by the administration asking us to 
simplify the code. If they do not like it, we will take it out. But it 
is ridiculous for this sort of an allegation to be made against a bill 
when we are simply trying to simplify the code.
  So Americans should understand that the rhetoric of class warfare, 
based on inaccurate figures in the first place, is not what this should 
be all about.
  Mr. Chairman, I yield 2\1/2\ minutes to the gentleman from Illinois 
[Mr. Weller], a respected member of the Committee.
  (Mr. WELLER asked and was given permission to revise and extend his 
remarks.)
  Mr. WELLER. Mr. Chairman, I rise in support of this very important 
piece of legislation. I am so proud that this House overwhelmingly 
passed with bipartisan support yesterday legislation to implement a 
bipartisan balanced budget agreement.
  Today a key part of the balanced budget agreement, which is lower 
taxes for working families, will be passed by the House as well and 
deserves bipartisan support. I think it is important to note that this 
is the first real tax relief bill for working families in Illinois, in 
the land of Lincoln, in 16 years.
  I also feel it is very important to note who receives the vast 
majority of this tax relief. Now the Joint Committee on Taxation, which 
is a bipartisan committee made up of Democrats and Republicans, it is 
respected and trusted by both sides and it is nonpolitical, they have 
honest numbers. If you look at the chart that they provided when 
analyzing this tax bill, they note that over three-fourths of the tax 
relief which is provided in this tax bill that we are going to be 
voting on today goes to families with incomes between $20,000 and 
$75,000, a group of people that most of us would call working middle-
class families. Seventy-five percent of the tax relief goes to families 
with incomes of between $20,000 and $75,000.
  Let me point this out again. In this bill, 75 percent, actually 76 
percent of the tax relief goes to families with incomes between $20,000 
and $75,000. That is real tax relief for people in my home State, the 
working families that I represent. In fact, a family in Illinois with a 
median income of $44,000 will see tax relief of over $10,000 over the 
lifetime of this bill, $3,000 more than the President proposed with his 
proposal earlier this year.
  Clearly, this is a better deal for those who pay taxes and work hard 
back in Illinois. We include tax relief for families with children, 
$500-per-child tax credit. In the 11th District of Illinois that I 
represent, 110,000 children will benefit, 33,000 more than the 
President proposes.
  Education incentives help send kids to college, capital gains tax 
deductions create jobs, individual retirement accounts encourage 
savings, death tax relief helps small business and agriculture pass on 
someone's fruit of their labors to the next generation, and welfare-to-
work tax incentives.
  This legislation deserves bipartisan support. Again, the bulk of the 
tax relief, 75 percent, goes to families with incomes between $20,000 
and $75,000. Working and middle-class families are the beneficiaries of 
this tax bill, which deserves bipartisan support.
  Mr. ARCHER. Mr. Chairman, I yield 4 minutes to the gentlewoman from 
Washington [Ms. Dunn], a respected member of the Committee on Ways and 
Means.
  Ms. DUNN. Mr. Chairman, for the first time in 16 years, women across 
America are getting a tax cut. The truth is our tax bill helps women 
throughout their lives, at home and in the workplace. The only people 
who think that tax relief in this bill is not good for women are those 
who do not believe we women can manage our own money. That kind of 
thinking is passe.
  What does this tax relief package really do for us? First of all, the 
mothers of 41 million American children will be able to keep more of 
their money. The child tax credit is money that desperately is needed 
to make ends meet. The child tax credit is money that can be used to 
pay for school, for clothes, for groceries, or for those often 
unexpected expenses that come with raising children.
  Women and their families will also get a lot of help in sending their 
children to college. The cost of higher education these days is 
overwhelming. I just had two kids in college. I know.
  Finally, women are provided additional options through our bill to 
save for their retirement through expanded IRA's that they can get 
involved. The fact is that women live longer than men, yet we also 
often have less savings. We should not force women these days into 
choosing whether to buy shoes for their 8-year-old daughter today or 
being able to put money aside for their own retirement later.
  Let me talk about the workplace. Today women are starting businesses 
at twice the rate of men. Our lower capital gains tax leaves more vital 
capital in the hands of women-owned businesses, in the hands of women 
investors and women entrepreneurs.
  Why is this so important to women? The reason is that in a very late 
survey, 1995, it was discovered that 84 percent of women-owned 
businesses used their personal savings to get their businesses started. 
We need to be able to give them this choice.
  Here is another example. After death of a spouse where a woman is 
left with the family home as her only major asset, when she sells that 
home a reduction in the estate tax, relief which we offer her, is 
terribly significant to her. These are dollars that will make her life 
a little easier. It will help her make ends meet a little bit better 
during a tough time.
  The American dream is for everyone, I say to my colleagues, including 
women. It is a little bit better place for our kids if we did right, 
little bit better place for our loved ones. But the current death tax 
is so onerous that the owner of a family farm or a family business who 
dies and leaves a home or business to his children, these kids often 
have to sell their business or their home simply to pay the debt of 
inheritance taxes, and all of this at a very, very tough time, 
sensitive time in the lives of those family people.
  Let me give you an example of a woman who lives in my district in 
North Bend, WA. She lives on 50 acres of timber her parents bought when 
she was a little girl of four.
  When her folks died, they left her the timber farm at a value of 155 
percent in estate taxation, so she had to log 20 acres of prime timber. 
That meant cutting trees that were 60 years old.
  Helen did not want to cut those mature trees, but she had to to get 
the money. She was paid $565,000 for the timber. Immediately she paid 
21 percent to the forester, and then she paid

[[Page H4678]]

Federal estate taxes, State taxes, and her lawyers. Not a penny was 
left, and neither was the beautiful timber that had been enjoyed in 
that neighborhood by folks who hiked through it and by animals that 
lived there.
  Finally, Mr. Chairman, this bill helps provide women the flexibility 
to start home-based businesses while at the same time staying home to 
take care of their children. No longer will women be forced to go to a 
job and leave their kids at home in order to pay the family's tax bill. 
I urge my colleagues to support this woman-friendly tax relief bill.
  Mr. ARCHER. Mr. Chairman, I yield 2 minutes to the gentleman from 
Nebraska [Mr. Christensen], another respected member of the Committee 
on Ways and Means.
  Mr. CHRISTENSEN. Mr. Chairman, this bill is perhaps the best piece of 
small business legislation to come down the pike in over 40 years. 
Think about it: Capital gains reductions, death tax reforms, helping 
the independent contractor, the small business owner. The No. 1 piece 
of legislation, according to small business. Last year the White House 
Conference on Small Business said it was their No. 1 issue. Sixteen 
hundred delegates from all across the country, they came and thought 
about it and talked about it, and then took a number of sampling 
policies, talked with their members and said the No. 1 issue for small 
business in this country was reforming the independent contractor 
legislation, getting simplifications so that the IRS could help decide 
who is and who is not an independent contractor, who is and who is not 
an employee, bringing some clarification to this needed area.

                              {time}  1315

  For 26 years the gentleman from Texas [Mr. Archer] has been here 
fighting for capital gains, fighting for small business owners. This is 
a historic day, that the Democrat, the minority side, is talking about 
tax cuts, that they are talking about we want tax cuts, too, we just do 
not want quite as much, that it has gone so far, that this debate has 
come this far. The American people owe the gentleman from Texas [Mr. 
Archer] a debt of gratitude for the fact that he has been here, he has 
been fighting in the vineyards, he has been a lonely voice for a very 
long time, but now the President is on his side. We are going to pick 
up 40, 50, maybe 100 Democrats on this vote. The small business 
community thanks him, the American people thank him. This is a great 
tax package for small business America.
  Mr. RANGEL. Mr. Chairman, I yield 3\1/2\ minutes to the gentlewoman 
from Connecticut [Mrs. Kennelly], a senior member of the Committee on 
Ways and Means.
  Mrs. KENNELLY of Connecticut. I thank the gentleman from New York 
[Mr. Rangel] for yielding me this time.
  Mr. Chairman, I would like to note that the gentleman who just spoke 
is from Nebraska. In Nebraska almost half the children there will not 
get the child credit under the Republican bill on the floor today.
  Mr. Chairman, I was on the way to speak here just a little while ago. 
I had my statement in my hand. I was going to talk as I have talked for 
years, 10 years I have been on the Committee on Ways and Means, about 
the earned income tax credit. Then I said, why should I talk about that 
today? Everybody is talking about it. And I should be happy but I am 
not because of the way the earned income tax credit is being used in 
relation to the child credit. And so I thought I would give the genesis 
of the earned income tax credit.
  I got involved in 1986 in tax reform and began to look at this 
legislation and put forth some proposals in that statute. I looked up 
the history, and it became law, the earned income tax credit, in 1975. 
The Senator from Louisiana, Senator Long, who was head of the Finance 
Committee, our tax counterpart in the Senate, understood something. He 
understood that because of the payroll tax and inflation and the way we 
did our taxes in this country, for some people who worked hard, it was 
not worth working when you took out the payroll tax. He introduced the 
earned income tax credit so those people could keep the fruit of their 
labor. That tax was little then, but it grew.
  In 1986 when I got involved, it was bigger. But it was complicated to 
apply for it and a lot of people did not. In 1990, President Bush was 
President. He was looking at his budget. He had a chief of staff named 
John Sununu. He latched on to a piece of legislation I had introduced, 
the Kennelly bill, about the earned income tax credit, and he put it in 
President Bush's budget. I was so delighted. But then it went over to 
the Senate side and Senator Bentsen got involved and he took a piece of 
it, he had it, for a good reason, for health insurance for children. 
Then there was another piece taken, I believe John Sununu did it, for 
the President, he put it in and that was a tiny tot credit. If you 
stayed home with your child, with your baby under 1, you got some of 
this earned income tax credit. Lo and behold, it got so complicated, it 
had more money and people were not using it.
  But then in 1993, something happened. Our President, Mr. Clinton, 
understood the earned income tax credit like Senator Long did. So what 
he did was infuse a very large amount of money into it, $23 billion. He 
understood you could not have it complicated because people would not 
apply for it. So there we were with the earned income tax credit 
finally working. You used it against Federal income tax, payroll tax, 
or the other income tax. Your income tax. I thought that I could relax, 
and I was very pleased. Then lo and behold we came to this year.
  But wait, I forgot one year. 1994. How could I forget 1994? We got a 
new majority, they had a contract for America, and they had the earned 
income tax credit in, and yes, they did it the right way. You could 
play off your earned income tax credit against payroll tax or your 
income tax and everything was OK. But now we have got this bill before 
us today. We have got a child credit, a good child credit, except I 
look down and I see the child credit is played off against the earned 
income tax credit. That means if you have the earned income tax credit 
and you put that against your Federal income tax and then you do not 
have any more credit to go against your payroll tax.
  What that means, Mr. Chairman, is the Republican plan would provide a 
$500 child credit for 39 million people, a lot, but the Democratic plan 
before us, 60 million children get it. Please, I have worked on this a 
long time. Let us do it the right way again.
  Mr. ARCHER. Mr. Chairman, I yield myself 15 seconds to respond to the 
gentlewoman. Obviously she has not noted the changes in this bill that 
were accomplished by the rule that was passed, because under the rule, 
any taxpayer with adjusted gross income of under $60,000 will not lose 
the dependent care credit under the bill now before the House.
  Mr. Chairman, I yield 3 minutes to the gentleman from Georgia [Mr. 
Collins], a respected member of the Committee on Ways and Means.
  Mr. COLLINS. Mr. Chairman, I thank the gentleman for yielding me this 
time.
  Mr. Chairman, a lot of comments have been made here today by 
different Members in reference to the President and his willingness to 
reach out and the Members of this side of the aisle and their 
willingness to reach back and also to reach out with ideas. I want to 
relate a conversation, a personal conversation that I had with 
President Bill Clinton in April of 1995, standing in the little White 
House in Warm Springs, GA, the Georgia home of F.D.R., F.D.R., who was 
considered the working man and the little man's friend. As we were 
departing that day, I looked at the President, and I said, ``You know, 
sir, we have to look after the little man because the big man can take 
care of himself. But every now and then you have to give just a little 
something to the big man so he'll help the little guy.''
  And the President was nodding in agreement. And I said, ``Mr. 
President, that's our tax bill, the tax bill of the 104th Congress.'' 
Little known to each of us that day, we would not be back with that tax 
bill but one time, just one opportunity to pass and accept it. But we 
are back again in the 105th Congress. We are back with a lot of the 
good ideas that he says, ``Yes, there are a lot of good things in this 
tax bill that we will eventually agree on.'' But there is the old 
saying, ``Opportunity only knocks once, temptation will beat the door 
down.''
  We missed that opportunity in the 104th Congress, but we are back 
with

[[Page H4679]]

those good ideas, not only our good ideas but some ideas of the 
President's, in the area of education, AMT relief that the President 
has proposed, capital gains relief that the President has proposed. 
This debate is good, it is real good. It is pointing out some 
differences yet that we still have in this bill. But we have an 
opportunity here today to move this bill forward, pass it, move it into 
conference, work on those additional ideas and differences that we 
have.
  Let us not miss this opportunity. Let us work on the good points and 
the good parts that we have put in, that the President has put in, and 
let us work on those differences to improve this bill over the next 2 
to 3 weeks, and let us give tax relief to the little man, the working 
people of this country, and let us also give some assistance to those 
who can help those working people by providing them jobs.
  A lot has been said about the AMT. Business people understand that. 
They understand oftentimes under the AMT provisions you can actually 
lose money and still have a tax liability, and it drives behavior of 
business that also deletes a lot of jobs. A lot has been mentioned 
about the type of equipment that is purchased that comes under the AMT. 
Most of those jobs are assembly line jobs, union jobs.
  This is a good bill and by the time we get through with it in 2 to 3 
weeks, I know it is going to be a lot better. Let us take advantage of 
opportunity and let us move this piece of legislation forward.
  Mr. ARCHER. Mr. Chairman, I yield 3 minutes to the gentleman from 
Louisiana [Mr. McCrery], another respected member of the Committee on 
Ways and Means.
  (Mr. McCRERY asked and was given permission to revise and extend his 
remarks.)
  Mr. McCRERY. Mr. Chairman, my colleagues have heard and will continue 
to hear criticism from some telling them that the Republicans have 
written a tax cut that benefits big corporations. I am here to plead 
guilty, sort of. I say ``sort of'' because there is much in this bill 
which directly benefits middle-class families, the $500 per child tax 
credit, education assistance, and exclusions for capital gains on home 
sales. In fact, most of the tax relief in this bill goes to middle-
income families. But our tax cut will benefit corporations, and those 
who criticize that just do not get it. They cannot see that benefiting 
those who create jobs ultimately benefits workers as well.
  Let us look at just one industry in my home State of Louisiana, 
forest products. Forestry in my State employs some 8,000 in harvesting 
and transplanting trees and another 26,000 in forest products 
manufacturing jobs and some 113,000 Louisianans own forestland. Tree 
farmers in Louisiana plant seedlings, then they wait, 20, 25, 30 years. 
They endure the threats of flood, fire and infestation. All the while 
they incur expenses caring for their crop and all the while inflation 
ticks along. After a couple of decades, if the trees are still 
standing, they are cut and sold. The capital gains tax reductions in 
this bill will reward those landowners who risk their capital to grow 
those trees, and because of the potential for greater rewards, more 
landowners will decide to risk their capital to grow trees, which will 
in turn provide our forest products industries with a ready, affordable 
source of raw material for their factories, which in turn will provide 
good-paying jobs for a great many people in Louisiana and across our 
country.
  But for those jobs to stay here in the United States, our factories 
must be competitive in the world marketplace. For our industries to be 
competitive, they must continue to increase their productivity. To 
increase their productivity, they must continually invest in new 
equipment for their operations. The alternative minimum tax makes it 
much more difficult for forest products companies to invest in plant 
and equipment when they need to.
  This bill gives some relief from the perverse consequences of the 
AMT, which will allow more timely investment by forest products 
industries, giving them a better chance to compete worldwide while 
continuing to pay high wages and benefits to their employees. The 
forest products industry and those who work in it will benefit from the 
tax relief in this bill. That is helpful to an industry that is very 
important to my State. But there are other industries, ones important 
to other States around this country, which will also benefit.
  I urge my colleagues not to attempt to defeat this bill by demagoging 
it as a tax cut to big, faceless corporations. Corporations are not 
faceless. They are the faces of all those who work for them and the 
faces of all those whose retirement funds are invested in them. Let us 
quit trying to win political points by dividing Americans by income. 
Let us work together to provide an economic climate that will create 
jobs for everybody and make everybody richer.
  Mr. RANGEL. Mr. Chairman, I yield 10 seconds to the gentlewoman from 
Connecticut [Mrs. Kennelly].
  Mrs. KENNELLY of Connecticut. Mr. Chairman, I would like to 
respectfully say to the gentleman from Texas [Mr. Archer] that he 
misunderstood me. I did thank him on the floor the other day for the 
dependent credit under $60,000. What I was talking about is something 
else he could do in conference and that is to fix those under $30,000 
who cannot get the child care credit.
  Mr. RANGEL. Mr. Chairman, I yield myself 15 seconds to point out that 
we wish we could afford the luxury of having corporations that make 
money not to pay taxes, but again it is just not fair because we would 
rather see whether we can change the Republican bill and maybe we can 
in conference. In its present form, 58 percent of the children of 
Louisiana would not be eligible and that is 3 out of 5; two-thirds of 
the kids in Mississippi will not receive it; 52 percent of the kids in 
Georgia will not receive it; 41 percent in the State of Washington will 
not receive it; half of those in Illinois will not receive it.
  Mr. Chairman, I yield 4 minutes to the gentleman from Wisconsin [Mr. 
Kleczka].
  Mr. KLECZKA. Mr. Chairman, when the gentleman from Texas [Mr. Archer] 
started out the debate, he indicated that he is going to dedicate this 
tax bill to Debbie and Bill from Manassas. But what the Republicans are 
not telling Debbie and Bill and other Americans is about a provision in 
this bill which will have a devastating impact on workers, men and 
women alike, and their benefits.

                              {time}  1330

  The provision I am about to talk to is disguised in this legislation 
as tax bill clarification. What I am talking about is the independent 
contractor language inserted by the Republicans on the committee, and 
let us use Bill from Manassas as the example.
  Let us say Bill is a plumber. If this provision passes into law, Bill 
could go to his company on Monday of next week, ABC Plumbing Company, 
and the employer is going to say, ``Under a provision passed by the 
Republicans I don't have to call you, and I don't have to treat you as 
an employee anymore. I'm going to call you and treat you as an 
independent person, an independent contractor.'' Bill is going to say:
  ``Well, why?''
  He says, ``Well, you have your education for being a plumber, you 
have your own tools, for the most part you work off the employer's 
premises; that's a definition of independent. So, Bill, you're not my 
employee anymore; we're going to pay you by the job, and if you go to 
Christine Place to replace a hot water heater on Monday or Tuesday, 
I'll give you a hundred bucks, you do the job, you keep the money.''
  But what happens to Bill and what happens to Debbie and their family 
and their kids is that under this provision Bill has no retirement 
plan. For years he has been paying part of it, the employer has been 
paying part of it. ``Being independent now, Bill, I, the employer, 
don't have to offer you a retirement.''
  ``Well, how about health insurance?''
  ``It's a split. I pay 20 percent, you pay a portion. I have family 
health coverage. Sorry, Debbie and Bill. As an independent, get your 
own. Take that hundred bucks I gave you to replace the water heater, 
get your own coverage.''
  Well, let us say Bill is injured seriously on the job, loses an arm. 
Under the current practice and under Bill's current condition, he gets 
workers compensation, which will take care of him should something like 
that occur.

[[Page H4680]]

 ``Under this provision, Bill, you're independent. You don't get 
workers' comp from us, get it yourself if you can.''
  And how about the slow period in the fall? Bill is off for a couple 
of weeks. Right now the employer gives him unemployment compensation, 
and it helps feed the family. Under this provision Bill does not get 
any workers' compensation or unemployment compensation.
  Also, currently under the current situation, Bill pays one-half of 
his Social Security and Medicare hospital tax, 7.65, the employer pays 
the other half. Under this provision, ``Bill, you pay the entire 15 
percent. I, the employer, pay nothing.''
  That is what is in this bill. That is the beginning of the end for 
employee benefits and protections as we know them today.
  And know full well I view this as the biggest gift to employers, and 
if I were dedicating this bill to anyone, Bill and Debbie from 
Manassas, I would not dedicate it to them because they are going to 
lose, they are going to lose under this provision. I will dedicate it 
to the ABC Plumbing Companies of the world and other people who are 
going to treat their employees in this manner.
  And know full well it is not only plumbers that are covered. Under 
this provision it could be the airline pilots, it could be teachers, it 
could be police officers, plumbers, electricians.
  This is a new way to do business. This is a gift, a dangerous gift to 
employers who choose to treat their employees this way. And I am 
saying, and I have talked to the administration, they will not sign 
this bill with that provision in it.
  But I challenge the Republicans, if they are going to dedicate this 
bill to working families, talk about this provision, talk about how 
this is going to harm them, how dangerous this is. And I ask my 
colleagues to vote against this bill if for no other reason than this 
provision.
  I can put up with the harassment on union dues because unions 
happened to help Democrats in the last election. So it is a provision. 
Go and stick it to the unions. But this one is the harmful one. This is 
the one that forces me to vote against this legislation, and I ask my 
colleagues on behalf of Debbie and Bill and all other Americans to 
oppose this particular legislation.
  Mr. CHRISTENSEN. Mr. Chairman, I yield myself 30 seconds to respond 
to the gentleman from Wisconsin's accusations.
  First of all, it is a mutual agreement. There must be a signed 
agreement from the individual involved and also the person that we are 
contracting with. There is an independence and an investment component 
of this independent contractor legislation, so it is not a unilateral 
decision by one person to make that decision.
  Second of all, it is the No. 1 area in small-business America that 
needs to be fixed under the code, and the White House Conference on 
Small Business decided this. So it is not something that is just being 
unilaterally decided by Republicans. It was a joint decision by also 
the administration with the White House Conference on Small Business.
  With that, Mr. Chairman, I yield 2 minutes to the gentleman from 
Dallas, TX, Mr. Sam Johnson.
  Mr. SAM JOHNSON of Texas. Mr. Chairman, as my colleagues know, this 
tax relief bill gives part of America back to Americans who pay too 
much in taxes. There is not a Member here who can deny that this bill 
provides relief to families through the $500 per child tax credit. 
Gives entrepreneurs and companies the opportunity to create more job 
opportunities in America by lowering the capital gains tax rate than 
the alternative minimum tax, allows families to keep their farms or 
small businesses by providing death tax relief and gives more Americans 
a way to send their kids to college and buy a first home by expanding 
IRAs.
  During this debate there are going to be two different arguments 
about what tax cuts mean. By the time we finish, I think our 
differences will be clear. To Democrats tax cuts mean less money here 
in Washington for this Government to spend. To us Americans tax cuts 
means people will keep more of the money that they work so hard to 
earn. In America we ought not to discriminate on the basis of race or 
gender, and we also should not discriminate on the basis of income.
  We in Congress have a responsibility to bring Americans together for 
everyone's benefit, not divide them with class warfare rhetoric. 
Seventy-six percent of the tax cuts in this bill go to people making 
under $75,000, and a hundred percent of these tax cuts go to all 
Americans, who are overtaxed. Neither the President nor Democrats in 
Congress should stand in the way of hard-working Americans getting a 
break from high taxes.
  As my colleagues know, Americans want, need, and deserve their tax 
relief now.
  Mr. CHRISTENSEN. Mr. Chairman, I yield 2 minutes to the gentleman 
from Ohio [Mr. Boehner].
  Mr. BOEHNER. Mr. Chairman, America has enjoyed many months of 
uninterrupted economic recovery. But the recovery is not enough. If we 
are to prevail in the long run, we must expand the long won strength of 
our economy. To achieve these greater gains, one step above all is 
essential, the enactment this year of a substantial reduction and 
revision in Federal income taxes. This will increase the purchasing 
power of American families and businesses in every tax bracket with the 
greatest increase going to our low income consumers. It will encourage 
the initiative and risk taking on which our free system depends and 
reinforce the American principle of additional reward for additional 
efforts.
  The enactment this year of tax relief overshadows all other domestic 
problems in this Congress, for we cannot leave the cause of peace and 
freedom if we cease to set the pace here at home.
  Mr. Chairman, these are not my words. These words were spoken three 
decades ago in 1963 during the State of the Union Address by our 
President at that time, John F. Kennedy. President Kennedy made this 
statement as a man ahead of his time with a bold vision for America's 
future. He showed the courage to look past the skeptics, to look past 
the pessimists and call Americans to action in defense of their 
freedom.
  Today we find ourselves at a similar crossroads, on the edge of a new 
century with new challenges to the freedoms of Americans and their 
families. Bold action again is needed to unshackle the American spirit. 
The question is whether our President will seek inspiration from his 
hero, John Kennedy, and join us in restoring freedom to overtaxed, 
overburdened and overwhelmed American families.
  Mr. Chairman, today's vote is really about that. It is about freedom, 
freedom for Americans to save, to spend, to invest and to contribute to 
their own communities instead of handing an ever increasing amount to 
our government, their hopes and dreams along with it.
  Passing this bill today, Washington takes a small step in the right 
direction.
  Mr. RANGEL. Mr. Chairman, I yield 30 seconds to the gentleman from 
Wisconsin [Mr. Kleczka].
  Mr. KLECZKA. Mr. Chairman, let me respond to the gentleman from 
Nebraska on the independent contractor, the provision that employees 
lose their benefits.
  First of all, the White House conference did meet made up of small 
business people. As part of that group there were no working men and 
women who could object to this provision, and the question of whether 
or not it is voluntary. If someone's employer calls them on Monday and 
says, ``Sign on the dotted line or you have no job, you have no 
income,'' they are going to sign. And that is exactly what happened at 
Microsoft, where the employees were forced to sign the statement that 
they are independent contractors. So do not tell me this was voluntary; 
this was forced, and any employee who does not sign on the dotted line 
goes home with no pay.
  Mr. RANGEL. Mr. Chairman, I yield myself 30 seconds.
  When the bottom line is there, we will find that over half of the 
kids from working families in the State of Texas, in the State of Ohio 
will not benefit under the Republican bill.
  Mr. Chairman, I yield 10 minutes to the gentleman from California 
[Mr. Matsui], a senior member of the Committee on Ways and Means.
  Mr. MATSUI. Mr. Chairman, I thank the gentleman from New York, the 
ranking member of the Committee on

[[Page H4681]]

Ways and Means, for yielding this time to me.
  Mr. Chairman, we have been hearing from the Republicans capital gains 
tax cuts, estate tax cuts. They want to eliminate the alternative 
minimum tax on corporations in America. They want to have back ended 
IRA's.
  We must have amnesia in this room here today because just 24 hours 
ago we were saying how wonderful the agreement was with the President 
on balancing the Federal budget. And now all of a sudden we are talking 
about these enormous tax cuts.
  I added up all the tax cuts that the Republicans have been taking 
about. Over a 10-year period these tax cuts come to $600 billion or 
about $60 billion a year. That is why the President in the budget 
agreement said over 10 years it can be no more than a net of $250 
billion, less than half of the total tax cuts as they add up.
  We thought the Republicans were going to be moderate, that they were 
going to try to compromise, they were going to pick and choose and 
prioritize what tax cuts they wanted to give the American public. What 
they did instead was committed a little duplicity. What they did was 
they phased these tax cuts in. They phased them in over a 10-, 12-, 15-
year period.
  For example, the capital gains tax cut does not come into effect 
until the year 2001, and as a result of that what we are going to see 
is, yes, the net tax cuts for the first 10 years will be $250 billion. 
Revenue loss of $250 billion.
  But then if we look at this chart, we will find that in the year 
2007, 2007 alone, it will be $41 billion just in that 1 year alone. 
Then by the year 2017 it will be $90 billion of revenue loss in that 1 
year alone. It will make the deficits we had over the last 15 years 
look like chicken feed compared to the deficits that will occur when 
the children and the grandchildren are becoming the age when they want 
to buy a home or employment.
  We are a great competitive Nation. We had growth over the last 6 
years. We have been the strongest economy in the world. And the 
Republicans, if this bill passes and becomes law, will drag this 
economy down so that we will be a banana republic. We cannot afford 
this tax bill, which is going to explode the deficit, and the American 
public has to know that.
  Mr. CARDIN. Mr. Chairman, will the gentleman yield?
  Mr. MATSUI. I yield to the gentleman from Maryland.
  Mr. CARDIN. Mr. Chairman, the gentleman is right. Yesterday we were 
talking about trying to balance the Federal budget and keep it 
balanced. We should learn from what happened in 1981 when we created 
the climate for exploding deficits. This bill should be known, since we 
are going on the Fourth of July break at the end of today, as the 
Fireworks Tax Act of 1997. We are going to have exploding deficits if 
this bill is passed in a way that it has been presented.
  The gentleman points out in that chart very clearly the difference 
between the Democratic bill and the Republican bill. The Democrat bill 
has a capital gains tax cut in it, but it is mindful of how much we can 
afford in its target. The Republicans not only put in a differential 
rate for capital gains, but also indexing, and another chart that the 
gentleman has there really points out the fact of how we are going to 
have exploding deficits if this bill passes and is enacted the way that 
it has been presented.
  It is convenient in the year 2002, the year that we have advertised 
that we are going to have a balanced budget, that the capital gains tax 
actually produces more revenue for the Treasury, and why? Because in 
that year the Republican bill allows people to sell and buy back their 
assets to get a lower capital gains rate and then to be able to take 
advantage of indexing. They get it twice.
  To make matters worse, the indexing requires a 3-year holding period 
so the revenue losses will not be felt until we are well past the 
budget window.

                              {time}  1345

  We want to make sure that we do the right thing as far as the deficit 
of this country is concerned, that we actually have a balanced budget. 
We have all been arguing in this budget that we want to balance the 
Federal budget and keep it balanced. We should learn from history in 
1981. This is just one of about five or six provisions in the 
Republican bill that advertises very little revenue loss in the first 5 
years, but they explode in the outyears and we will have huge deficits.
  The point that my colleague is making, the chart that he is showing, 
I hope that the American people will understand that if we vote for 
this tax bill that is on the floor today, we are voting for large 
deficits in the future.
  Mr. TANNER. Mr. Chairman, will the gentleman yield?
  Mr. MATSUI. I yield to the gentleman from Tennessee.
  Mr. TANNER. Mr. Chairman, I want to follow up, if I could. I come 
from the wing of the Democratic Party here in the Congress that thinks 
that it is important that we get our Nation's books in balance. As a 
matter of fact, a group called The Coalition had a budget proposal that 
had entitlement reform and no tax cuts in the belief that more people 
in this country would benefit if we could get our Nation's books in 
order and get the Government out of the credit market as fast as 
possible, borrowing the least amount possible, as soon as possible. We 
did not prevail on that.
  So there was an agreement reached between the President and the 
leadership of the Congress that we would have a tax bill now.
  Well, we, in an effort to try to be constructive in the process, 
think that any tax bill ought to be responsible from the standpoint of 
the outyears. This one, I think, falls short on that score.
  I do not see how we, as stewards of this land in our time in public 
office here, can think about leaving a country to our children and 
grandchildren that is as financially weak as this one will surely be if 
all we do is a touch and go in the year 2002, and then climb aboard the 
space shuttle and take back off on a rocket ship to oblivion and debt. 
I am afraid that is exactly what is going to happen in these outyears.
  This bill was cleverly scored in the first 5 years. Some of us agree 
with the prospect of estate tax relief and capital gains tax relief 
because we think that tax relief, if we are going to have a tax bill 
now, makes sense from a standpoint of economic activity and 
generational transfer of property. But these outyears, this is 
something that the American people really ought to worry about, because 
it is going to affect every family.
  There are a lot of statistics being bantered about; people read them 
different ways. This affects us all, no matter who we are.
  Mr. MATSUI. Mr. Chairman, reclaiming my time, I thank the gentleman 
from Tennessee. The gentleman indicates that this is really going to 
affect our children and grandchildren.
  Mr. LEVIN. Mr. Chairman, will the gentleman yield?
  Mr. MATSUI. I yield to the gentleman from Michigan.
  Mr. LEVIN. Mr. Chairman, if the gentleman from California [Mr. 
Matsui] would trade places with me for a moment, I want the American 
public to see these two charts. This is based on material from the 
Treasury Department. The Democratic tax cut plan, 71 percent of 
Democratic tax cuts go to low- and middle-income families. Two-thirds 
of the Republican tax cuts go to the wealthy based on Treasury 
material.
  Here is the 10-year analysis by the Republicans of their plan. It is 
right here. This is it. There is nothing. There is nothing. The Joint 
Tax Committee will not supply a 10-year distribution analysis. I will 
tell my colleagues why.
  First of all, it puts to a lie, to a falsehood the notion that my 
colleagues have said 76-percent of the tax relief goes to people making 
below $75,000. Those are 5-year figures. The other chart, about 90 
percent goes to families and education has 10 years on it, but not the 
76 percent figure. It is based on 5 years because most of the tax cuts, 
the second 5 years, go to wealthy families, and my Republican 
colleagues are trying to hide it.
  Second, those second 5-year tax cuts explode the deficit, and my 
Republican colleagues do not want to admit it. They do not want to 
admit what the effect is. That is it purely and simply. We have begged 
our Republican colleagues, come forth with a 10-year distribution 
analysis, and they will not do it.
  My Republican colleagues challenge the Treasury figures, but they are 
the

[[Page H4682]]

same methodology used by Reagan and Bush Treasury Departments, and they 
come up and nitpick about imputing this or imputing that. The fact of 
the matter remains that the analysis by Treasury is this: 71 percent of 
the Democratic plan goes to low-income families, and here it is. Your 
plan: Treasury Department analysis, two-thirds of the Republicans' plan 
go to the wealthy.
  If my Republican colleagues do not like the Treasury Department 
figures, come up with something better than this. The American public 
will never believe my Republican colleagues' blank slate. They explode 
the deficit and they benefit the very wealthy to the detriment of 
middle-income families.
  We can do much better than this, and we are going to do that in 
conference. Americans need a fair tax cut.
  Mr. ARCHER. Mr. Chairman, I yield myself 30 seconds simply to respond 
and say to the gentleman that it is not just minuscule as to the 
Treasury imputing rental value as income to someone that owns their own 
home and lives in it and it makes them wealthy. The joint committee, 
while it was still being run by the Democrat Congress, dropped that 
from their analysis because they knew it was wrong. The Treasury is 
still using it. Yes, it was used under Bush, and yes, it was used under 
Reagan. It was wrong, and it is wrong today. The American people 
understand that.
  Mr. Chairman, I yield 3 minutes to the gentleman from Ohio [Mr. 
Traficant].
  (Mr. TRAFICANT asked and was given permission to revise and extend 
his remarks.)
  Mr. TRAFICANT. Mr. Chairman, I am going to vote for the bill. There 
are tax cuts for working families, a $500-per-child tax credit, 
reduction in capital gains, and other elements I like. It will 
encourage savings, investments, and jobs.
  There are elements of the bill I do not support, such as independent 
contractor matters and teacher retirement situations, but I am 
convinced they can be removed in conference and should not stop this 
bill.
  But as far as this alternative minimum tax, very simple. This AMT 
eliminates depreciation benefits; thus, it discourages investment; 
thus, it kills jobs. In 1995 President Clinton agreed with the 
gentleman from Texas [Mr. Archer], and I believe he was on target then 
and should support the chairman now.
  In addition, when companies consider opening a new plant in America, 
they shudder and open a plant overseas. In addition, companies must 
often decide under this law whether they are going to pay workers' 
wages or taxes.
  This is a nonissue.
  But I want to talk about the political spin here. Unfortunately, to 
win the spin we have all played to class warfare: rich, poor; workers, 
companies; politics and partisanship; politics of division; politics of 
confusion; politics of fear. I think it is wrong; I think it is bad. I 
think our country is overregulated, overtaxed.
  Mr. Chairman, my dad was a lifelong Democrat, I say to my colleagues, 
and my dad never worked for a poor guy. I want to today as a Democrat 
thank every man and woman in America, every entrepreneur that made an 
investment, that thought enough of my dad and our family to give us a 
job. They hired my dad. I want to thank them for that.
  I would also like to say that it is very simple today, I say to my 
colleagues. Our Tax Code penalizes achievement, it promotes dependence, 
it kills investment, it ships jobs overseas, it discourages savings. It 
has destroyed families, it has destroyed the families in many cases 
that the Democrats stand for. I hope we come to realize that.
  The bottom line: This bill is better than the current law. I am a 
Democrat, and I want tax cuts. There are a lot of Democrats in America 
that want tax cuts. I am going to vote for it, and I am going to ask 
the chairman to give us fairness on the independent contractor issue 
and on that teacher retirement issue.
  But there is one last thing. I think this Tax Code must be 
incentivized to recycle the money of the risk-taking entrepreneurs 
throughout America. We should not demean them, we should not punish 
them with our talk, and we certainly should not scare their money 
overseas. There is too much of that.
  Quite frankly, anyone over there that can jump up and say, Traficant, 
this vote hurts you politically; I think it does. But I think this vote 
of mine will help America. That is the bottom line.
  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentleman from New 
York [Mr. Paxon].
  Mr. PAXON. Mr. Chairman, I find it appropriate that as the Nation 
prepares to celebrate Independence Day, this House is cutting taxes for 
our hard-working families back home. For too long liberals have treated 
the middle class as their personal ATM machine, a cash cow to pay for 
their big government schemes. They taxed your income, they taxed your 
gas, your cable, your electricity, your house, and they even taxed you 
when you died.
  Liberals have come up with all kinds of clever new taxes, never 
giving a thought for a second to the people that have to pay those 
taxes, people like the truck driver who cannot afford to send his 
daughter to college, or the nurse and police officer who cannot give 
their twin sons some new school clothes.
  Well, today, for those folks and millions more, we declare 
independence from big government and high taxes. In fact, 76 percent of 
our tax cuts go to those families who earn less than $75,000 a year.
  Our plan includes education and per-child tax credits to make it a 
little easier for families to raise their kids.
  Mr. Chairman, for the American taxpayers, the Fourth of July comes 
early this year, and for once, it is not the taxpayers who are getting 
barbecued.
  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentleman from 
California [Mr. Dreier].
  (Mr. DREIER asked and was given permission to revise and extend his 
remarks.)
  Mr. DREIER. Mr. Chairman, this capital gains issue is one that I 
believe is very important, and it is unfortunate that we see this class 
warfare thing going on over and over and over again.
  When we testified on H.R. 14, the capital gains reduction package to 
take it from 28 to 14 percent before the Committee on Ways and Means, 
we had the gentleman from Florida [Mr. Deutsch] join us. He has stood 
in this well time and time again, talking about the fact that 63 
million American families own mutual funds today.
  It seems to me that we should look at the fact that 85 percent of the 
returns that are filed are among people who have less than $100,000 a 
year in income. That is very apparent; it cannot be forgotten, and 
class warfare is unfortunate. The late Paul Tsongas was right when he 
said, the problem with my Democratic Party is that they love employees, 
but they hate employers.
  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentleman from 
Alabama [Mr. Riley].
  Mr. RILEY. Mr. Chairman, here we go again. The liberal crowd is 
absolutely dismayed that this tax bill today does not contain tax 
relief for individuals who do not work and do not pay taxes. The other 
side of the aisle just does not get it.
  Mr. Chairman, we believe that in order to qualify for tax relief that 
one ought to at least work and at least pay taxes. Seventy-six percent 
of the tax relief included in this legislation will benefit working 
families who earn less than $75,000 a year.
  So let us stop the rhetoric and the scare tactics and talk about the 
truth. The truth is the big spenders on the other side of the aisle 
will now have less money to squander on wasteful Government spending. 
The American taxpayer works until May 9 to earn enough income to pay an 
entire year's worth of taxes. And the cost of Government regulations, 
the average American's debt to the government will not be satisfied 
until July 3. That is right. Americans this year will spend more than 6 
months working for the government.
  Let us stop this insanity and vote for H.R. 2014.

                              {time}  1400

  Mr. RANGEL. Mr. Chairman, I yield myself 10 seconds to respond that 
there is nobody on this side that is saying that, if you do not work, 
you should get the child credit. Let us not talk

[[Page H4683]]

about class war. The only class of people that we are talking about 
benefiting and the President wants benefited by this legislation are 
hard-working Americans. If you do not work, you do not get it.
  Mr. Chairman, I yield 2 minutes to the gentleman from Oregon [Mr. 
Blumenauer].
  Mr. BLUMENAUER. Mr. Chairman, I personally am disappointed and 
saddened with the turn of this debate on a tax cut proposal. In the 
rush to pass the Republican tax program, we are leaving behind the vast 
majority of Americans. It shortchanges working families, some of whom 
will end up paying more to concentrate the relief to the top 1 percent, 
who have already received the bulk of Congress' generosity over the 
last 20 years. Instead, we should be concentrating on provisions that 
would give all working families more equitable treatment.
  The most burdensome tax for working families is the Social Security 
payroll tax, which takes a bite out of everyone, but falls most heavily 
on those who make lower incomes and on small business people. The 
simple remedy of a credit against the Social Security tax would help 
those who need it most, still give the richest Americans a reduction, 
as well as, most important, create jobs, because employing Americans 
would be more economically advantageous.
  Another adjustment that would be simple, low cost, and make a huge 
difference would be exempting the profit from the sale of residential 
property from capital gains. This is the capital gains cut that would 
reach most Americans. It would cost the Treasury almost nothing, 
because most people do not pay that tax now. They simply hold onto 
their property or roll it over to buy more expensive property. Nobody 
pays it but the dumb, the distressed, and the divorced.
  This would enable families to make wiser decisions about homes that 
best serve their family circumstances, not the Tax Code, while it 
reverses a perverse tax incentive that promotes urban sprawl. Sadly, we 
are missing this opportunity to make America competitive and to help 
working families, while we read of the special interest provisions that 
are stuffed into this bill. How quickly the Republican Committee on 
Ways and Means have forgotten all the talk last year about tax 
simplification and fairness.
  Mr. ARCHER. Mr. Chairman, I yield 2 minutes to the gentleman from 
Oklahoma [Mr. Watkins], another respected member of the Committee on 
Ways and Means.
  (Mr. WATKINS asked and was given permission to revise and extend his 
remarks.)
  Mr. WATKINS. Mr. Chairman, I thank the gentleman for yielding time to 
me.
  Mr. Chairman, I returned to Congress because I wanted my time to be 
effective. I wanted a balanced budget for the future of our children 
and our grandchildren. A future that would allow them to compete and 
succeed in a 21st century global economy.
  Mr. Chairman, I want to thank you so much for offering us to shape 
that economy. An economy that will allow us to be more competitive. I 
did not want my children or the children or grandchildren in this 
country to end up having a Shanghai address. The great economic 
competition of Southeast Asia and China will place us in the situation 
where many of our children will have to be looking overseas for jobs if 
we do not reduce taxation, reduce taxation and reduce litigation.
  Mr. Chairman, this particular bill allows us to have a better economy 
for the 21st century. Yes, it helps the children of middle class 
America by having a child tax credit, also an education tax credit, but 
the capital gains tax reductions and relief on the alternative minimum 
tax will allow us to maintain and sustain economic growth. That is a 
key economic variable. That is the card that my friends on the other 
side of the aisle keep overlooking.
  If we sustain this kind of economic growth, Mr. Chairman, we will be 
able to look at having another tax cut next year, and reducing our 
deficit a great deal more to personally reach a balanced budget a lot 
quicker than the year 2002.
  The budget we passed yesterday was based on an economic growth of 2.1 
percent, very conservative numbers. Our growth is presently at 5.5 
percent plus. If we could sustain and maintain that growth, yes we will 
have the kind of economic growth where we can give a tax cut again next 
year, and where we will be able to balance the budget a lot quicker. 
What a gift to give the American families.
  Let me say, Mr. Chairman, this is not only an immediate help to 
American families, but the key element of a historic budget that will 
allow us to have the economic growth for the future. We must shape and 
craft an economy with less taxes, less regulations, and less 
litigation, so we can compete in the most competitive global economy 
that has existed in the history of our country. This is truly a victory 
for the American families.
  Mr. RANGEL. Mr. Chairman, I yield myself 15 seconds.
  Mr. Chairman, I would just point out that we want all of the kids of 
working families to receive this benefit. Over half of the kids in 
Oklahoma will not receive it under the Republican plan. Over half of 
the kids in Alabama will not receive it. Fifty-six percent of the kids 
in New York will not receive it. Almost half of the kids in Ohio will 
not receive it.
  Mr. Chairman, I yield 4 minutes to the distinguished gentleman from 
Georgia [Mr. Lewis], a civil rights leader, a member of the Democratic 
leadership.
  Mr. HEFNER. Mr. Chairman, will the gentleman yield?
  Mr. LEWIS of Georgia. I yield to the gentleman from North Carolina.
  Mr. HEFNER. Mr. Chairman, they say what goes around comes around. In 
1981 we heard the same arguments. We passed a package that was unfair 
in 1981, and we have a package today that repeats it. It is not fair.
  If the people want to complain about us engaging in warfare and 
passing a tax package that benefits the wealthy, quit offering the 
packages that do not help the working people. But if Members want 
another package like they had in 1981, this is their baby.
  Mr. LEWIS of Georgia. Mr. Chairman, it is time to be frank and honest 
about this tax bill. Republicans used budget gimmicks, smoke and 
mirrors, to hide the true effect of their plan. Why? Because the 
American people know the Republicans are looking out for Wall Street 
and wealthy Republican supporters.
  This debate is not about whether to have a tax cut. Democrats support 
a tax cut. This debate is about who will get the tax cut, Wall Street 
or Main Street. Democrats support a child tax credit for all working 
families. We support a HOPE scholarship to help our children, all of 
our children, go to college. We support allowing middle class American 
families to sell their homes without paying taxes.
  But this is not what the Republicans want. The Republicans deny more 
than 10 million working parents a child tax credit, parents who pay 
billions of dollars in Federal taxes. Republicans cut in half President 
Clinton's HOPE scholarship for millions of middle class students. Why? 
So they can give a huge tax break to the rich.
  Republicans may tell us a different story, but do not be fooled. The 
Republican tax bill is not the Good Samaritan on the Jericho road. Do 
not be misled. What do the Republicans give a family of four making 
$24,000 a year? Nothing. What do Republicans give the mother who has 
left welfare to work at a minimum wage job? Nothing.
  Yesterday Republicans raised the Medicare premium on the elderly. 
Today the Republicans will give the elderly middle class nothing. What 
do the Republicans give millions of working families? Nothing, nothing, 
nothing.
  Empty Republican promises will not help hard-working families live 
the American dream. Republicans give a $22 billion tax break to 
America's largest corporations. They give 20 percent of that tax break 
to people with an average income of half a million dollars. At the same 
time, the Republicans raise taxes on people earning less than $10,000 a 
year.
  Republicans will steal from the poor and give to the rich. When fully 
phased in, Republicans give 60 percent of their tax cut to the 
wealthiest 10 percent of Americans. That does not leave much for 
America's middle class.
  I would say to the gentleman from New York [Mr. Rangel], Mr. 
Chairman,

[[Page H4684]]

I was not here for voodoo economics. I did not vote for trickle-down 
economics that did not trickle down. We must not make the mistakes of 
the past. We must not travel down that road again. We must not let the 
Republicans hide a huge tax cut for the rich behind empty promises for 
the middle class.
  Mr. Speaker, let us give a real tax cut to hard-working American 
families. I urge all of my colleagues to reject, to vote against, this 
Republican tax scheme for the rich and support the Democrat middle 
class tax cut for all Americans.
  Mr. ARCHER. Mr. Chairman, I yield myself 2\1/2\ minutes.
  Mr. Chairman, I would simply say that my friend, the gentleman from 
Georgia [Mr. Lewis], makes a very excellent and emotional presentation. 
And he is right in some regards; he is right, we do not give income tax 
relief to people who do not pay income taxes, absolutely right. Those 
people in the middle-income category who pay income taxes, who bear the 
burden, who have received nothing in the last 16 years, do get the 
majority of the relief under this bill.
  As for Wall Street and Main Street, I do not know how Wall Street 
benefits from the child credit. I do not know how Wall Street benefits 
from the education credit. But over a 10-year period, and if this is 
not true let it be refuted on the other side, $250 billion is the net 
tax relief. It is $225 billion over 10 years that goes to the child 
credit, which cannot be given to anybody who has over $100,000 in 
income, and to the educational tax relief. How does that help Wall 
Street?
  Mr. KASICH. Mr. Chairman, will the gentleman yield?
  Mr. ARCHER. I yield to the gentleman from Ohio.
  Mr. KASICH. Mr. Chairman, I also want to say what confuses me is I 
was in this Congress for over a decade listening to people talk about 
all these big giveaways to the rich, powerful special interests. Yet, 
the then-majority did not have the guts to take any of those special 
benefits away by closing loopholes.
  It was finally when the gentleman from Texas [Mr. Bill Archer] became 
chairman of the Committee on Ways and Means that we decided to deny 
special benefits to companies in Puerto Rico that were not living up to 
the spirit of the deal, to help people in Puerto Rico, and as the 
chairman of the Committee on Ways and Means that has closed a whole lot 
of loopholes and denied these loopholes to special interest groups so 
people who are normal, average working families can get tax relief, we 
ought to be given credit about that by everybody, on both sides of the 
aisle.
  Mr. ARCHER. Mr. Chairman, this has been distorted also, and I would 
further add into the debate that over a 10-year period, and normally 
the House works only on 5 years, those are our rules, but because this 
is a special deal with the Senate, and the Senate works off of 10 
years, we are now looking at both, over 10 years with this tax relief 
the budget is still balanced at the end of 10 years.
  Mr. RANGEL. Mr. Chairman, I yield myself 1 minute and 10 seconds.
  Mr. Chairman, it is just how we are designating these working people 
who are working every day, who will not receive the benefit, that is 
almost half of the families. We keep saying they do not pay taxes.
  Mr. ARCHER. Mr. Chairman, will the gentleman yield?
  Mr. RANGEL. I yield to the gentleman from Texas.
  Mr. ARCHER. Mr. Chairman, they do not pay income taxes, I would say 
to my friend, the gentleman from New York.
  Mr. RANGEL. Mr. Chairman, they cannot do this to the working people. 
It is just not fair to do it. If they are going out and paying taxes 
for clothes, for food, they do not care whether it is the city tax, the 
State tax, the Federal tax. These are working, proud people who do not 
want welfare.
  The President said, the bipartisan committee said, if you are working 
and you have kids, we want to help you. But now we are saying, we 
really did not mean you people who do not have the Federal liability; 
we cannot help you.
  Mr. ARCHER. The gentleman is absolutely right. If you pay in any 
income tax, you get relief under this bill. If you do not pay any 
income tax, you do not get relief. The gentleman is correct.
  Mr. RANGEL. Taxes they can pay, and if it is not Federal income taxes 
and they are working hard, they do not count.
  Mr. ARCHER. This is an income tax relief bill. That is correct. Those 
people who pay income tax get income tax relief.
  Mr. Chairman, I yield 3 minutes to the gentleman from Florida [Mr. 
Shaw], another respected member of the Committee on Ways and Means, and 
the chairman of the Subcommittee on Human Resources.
  Mr. SHAW. Mr. Chairman, I thank the chairman for yielding me this 
time.
  Mr. Chairman, I think people who are watching this debate have to be 
just totally confused at this time. I think the gentleman from Texas 
[Mr. Archer], the chairman, has made a point very, very clearly. If you 
do not pay income taxes, you do not get income tax relief. Yet, when we 
hear the speeches going on in the well, as they are talking about all 
these people are rich, I am sorry, I do not think somebody who makes 
$20,000 a year is rich. Those are the people, between $20,000 and 
$70,000, they are the ones who are getting the major part of the relief 
in this bill, up to 76 percent.

                              {time}  1415

  That is the bulk of where this relief is coming from. Look at the 
child credit, the tax credit for people who have kids, this is a huge 
part of this bill, a huge part, and this does not go to the very 
wealthy, as I would define very wealthy. It goes to middle-income 
America.
  I think when you look at the bill and you try to put it on balance, 
there are some Members in this House who just cannot stand the idea of 
giving the American people some tax relief. It has been 16 years. 
Republicans tried to do it last year. We were in the last Congress, it 
was vetoed. We have now come together working with the administration 
in trying to give America a very much-needed tax bill and give them the 
first tax cut in the last 16 years. That is what we need to talk about.
  All the rhetoric and all the voice raising and all the yelling and 
screaming in the well of the House or at any of the microphones around 
the House is not going to change that. The figures do not lie. That is 
where the bulk of the tax break is going and that is where it is going 
to be.
  One thing that I think all of us need to talk about and need to be 
concerned about, that is job creation. When we encourage corporate 
America, encourage small businesses, encourage the American people to 
invest in jobs, machinery and equipment, we become more competitive. 
When we talk about our jobs going overseas, we are trying to bring them 
home. We want people that have invested in machinery and equipment, 
that creates jobs. We want them to be able to get the tax write-offs 
that they deserve through the depreciation process. The depreciation 
process is just simply being able to subtract from your income a small 
portion every year of your investment so that at the end of the time, 
you just have not poured money down the drain. The same Members that 
are complaining about this are the same Members that complain about our 
jobs going overseas. You cannot have it both ways. We need economic 
development, economic growth in this country. We have had good economic 
growth but the jobs have not kept up. Wages have not kept up.
  This is what this bill is going to do. Let us get away from the 
rhetoric. Let us stick with the facts and let us support the bill.
  Mr. ARCHER. Mr. Chairman, I yield 5 minutes to the gentleman from 
California [Mr. Thomas] another very respected member of the Committee 
on Ways and Means, who is also chairman of the Subcommittee on Health.
  (Mr. THOMAS asked and was given permission to revise and extend his 
remarks.)
  Mr. THOMAS. Mr. Chairman, first of all I want to thank the chairman 
of the Committee on Ways and Means for yielding me the time, but more 
importantly, for working cooperatively to produce a bill of which all 
of us can be proud.
  I have listened to this debate carefully, and frankly there are two 
themes

[[Page H4685]]

that just baffle me. But that is okay. You folks baffle me often. One 
of them is that you have come to the floor and you have presented a 
number of charts which explain by graph lines that if you give more of 
the American people's money back to them, that is, leave it in their 
pocket, that somehow the Government is going to go into deficit. It is 
a very simple and fundamental question. What is the economic engine of 
this economy? Where are jobs created?
  We believe the economic engine is the individual, not the Government. 
It is quite clear when you make the argument that if you leave money in 
the pocket of citizens to invest, to grow, to create jobs, you are 
threatening the deficit of the Government. You are wrong. What that 
does is grow the economic pie. It means they are going to have a better 
life and there will be more revenue available to the Government.
  I know you do not believe that because you do not believe in leaving 
more money in the pockets of the citizens.
  The other thing that I have marveled about in terms of the 
presentation today is that there is one myth that you absolutely have 
to perpetuate. I was pleased yesterday on the front page of the 
Washington Post that the myth that there were aliens who visited the 
Roswell, NM, area 51, I apologize if some of you do not believe that it 
is a myth; if you believe it is reality, then it just proves my point 
even more, but I think we are beginning to realize that it is a myth. 
We have just recently realized that spicy foods do not cause ulcers. 
That is an old wives' tale. That is a myth, it is Bacteria.
  There is another other myth that is trying to be perpetuated on the 
floor of the House today. And that is if Republicans put together a tax 
cut, it must be for the rich. It cannot be any other way. They say 
aliens landed in Roswell, spicy foods cause you ulcers, Republicans' 
tax packages are for the rich.
  Let me give you an example of how far the Democrats have had to go to 
maintain the myth that this tax package is for the rich.
  Let us take a family that really has not had a very good year this 
year. It is the Smith family. There are three of them, Mr. and Mrs. 
Smith and their son, Tom, who is 16 years old. Mr. Smith worked in a 
foundry but because a lot of the work they are doing is being 
supplanted by imports, the job really has been threatened for some 
time. Mr. Smith was worried. He had an accident on the job and, as a 
matter of fact, the foundry closed down. He is getting workmen's comp 
because of his accident and he did get some severance pay from the 
company. They are fortunate, though, because over the years they have 
been able to save their money and they bought a modest home. They are 
living in the home. He has an insurance policy that is slowly getting 
bigger, like most of you have. And son, Tom, feeling pretty proud for a 
16-year-old, works at a fast-food store to give himself some pocket 
change and help out around the house sometimes. He feels very good 
about it.
  In real life, that family profile produces no tax paid. As a matter 
of fact, they could earn another $10,000 under current law and there 
would be no tax paid.
  Look what the Democrats can do to this family, using their economic 
income profile. Do not look at the $70,000-a-year people. That is even 
worse. Look at the Smith family.
  All of a sudden in their family income profile, Mr. Smith must count 
his $5,000 of separation pay. Tom Smith's fast food money goes onto the 
ledger, $3,000, the $5,000 for workmen's comp, that is added to their 
income, and guess what, that modest home they live in that would after 
expenses rent for $500 a month, requires that you slap another $6,000 
on their income. Under the Democrats' arguments about who is getting 
the benefits in this tax cut, the Smiths would have made $20,000 last 
year. And if you then take the current tax structure and impose it upon 
what they say the Smith family earned, under their economic income 
test, these poor folks, the fellow on workmen's comp who lost his job, 
whose kid felt pretty good about working, winds up owing $772 in taxes.
  That is what they do to reality to keep the myth alive that the 
Republicans have tax cuts for the rich.

                               Real Life

       Gross income for Mr. and Mrs. Smith, $5,000 (separation 
     pay).
       Standard deduction, ($6,000).
       Personal exemptions (for Mr. and Mrs. Smith and son Tom), 
     ($7,950).
       Taxable income, ($9,850).

       In real life, the Smiths owe no tax.
                                  ____


                        Democrats' Family Income


                              Compensation

       Mr. Smith (separation pay), $5,000 (separation pay).
       Mrs. Smith, none.
       Tom Smith (fast food res. salary), $3,000.
       Mr. Smith's workman's compensation, $5,000.
       Increase in value of life insurance policy, $1,000.
       Imputed rental value of home, $6,000.
       Total, $20,000.
       Standard deduction, ($6,900).
       Personal exemptions (for all three family members), 
     ($7,950).
       Taxable income, $5,150.

       Taxable income, $5,150.

       If Democrats' family income was law, Smiths would owe 
     $772.50 in taxes.
  Mr. RANGEL. Mr. Chairman, I yield myself 10 seconds.
  The real myth is that this is a bipartisan bill. The person who 
reached out to make it bipartisan is the President of the United 
States. He will evaluate it and he will find out that it has to be 
vetoed.
  Mr. Chairman, I yield 2 minutes to the gentleman from Massachusetts 
[Mr. Markey], an outstanding Member of this Congress.
  Mr. MARKEY. Mr. Chairman, first of all, this budget is a house of 
cards. There are so many assumptions built into the Republican budget 
and tax bill that it is important for them to keep them separate. 
Yesterday, the budget. Then after a respectful overnight wait, we bring 
the tax breaks out here onto the floor. Today they give the tax breaks 
to the people who do not need them. Do they give them to the people who 
they hurt yesterday? Well, they say, with bleeding palms yesterday on 
the floor, look how much we would like to help those uninsured 
children. We have no money. Look how much it hurts us to cut the 
Medicare for the elderly. We have no money. And then after a respectful 
overnight wait, the tax break fairy shows up on the floor on the 
Republican side, sprinkling tax breaks across America. And who do they 
give them to? Do they give them to the families with uninsured 
children? No. Do they give them to the elderly on Medicare? No. They 
give them disproportionately, overwhelmingly to those that come from 
families of $100,000 or more.
  Now, Mr. Chairman, these are the same Members who said that the 
Democrats in 1993, when they voted to reduce the deficit from $300 
billion down to $50 billion today, were going to ruin the American 
economy. What do they do? They bring out a proposal here that increases 
the deficit next year and the year after and the year after and the 
year after and in the year 2001 magically it is going to balance 
itself. And how are they going to do it? Auction off spectrum. Auction 
off spectrum, like Rumpelstiltskin forcing the young maiden to spin 
gold.
  Mr. ARCHER. Mr. Chairman, will the gentleman yield?
  Mr. MARKEY. I yield to the gentleman from Texas.
  Mr. ARCHER. Mr. Chairman, the gentleman just said that the benefits 
in the child credit went to families over $100,000. I am sure he did 
not mean to say that.
  Mr. MARKEY. Mr. Chairman, I absolutely did. And it is an 
incontrovertible truth. That is how the tax benefit breaks, if you look 
at it over the 10-year period, as we should have done with the Reagan 
tax break in 1981, which ultimately turned out to be that kind of 
pinata of goodies for the rich.
  Mr. ARCHER. Mr. Chairman, I yield myself 15 seconds to say that the 
tax benefits for families with children go almost totally to people 
under $100,000 in annual income. The gentleman knows that. He did not 
mean to distort it and say they all went to people over $100,000.
  Mr. Chairman, I yield 2 minutes and 30 seconds to the gentleman from 
Arizona [Mr. Hayworth], respected member of the Committee on Ways and 
Means.
  Mr. HAYWORTH. Mr. Chairman, I thank the chairman of the Committee on 
Ways and Means. I believe it was Art Linkletter in a joking vein who 
reminded us all that kids say the darndest things. I must tell you 
today,

[[Page H4686]]

Mr. Chairman, that listening to the gentleman from Massachusetts, I am 
reminded that liberals say the darndest things.
  Let us say it as it really has been. The gentleman from Massachusetts 
talks about a house of cards. Here is the problem, Mr. Chairman. It is 
that the liberals on this side have built a house on credit cards, 
going to the American people time and time again to take more money out 
of their pockets, and the gentleman from Massachusetts speaks of a tax 
break fairy. No indeed, Mr. Chairman, a tax break reality is what the 
American people deserve. And that is what they receive under the 
majority's plan.
  The gentleman from Massachusetts, indeed our friends on this side of 
the aisle, all know that this tax bill provides tax relief to working 
Americans. Indeed, well over 70 percent of the tax breaks here go to 
families earning between $20,000 and $75,000 a year. In my State of 
Arizona, 570,000 children will be eligible for the $500-per-child tax 
credit--$438 million in education tax benefits will go to Arizona 
families. And all Arizona small businessmen and ranch owners and 
farmers will benefit from an increase in the death tax exemption.
  No, the fact is, Mr. Chairman, this plan makes imminent sense. Again, 
to echo the curious findings of my friend from Massachusetts who spoke 
about Rumpelstiltskin, the sad fact is that while this Government has 
not demanded the firstborn child of every family, it has asked for more 
and more and more of the average family's income until the tax-and-
spenders who dominated Washington for so long asked for more and more 
and more to the point where, Mr. Chairman, the average family in this 
country pays more in taxes than on food, shelter, and clothing 
combined.
  In the name of fairness, we ask the American people to join with us 
and let us make sure the American people hang onto more of their own 
money, send less of it here to Washington. That is the key to our 
future success. That is the true bridge to the 21st century.
  Mr. RANGEL. Mr. Chairman, I yield myself 10 seconds to point out to 
the gentleman from Arizona that as a result of the Republican bill, 
working Arizonan families that do not pay the Federal income tax but 
pay taxes on everything that they eat and drink in Arizona will be 
denied the benefits under the Clinton bill.
  Mr. Chairman, I yield 2 minutes to the distinguished gentlewoman from 
California [Ms. Waters], chairperson of the Congressional Black Caucus.

                              {time}  1430

  Ms. WATERS. Mr. Chairman, I rise today in strong opposition to the 
Republican reconciliation tax bill. Their $85 billion tax cut package 
gives the wealthiest huge tax benefits while ignoring the plight of the 
working and poor families who struggle every day to get by.
  The combined effect of their spending and tax bill also gives the 
wealthiest 20 percent of the U.S. population a whopping 87 percent of 
the net benefits, while the bottom 60 percent would share only 4 
percent of the net benefits.
  In fact, under the Republican tax bill, the average savings for the 
20.7 percent of families with incomes between $30,000 and $50,000 would 
be a measly $38. At the same time, the wealthiest 1.4 percent of 
households would get a tax break of over $21,000.
  These tax cuts that benefit upper-income people include open-ended 
estate tax cuts that benefit only the richest 1.5 percent of families 
and include the deficit-busting capital gains tax breaks. At the same 
time, the Republicans' proposal denies the working poor the tax relief 
they guarantee the rich.
  The Republicans took the President's education tax package, including 
the HOPE scholarship, and undermined its goal of reaching the neediest 
students.
  The bill undercuts the wages and benefits of millions of workers by 
enabling employers to consider them independent contractors and not 
employees.
  The bill also denies the $500-per-child tax credit to over 15 million 
families. Let me give my colleagues an example of what this means. In 
the State of California, 56 percent of the children do not get the 
child credit under the Republican bill. That is more than 5.5 million.
  The Republican tax bill is an outrage. They do not want us to say it, 
but we are going to say it over and over again; it benefits the 
wealthiest in this Nation. I urge a ``no'' vote.
  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentleman from 
Illinois [Mr. Manzullo].
  Mr. MANZULLO. Mr. Chairman, the people of the district I represent 
earn between $30,000 and $40,000 a year. What does that mean to them? 
It means that 113,600 children in my congressional district are 
eligible for the $500-per-child tax credit.
  That means that people in the district I represent will have an 
additional $48 million in money that they otherwise would have paid to 
the Federal Government. It means to those people that they will be able 
to keep an additional $1,500 in money they would have paid for Federal 
income tax in their own pockets to give to their kids who are going to 
college.
  Who is the beneficiary of this? It is the people that I represent, 
the hard-working Americans, the ones earning between $30,000 and 
$40,000 a year. It is 113,000 children in the district that I 
represent. A good tax cut bill for the hard-working, middle-income 
American families.
  Mr. RANGEL. Mr. Chairman, I yield myself 10 seconds.
  Mr. Chairman, we are very pleased about the number of children that 
get the benefit. That is what the President wants. We are very 
disturbed that 1.8 million, that is half the kids in Illinois, will not 
get it.
  Mr. Chairman, I yield 3 minutes to the gentleman from South Carolina 
[Mr. Spratt], the Democratic leader of the Committee on the Budget, and 
publicly thank him for the bipartisan effort that he made on behalf of 
the President and the country.
  (Mr. Spratt asked and was given permission to revise and extend his 
remarks.)
  Mr. SPRATT. Mr. Chairman, I thank the gentleman from New York [Mr. 
Rangel] for yielding me the time.
  Mr. Chairman, I have been in this House for 15 years, and it has 
taken all of those years for us to get to this point, a day when we can 
honestly say a balanced budget is within our reach.
  Over the last 5 years, we have lowered the deficit by 65 percent, 
brought it from a projected $332 billion in fiscal 1993 to $10 billion 
last year. This year, it is projected to be $65 billion, the lowest 
level in 20 years. We have succeeded, in part, because we finally 
restored the revenue base of the Federal Government, due in part, large 
part, to the tax bill that we Democrats passed in 1993.
  Corporate income tax revenues this year are up by $72 billion, more 
than 70 percent over 1992. And, indeed, the only reason we are standing 
here debating a tax bill, or debating a balanced budget bill yesterday, 
is that CBO came up with $225 billion in additional revenues.
  Now having come this far, our object is clear. We want to balance the 
budget, we want to finish the job, we want to get there by 2002. But we 
do not want to blow this opportunity, having come so close to the 
target. To move a 5-year budget in a divided government, we have got to 
have bipartisan consensus; and to have that consensus, we had to agree 
to tax cuts. Both sides, in truth, want them.
  But since the overriding objective is a balanced budget, we had to 
agree that the tax cuts stay within strict limits: $85 billion in net 
revenue losses over the first 5 years, $250 billion over the full 10. 
We fixed those limits, once again, because we have come so far and we 
did not want to lose the ground we gained, to put our objective back 
any further or risk the objective. But it is so far out that it would 
be beyond resolution.
  The first fault I have with their tax bill is it does not meet our 
objective. Specifically, it goes beyond limits laid down by our budget 
agreement. It breaks the letter of the agreement because the revenue 
losses in it add up to $4 billion too much over 10 years in the amount 
we specified. That is because the Committee on Rules yesterday removed 
the cutbacks in ethanol tax preferences without replacing them with 
anything.
  This is not my back-of-the-envelope estimate, it is a ruling rendered 
yesterday by our official scorekeeper, the

[[Page H4687]]

Congressional Budget Office. The CBO refused the attempt to score this 
bill as though the ethanol bill will expire in time. Four billion 
dollars is not a lot of money in a budget that runs into the trillions, 
but it is the spirit. It is sort of a manipulative spirit that gives me 
the most problem, and it runs throughout this particular tax bill.
  Look what happens to capital gains. Let me say something: I am for 
capital gains tax cuts, and I am one of the Members who are in this 
House that will benefit from tax cuts, I should be frank to say, that 
we are going to get. But let me say I do not want a double-barreled tax 
cut, low preferential rate coupled with indexation, if it has to come 
at the expense of millions of children who will not get the tax credit, 
if it has to come at the expense of families on the EITC. This is a 
bill that should be rejected because it did not keep the budget 
agreement, it is not fair, and it included the extraneous provisions in 
the first place.
  Vote against this bill. Vote for the Democratic substitute.
  Mr. ARCHER. Mr. Chairman, I yield 2 minutes to the gentleman from 
Maryland [Mr. Gilchrest] for a colloquy.
  Mr. GILCHREST. Mr. Chairman, I thank the gentleman from Texas [Mr. 
Archer] for yielding me the time, and I thank him for the opportunity 
to have this colloquy with him.
  In the State of Maryland, as in many other States, it is common 
practice for school boards to contract out school busing services to 
independent contractor schoolbus drivers. Nearly every school district 
on the Eastern Shore has operated under such a contractual arrangement 
for decades.
  Recently, however, the Internal Revenue Service made a determination 
that under the 20-factor common law test used to classify workers for 
Federal tax purposes, the Maryland school boards are required to treat 
these schoolbus drivers as employees of the school districts. These 
school districts are faced with a closing agreement that takes effect 
September 1 under which the school districts would be forced to 
purchase the buses from the independent contractor owner-operators and 
make them employees of the school district.
  The IRS determination will disrupt longstanding contractual 
relationships that are beneficial to both the school districts and the 
self-employed schoolbus drivers who provide this vital service.
  My understanding is that the safe harbor for independent contractors 
in section 934 of the bill will cover the longstanding contractual 
relationships between Maryland school boards and their independent 
contractor schoolbus drivers.
  Mr. ARCHER. Mr. Chairman, will the gentleman yield?
  Mr. GILCHREST. I yield to the gentleman from Texas.
  Mr. ARCHER. Mr. Chairman, based on the facts that the gentleman has 
outlined, the Maryland school boards' existing contractual arrangements 
would be covered by the safe harbor, and that is the intent of the 
committee.
  Mr. GILCHREST. Mr. Chairman, I thank the gentleman for that 
clarification. However, I do have a lingering concern about the 
Maryland school districts' problem. Under the December 31 effective 
date of the independent contractor safe harbor contained in the bill, 
many school districts will be forced, since they have this contract 
beginning in September, the school districts will be forced to sign the 
contract and potentially lose their buses and their independent status.
  Mr. ARCHER. Mr. Chairman, the committee intends that section 934 
would address the Maryland situation, among many others. However, we 
now understand that the provision's effective date may be too late to 
thoroughly address the problem in the Maryland counties.
  I assure the gentleman I will seek to correct this problem during the 
conference.
  Mr. RANGEL. Mr. Chairman, I yield 1\1/2\ minutes to the distinguished 
gentleman from North Carolina [Mr. Price].
  (Mr. PRICE of North Carolina asked and was given permission to revise 
and extend his remarks.)
  Mr. PRICE of North Carolina. Mr. Speaker, I rise today in opposition 
to the Republican tax bill and in favor of the Democratic tax relief 
plan. The Republican plan distorts our priorities as a nation and, in 
particular, does not do enough for one of the most important resources 
our country has, our students.
  First of all, the Republican bill cuts the value of the President's 
HOPE scholarship in half, severely limiting tuition relief for the 
neediest students and students attending community colleges. In 
addition, while the Democratic alternative would permanently extend the 
tax credit for employer-provided education assistance, the Republican 
bill offers only a short and temporary 6-month extension.
  Perhaps the worst offenses in this bill concern graduate students. 
Graduate students are barely scraping by on small stipends to finance 
huge tuition costs. But the Republican bill creates a tax on these 
graduate students who work part time as teaching assistants and 
research assistants and receive, in return, a reduction in their 
tuition. Under the Republican bill, graduate students would be taxed on 
this tuition reduction, increasing their tax burden in many cases by as 
much as $3,000 or $4,000 a year.
  The Durham Herald Sun recently reported that the Committee on Ways 
and Means spokesman commented that graduate students may not make much 
money while they are in school, but many--and he seems to think they 
are all going to be doctors or lawyers--will be earning very high 
salaries shortly after graduation. He went on to call graduate students 
``privileged,'' the sort of group that quote, ``ought to be the first 
to pay.''
  Well, if you are a graduate student, you certainly are going to pay. 
And if you want to use the HOPE scholarship to finance your tuition 
cost, forget it. Under the Republican bill you cannot because graduate 
students are totally ineligible.
  Many Members today are expressing their support for tax cuts for 
hard-working Americans. But the competing bills before us differ 
greatly in the benefits they offer to working and middle-class 
Americans. And as Mr. Spratt has just stressed, they also differ in 
their fiscal responsibility, in the extent to which they keep the lid 
on the deficit in future years. The Republican bill cuts taxes for 
corporations and for the wealthiest Americans. But it increases taxes 
on graduate students and does little to help students struggling to 
attend college. We can and should do better, and the Democratic 
alternative shows us the way.
  Vote for the Democratic alternative that does justice to this 
country's priorities and values.
  Mr. HULSHOF. Mr. Chairman, I yield myself such time as I may consume.
  I strongly support the tax package that came out of our Committee on 
Ways and Means. I am privileged to serve on that committee.
  When I go back home, Mr. Speaker, I am inevitably asked the question, 
usually by high school students, ``What is the difference between 
Republicans and Democrats?'' And I try to tell them, Mr. Chairman:
  I believe both parties, of course, believe in democracy. I believe 
both on either side of this aisle believe in a better America. But I 
think our vision of how to get to a better America is where we find 
other differences.
  I know, certainly, that those of us on our side of the aisle believe 
that America is an overtaxed nation. We believe it is a matter of 
principle that hard-working men and women in this country stop working 
so hard for the Government.
  As a newly elected Member, I have got to tell my colleagues that I am 
a little bit incredulous. Why is it that when we talk about letting 
people keep more of their money, that that is such a novel, radical 
idea? Why is it that when we talk about making Washington spend less, 
that somehow we are talking about blowing up the deficit?
  I believe, as a fundamental principle, in letting the hard-working 
people in this country keep more of what they earn. It is their money. 
It is not the Government's money.
  Mr. Chairman, I go back home, hopefully, after today and after a hard 
week, and I am going to get a chance to sit on our front porch with my 
wife and visit with our neighbors. I think it is best to let the 
decisions about how their tax money should be spent, that they are 
better to make that decision, better than I am.
  For those that continue to talk about these capital gains cuts, since

[[Page H4688]]

when did fighting and working for the American dream, when did it 
become a scarlet letter? When did it become appropriate for us to scold 
and even punish or penalize those that have tried to get ahead?

                              {time}  1445

  Mr. Chairman, this tax package helps the economy, it helps all 
Americans. For those that are trying to achieve the American dream. We 
encourage every business owner, every investor, every inventor, every 
farmer, every business man, every woman, every stockholder, every 
homeowner to invest in America's neighborhoods and workplaces by 
significantly reducing this tax on savings and investment, otherwise 
known as capital gains. But we continue to resort to this old style 
politics of class warfare. I had hoped as a newly elected Member that 
we were beyond that. Instead of dividing America, instead of pitting 
one group against another, why are we not working together? Why are we 
not trying to forge a consensus? Why are we not celebrating this day?
  Next week when we are home, Mr. Chairman, we have a chance, of 
course, to celebrate our Nation's independence, July 4. I believe that 
if we support this Republican tax package, that we will be providing a 
symbolic victory for those folks who truly want to celebrate their 
independence.
  Mr. Chairman, I yield 1 minute to the gentleman from Colorado [Mr. 
Hefley].
  Mr. HEFLEY. Mr. Chairman, I rise to support this bill even though it 
does not go as far as I would like it to. I think our goal should be to 
get rid of the capital gains tax, to get rid of the death tax. But I 
look at this package and see what it means to the folks in my home 
State of Colorado. It means that the hardworking high school student 
from central Denver who cannot go to college right now will be able to 
get some help with books and tuition. It means that the middle-class 
family in Colorado Springs struggling on a two-family income may be 
able to take the vacation they have not been able to take because they 
can keep more of the money they have earned.
  It means that the family farm in LaJunta, the one that has been in 
the same family for generations, may be able to stay in that family, 
and that the mom and pop store in Greeley may be able to stay in the 
family and the kids will not be saddled with unbearable inheritance 
taxes.
  Yes, I support this bill because it will create jobs across the State 
of Colorado and those who have had trouble getting jobs will have a 
bigger job market and be able maybe to become productive again.
  Mr. Chairman, that is what this tax bill and this tax cut does to the 
people of Colorado and for all Americans. I urge my colleagues to 
support this legislation. America needs a tax break.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute to the gentleman from 
Vermont [Mr. Sanders].
  Mr. SANDERS. Mr. Chairman, I think everybody knows what is going on 
in America economically. The people on the top have never had it so 
good. The middle class is shrinking, and most working people are 
struggling hard to make a living.
  Given that reality, look at the absurdity of this Republican tax 
proposal. Instead of helping working people and the middle class, 58 
percent of the benefits go to the upper 5 percent. After giving out all 
of those tax breaks, they necessitate $115 billion cuts in Medicare, 
which in my State of Vermont will be a $75 million cut over a 5-year 
period, which will mean deteriorating health care services for our 
senior citizens. Huge tax breaks for the rich, significant cuts in 
health care for our senior citizens.
  The bottom 40 percent of wage earners get no cuts at all. What an 
absurd proposal. Let us defeat it.
  Mr. CHRISTENSEN. Mr. Chairman, I yield 1 minute to the gentleman from 
Colorado, [Mr. Bob Schaffer].
  Mr. BOB SCHAFFER of Colorado. Mr. Chairman, this is a picture of my 
grandmother. Here she is, a small little child. This is her in Ukraine 
when she was a little baby. This is her soon-to-be husband, this is my 
grandfather in Ukraine before they both immigrated, or when they 
immigrated to the United States. Three percent of their income was 
taxed by the Federal Government.
  How far we have come. Here is their great grandchildren, my children. 
They were born into a world where they owe $20,000 as their share of 
the national debt. This is their share. The party that has been in 
charge for 40 years has taken our country from this to this. The land 
that my grandparents immigrated to in search of freedom and liberty and 
low taxes and opportunity has become a country where nearly 50 percent 
of the average family income is taken away, confiscated through 
taxation at the Federal, State, and local level.
  Here is a farmer from Colorado standing next to me. Democrats suggest 
he is rich. He is an average American. He deserves a tax break.
  Mr. RANGEL. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman 
from Arkansas [Mr. Snyder].
  Mr. SNYDER. Mr. Chairman, today we are considering the first tax cut 
bill in 16 years. Let us choose the right tax cut bill for working and 
middle-class families. This is one of my constituents, Ingrid, and her 
two lovely children. She makes $7.50 an hour, which comes out to 
approximately $15,000 a year. Every week or every month, like everybody 
in America, she gets a paycheck. This is a copy of her check stub. On 
it it shows what kind of State, Federal, and payroll taxes she pays, 
and I circled the payroll tax. The right tax bill for her is the 
Democratic bill because the Republican bill pretends that she does not 
really pay these Federal taxes.
  That is just wrong, Mr. Chairman. It is the wrong bill for millions 
of families like her.
  This is another set of my constituents. This is Judy and her two 
daughters. They are older, they are teenagers. She needs to be thinking 
about college. Under the Democratic bill she will get the full $1,500 
tax credit per year for the first 2 years of college. Why is that 
important? Because college tuition at our 2-year colleges can vary from 
$800 to $1,500 a year. Under the Republican bill she would only get 50 
percent credit for that. It is not fair that she is forced and her 
children are forced to consider going to more expensive schools just to 
take advantage of a full tax credit for college.
  Mr. Chairman, the Republican bill is the wrong bill for working 
middle-class families. I am going to vote for the Democratic 
alternative.
  Mr. CHRISTENSEN. Mr. Chairman, I yield 2\1/2\ minutes to the 
distinguished gentleman from Nevada [Mr. Ensign].
  (Mr. ENSIGN asked and was given permission to revise and extend his 
remarks.)
  Mr. ENSIGN. Mr. Chairman, I rise in support of the Republican tax 
bill today because it is truly time for us to give tax relief to all 
Americans but especially to those in the middle income categories. I 
want to talk about two couples, very close friends of mine. One of the 
couples, they both work at Hertz Rent A Car. One works at the counter, 
the other one works actually in the parking lot. Between the two 
salaries, they make about $70,000 a year, not including benefits.
  According to the Democrats and how they would calculate their salary 
on imputed income and the like, they would probably make about $120,000 
a year. But let us take what they say on their tax returns. It is 
around $70,000, two average middle income-type people. They have two 
kids. What the Republican tax bill will do is give this middle-income 
family $1,000 per year in a child tax credit. It will also give them 
the opportunity to send their kids to college. But it also gives them, 
because of the capital gains tax reduction, the incentive to save and 
invest for the future.
  Another couple, he is a police officer, a sergeant who actually has 
been in Las Vegas for years working for the police department; she is a 
receptionist. They make somewhere around $75,000 a year. This chart 
here clearly shows that both of these couples will get 76 percent of 
this tax break. According to what all Americans look at, and that is 
what does their tax return show how much income they make.
  The Democrats have been cooking the books this entire time. When 
people ask you how much money do you make, you do not think about the 
numbers the Democrats are using. You think about what the numbers show 
on your tax return. Those are the real numbers, not the cooking the 
books number.

[[Page H4689]]

  Mr. Chairman, this tax bill is truly for working class American 
citizens. Does it also go to some of the wealthy? Yes. But the vast 
majority of this bill by any common sense figures goes to people in the 
middle income categories in America.
  Mr. Chairman, I urge a strong yes vote to allow working Americans to 
keep more of the money that they earned, not the money sent to the 
Government.
  Mr. RANGEL. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman 
from North Dakota [Mr. Pomeroy].
  Mr. POMEROY. Mr. Chairman, I thank the gentleman for yielding me this 
time.
  Mr. Chairman, this is not a balanced bill. A look at what it does to 
help folks save for retirement tells the whole story.
  First, the bill will actually force the retirement benefits of many 
retired college professors to be reduced, cut benefits 3 to 5 percent. 
Then the bill does absolutely nothing to help middle income Americans 
save for retirement by expanding individual retirement accounts to make 
it a little easier for them to put money away. No, it does not do 
anything there at all.
  Rather, it creates a brand new tax break that benefits the most 
affluent seniors. The great majority of this new tax break, called 
backloaded IRA's, goes to the wealthiest 5 percent in this country. And 
so as it is with retirement savings, it is throughout this bill. Most 
of us get nothing. And the wealthiest get the most.
  With retirement savings, it is so unfortunate this decision has been 
made. Folks need help putting money away for retirement. But rather 
than extend help to those who need it the most, middle income and 
working income families, the bill does nothing. Rather, it creates all 
of the benefit for those who already have the money saved for 
retirement, the country's most affluent.
  Mr. Chairman, reject this bill. We can make it much better.
  Mr. CHRISTENSEN. Mr. Chairman, I yield 1 minute to the gentleman from 
Florida [Mr. Stearns].
  Mr. STEARNS. Mr. Chairman, I keep hearing from that side of the 
aisle, they talk about fairness and equality. Let me ask them to listen 
carefully to an example of a classroom of students about to take a 
final exam.
  Some students worked hard all year, were well prepared for the exam, 
while other students routinely chose to blow off homework assignments 
and skip most of the reading. I think most school teachers today 
recognize that scenario. The students who worked hard all year, 
surprise, surprise, almost always do better on the final exam than 
those who goofed off. But what if the exam results were tallied and 
then the equality police, on this side of the aisle, came in and said 
``That's not fair. That's not equal. We need to have equality''? So 
they go in, the equality police come in and take a few points from 
those that scored the highest and give it to those that scored at the 
bottom. Suddenly they declare, ``Then, that is fair.''
  My question is, ``Fair to whom?''
  Mr. RANGEL. Mr. Chairman, I yield 2 minutes to the gentleman from 
Massachusetts [Mr. Olver].
  Mr. OLVER. Mr. Chairman, today we are debating alternative bills 
which provide identical tax cuts over 5 years.
  Now, Americans expect Republicans to be for the wealthy, but they are 
shocked when they come to realize how much the Republicans have helped 
the wealthiest Americans.
  The Republican Taxpayer Relief Act is class warfare--the Republican 
bill when fully implemented gives the one of every six American 
families whose earnings are more than $100,000 a year almost two-thirds 
of the tax cut. The other five out of six families get just over one-
third of the tax benefits.
  By contrast, our Democratic alternative gives over 70 percent of the 
total tax cuts to those five of six families whose earnings are less 
than $100,000 a year.
  The Republican bill actually gives no net tax relief to working 
families whose incomes are below $27,000 a year. That happens to be the 
group of Americans who pay the largest percentage of their income in 
taxes of every kind in this country.
  By contrast, our Democratic alternative gives those working families 
the benefits of the child tax credit and education tax credit that the 
Republicans give only to higher income families.
  So Republicans give nothing to the 40 million families whose earnings 
are less than $27,000 per year. They give one-third of their tax cut to 
the half of American families who earn between $27,000 and $100,000 per 
year, and they give two-thirds of their tax cuts to the one of six 
families who earn more than $100,000 per year.
  Americans are pretty smart. They have learned to expect that 
Republicans help the wealthiest. Under the Republican bill, the rich 
get very much richer, middle income America gets the leftovers at the 
banquet and the poor lose their shirts.
  That is truly class warfare.
  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentleman from 
Indiana [Mr. Buyer].

                              {time}  1500

  Mr. BUYER. Mr. Chairman, I thank the gentleman for yielding this time 
to me.
  I had to come to the House floor. I had to come here because it is 
obvious that there are truths, there are nontruths. I believe there are 
unequivocal statements of fact and there are truths that are self-
evident.
  I now understand that the creators of this institution here put ``in 
God we trust'' because we are going to have to trust God here because 
the facts are getting spun out so far. America watching this debate 
says, ``My gosh, I don't even know who to believe or what to believe. 
Listen to all these numbers.''
  Mr. Chairman, it is an attempt here by this side to somehow frame 
that they are the only ones who care about children and seniors, that 
they are the only ones who care about the poor. That is false, but that 
is politics.
  Let me tell my colleagues what the administration did. Confused by 
all these numbers? Treasury, in order to calculate these numbers that 
this side of the aisle is using, calculated family income not the way 
one calculates their family income when they work. They went in and did 
a family income economic assessment. And what Treasury did was, they 
took the adjusted gross income and added to it what the 
administration's guess is about other forms of income.
  So believe me, what they did was something as bizarre as saying, ``If 
you own your own home, and if that family lived in the house and had 
you been renting that house, if you paid yourself rent, $800 a month, 
the Treasury then would add $9,600 to your family's income.'' What that 
is, is Alice in Wonderland calculations that show that the tax benefits 
are going to wealthier people.
  This is a complete distortion, and I want America to wake up that 
there is a complete distortion here. If I have an axiom for the moment, 
it is that in Washington, DC, facts and truth may be interesting things 
but often irrelevant.
  Mr. RANGEL. Mr. Chairman, I would just like to thank the gentleman 
for clarifying the tax bill.
  Mr. Chairman, I yield 1\1/2\ minutes to the distinguished gentleman 
from Texas [Mr. Stenholm] who has been so helpful in drafting the 
Democratic alternative.
  (Mr. STENHOLM asked and was given permission to revise and extend his 
remarks.)
  Mr. STENHOLM. Mr. Chairman, I rise in opposition to the committee 
bill. I do not come to this point lightly because there are many things 
in this bill that I support. However, this bill has two serious 
shortcomings that compel me to vote against it.
  First, this bill is fiscally irresponsible and will ultimately undo 
the benefit of our work yesterday to balance the budget. Second, this 
bill does not sufficiently target tax relief to small businesses, 
farmers, and working men and women.
  In our current budget environment we cannot approve every worthwhile 
tax cut, just as we cannot fund every worthwhile spending program. 
Given this reality, we must set priorities in deciding how to target 
tax cuts.
  This bill has its priorities backward. The capital gains reduction 
does not distinguish between Wall Street speculators and individuals 
who make investments that create jobs. This bill terribly shortchanges 
family farmers

[[Page H4690]]

and small businesses in the area of estate tax relief in order to 
provide tax breaks that are good but much less critical. The House will 
have an opportunity, though, to provide meaningful estate tax relief 
and targeted capital gains reduction by voting for the Blue Dog motion 
to recommit later today.
  Finally, I am extremely concerned about the impact that this bill 
will have on our efforts to balance the budget. The cost of this bill 
will explode in the next century, sending the deficit back up again. 
The harm to our economic future that will result from an exploding 
deficit will overwhelm any benefit that this tax bill will have in the 
short run. It would be morally irresponsible for this generation to 
enjoy the benefits of a short-term tax cut and leave our children and 
grandchildren with increased debt and a weak economy.
  Mr. ARCHER. Mr. Chairman, I yield myself 15 seconds simply to 
respond.
  The gentleman knows that this is a 10-year budget as demanded by the 
White House and that it is in balance by the end of 10 years, and that 
is way into the next century. It is not a exploding deficit, but of 
course rhetoric seems to command this debate.
  Mr. Chairman, I yield 1\1/2\ minutes to the gentleman from Ohio [Mr. 
Gillmor] for the purpose of a colloquy.
  Mr. GILLMOR. Mr. Chairman, I appreciate the chairman giving me the 
opportunity to engage in a colloquy in respect to a particular problem 
affecting my congressional district. One section of the Taxpayer Relief 
Act provides a $15.50 tax to be placed on the arrival of international 
airline passengers from destinations outside the United States. While 
this tax may make sense for passengers flying from London to 
Washington, it does not make sense when the distance is negligible, and 
I seek to have this section adjusted.
  Here is the problem. Griffing Flying Service from Sandusky, Ohio 
flies charter aircraft from Sandusky to Pelee Island in Lake Erie and 
back. Pelee Island is only 25 miles from Sandusky, but it nonetheless 
lies in the territorial waters of Canada. Under certain circumstances 
flights from Pelee Island could be subject to the $15.50 international 
arrival tax proposed in the House bill. That means that a $20 plane 
ride now would cost $35.50, which would effectively terminate 
Griffing's service to Pelee and give the business to a competing 
Canadian-owned ferryboat service.
  As a matter of simple fairness and common sense we should not have 
this tax apply in such a situation. I seek to have the chairman's 
assurances that Griffing Air Service and other short distance aircraft 
operations on the United States-Canadian border should not be subject 
to this onerous tax.
  Mr. ARCHER. Mr. Chairman, will the gentleman yield?
  Mr. GILLMOR. I yield to the gentleman from Texas.
  Mr. ARCHER. Mr. Chairman, I assure the gentleman from Ohio that 
during the House-Senate conference we will address this matter so that 
U.S. air charter operations such as these will not be unfairly 
penalized by modifications affecting international travel.
  Mr. GILLMOR. Mr. Chairman, I thank the gentleman.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute to the gentleman from 
Tennessee [Mr. Clement].
  Mr. CLEMENT. Mr. Chairman, what kind of America do we envision for 
the future? What kind of America do our constituents expect? I think 
all of us know, whether it be the Democratic plan or Republican plan, 
we are going to have some kind of tax relief this year. We have been 
fighting for it for a long time and it is going to come.
  But what about it?
  Americans want greater accessibility and affordability to education, 
Americans want tax exclusions on home sales, Americans want a child tax 
credit, Americans want greater exemptions for estate planning.
  More than ever before, America's prosperity hinges on how we educate 
and train our people. Every day more Americans find an education out of 
reach of their pocketbooks. HOPE scholarships are a sensible way to 
address this problem; so are tax deductions. We must understand that 
every investment we make today enhances the dividends we receive 
tomorrow.
  Yes, let us support the Democratic plan. It offers courage for the 
future. The American people want nothing less.
  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentlewoman from 
Florida [Mrs. Fowler].
  (Mrs. FOWLER asked and was given permission to revise and extend her 
remarks.)
  Mrs. FOWLER. Mr. Chairman, today is truly a historic day. For the 
first time in 16 years millions of American taxpayers are headed toward 
receiving real tax relief from the Federal Government. Among the key 
items of the Taxpayer Relief Act are a $500-per-child tax credit and 
dependent care credits, substantial tax breaks to offset college 
expenses, estate tax relief and capital gains relief. These and other 
measures in this bill will yield significant relief to middle class 
Americans.
  According to one nationally recognized Big Six accounting firm, a 
married couple with two children and a household income of $35,000 a 
year could see its tax liability cut by over $1,000 a year under this 
package. Now if one of those children were in college, that relief 
would nearly double.
  Mr. Chairman this legislation represents a strong, balanced package 
of tax relief for our constituents. I urge its adoption.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute to the gentleman from 
Tennessee [Mr. Ford].
  Mr. FORD. Mr. Chairman, today as we debate this tax relief package I 
think what we clearly see is Democrats and Republicans both want tax 
relief, but the issue boils down to those who work, play by the rules 
here in America and believe in the American dream, that they too 
deserve a tax break. They too have the right and should have the 
privilege to know that their children will go to schools with roofs 
over their heads, with air-conditioning in their schools, and will have 
the opportunity to go to college if indeed they work hard and play by 
the rules.
  Mr. Chairman, I salute the hard work that the President, the 
Republicans, and the Democrats put forth on this bill, but I say to my 
colleagues as a new Member, we have heard the debate about middle class 
and rich Americans and poor Americans, but let us give a tax break to 
those who get up and go to work every day. Let us not put a value on 
work. Who are we to decide what workers and what Americans will get a 
tax break because we do not feel they earn enough or contribute enough 
to the American economy?
  I say to my friends in this Chamber, Democrats and Republicans alike, 
do it for the next generation. Give tax relief to those American who 
get up every day, work hard and play by the rules.
  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentleman from 
South Carolina [Mr. Graham].
  Mr. GRAHAM. Mr. Chairman, congratulations on a super effort to give a 
little money and power back to the American people.
  One thing I want to say: I was outside listening to the debate. If my 
colleagues have got kids at home, go and mark down on the calendar that 
the Democratic and Republican parties on the same day put a bill in to 
cut taxes.
  I am not going to say a bad thing about my friends on the other side 
of the aisle. I appreciate them trying to cut taxes and send some money 
and power back home. I just wish they would stop distorting what we are 
trying to do. They are making everybody in America rich to get the 
numbers up. But that is OK. This is a good day. Both parties are trying 
to send back some of their money. Unfortunately, one party cannot let 
go of the past by demagoging everything we do. We will get over that 
one day.
  Two and a half years we have been in charge, and the best results I 
can show the American people what it means to have us in charge is we 
got both parties wanting to cut taxes. Quit trying to defend stuff, Mr. 
Chairman. Be happy. This is a good day the Lord hath made and let us 
rejoice in it.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute to the gentlewoman from 
California [Ms. Pelosi].
  Ms. PELOSI. Mr. Chairman, when people ask me what are the three most 
important issues facing the Congress, I always say: the children, the 
children, the children. But a close look at the Republican tax break 
bill shows that the rich are the winners in this bill and the losers, 
the losers are the children, the children, the children.

[[Page H4691]]

  The children are losers because 40 million children are not eligible 
for the tax credit. The children are losers because the HOPE 
scholarships will be cut in half in the Republican tax bill. The 
children are losers because the economic security of their families is 
threatened by the concentrated and reckless assault on the American 
family, the American worker and the American dream.
  Do not let children be losers, Mr. Chairman. We should all vote for 
the Democratic tax cut which is a vote for fairness, for opportunity 
and for work. Children can tell us, looking at this:
  ``Mirror, mirror, on the wall, who is the fairest of them all?''
  Clearly the fairest of them all is the Democratic tax cut for 
working, low and moderate income families in America. I urge my 
colleagues to oppose the Republican tax break for the wealthy and 
support the Democratic tax plan for fairness.
  Mr. ARCHER. Mr. Chairman, I yield myself 1 minute.
  The gentleman from South Carolina was correct. This is a bipartisan 
effort, finally, to give back money to people that they have earned, 
finally let them keep more of their money, and I am happy that my 
friends on the Democrat side of the aisle are joining with us in this. 
I know it is difficult for them because their book on tax reductions is 
about one-sixteenth of an inch thick, but they are trying very hard to 
follow our lead and to give tax reductions to the American people, and 
that is something the American people I hope will appreciate, that this 
effort now is bipartisan.
  Mr. Chairman, I reserve the balance of my time.
  Mr. RANGEL. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, I guess bipartisan means liberal Republicans and 
conservative Republicans but did not include many Democrats, but anyway 
let us move on.
  Mr. Chairman, I yield 1 minute to the gentlewoman from Texas [Ms. 
Jackson-Lee].
  (Ms. JACKSON-LEE of Texas asked and was given permission to revise 
and extend her remarks.)
  Ms. JACKSON-LEE of Texas. Mr. Chairman, I thank the ranking member 
very much for his leadership and I thank my friend from Texas for his 
concern and initiative.
  I do think that I will certainly adhere to those on the other side of 
the aisle, trust God and thank God, but I will thank God that the 
Democrats have offered a rebuttal to this tax plan offered by the 
Republicans that will show a large number, 54 percent of the children 
in Texas, who will not get the child credit plan under the Republican 
bill. That is more than 3.3 million children.

                              {time}  1515

  Then there are those in my district that are only making $31,000. 
They will not get the tax plan.
  The real issue is, we are rushing this. The question is, who 
benefits? None of those who are making under $100,000 a year. It is 
important that we come together and deliberate. Why are we rushing 
this? This is not a fair tax bill, and it is not coming from just those 
of us on this side of the aisle.
  The Wall Street Journal on Thursday, June 26, has indicated that the 
numbers that the Republicans have are distorted, and in fact, that the 
numbers do not suggest that those individuals who need it most will get 
the tax plan. I would hope that we vote for the Democratic alternative.
  Mr. Speaker, I rise today to speak out in vigorous opposition to this 
outrageous shortchanging of American working families. This bill 
clearly helps those Americans who do not need help. This bill is steak 
and cake for the wealthy and the crumbs for working families.
  Mr. Speaker, Americans want us to help them in sending their children 
to college. But, look at the educational provisions of this bill. The 
budget agreement called for $37 billion for helping those families who 
need help in sending their children to college. But, the Republicans 
only have $22 billion in their version of the budget agreement and look 
how they want to use tax relief for education.
  The Republican plan allows the deduction of up to $10,000 a year for 
college costs. These deductions were originally aimed at lower and 
middle class families who need the help. But, now there are no income 
limits on the deductions which means that it is worth twice as much to 
families in the top tax brackets-to families that do not need 
Government subsidies to send their children to college.
  The HOPE scholarship has been changed to give less to students from 
lower-income and middle-income families who are more likely to attend 
community colleges. Students attending the more expensive schools are 
getting the biggest benefit. Is this a fair plan? Is this the greatest 
good for the greatest number of Americans who are trying to put their 
children through college? Certainly not. But that's what the 
Republicans want.
  In the area of capital gains, the benefits for the wealthy is even 
more astounding. Under the Republican plan, a wealthy investor could 
pay a lower effective rate of taxes on a profit from the sale of stocks 
than moderate-income families pay on their wages and on interest they 
get on their savings accounts.
  I ask you, Is this fair? Is it fair that the selling of a piece of 
paper should be taxed at a lower rate than the hard earned wages of 
working class families? Clearly not. But that's what the Republicans 
want.
  Mr. Speaker, we are all trying to end the deficits that are building 
our national debt and strangling our ability to invest in the future of 
America. But, look what this tax bill does to the deficits in the long 
run. Look what this bill will cost our children.
  The deficits explode after the initial 5- and 10-year phase-ins, $650 
billion deficits in the out years as the effects of the cuts for the 
rich really begin to be felt. These are the years when the baby-boomers 
will begin to retire and when we can least afford this kind of fiscal 
explosion.
  Mr. Speaker, this bill is rotten for working American families and 
kills Government investment for our children. I urge Members to vote 
against this patently unfair bill.
  Thank you.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute to the gentleman from 
North Carolina [Mr. Etheridge].
  Mr. ETHERIDGE. Mr. Chairman, I rise to oppose this Republican bill. 
Let me tell my colleagues why. Fifty-one percent of the children in 
North Carolina will not be eligible for benefits under this plan. That 
is 1.1 million children. Hard-working families in my district and 
across America deserve a break from the burden of Federal taxes, but it 
should be fair. Unfortunately, this bill neglects the needs of our 
North Carolina families and provides an unfair windfall for the 
wealthiest of Americans.
  I strongly support a balanced budget. I voted yesterday for spending 
cuts that will make that happen. I strongly support helping our middle 
class families, and I have written legislation to provide estate tax 
relief for our farmers and small businesses, and I strongly support 
education tax relief under the Rangel substitute to help families put 
their children through college.
  I am a Democrat, and I am for tax cuts, but I am for tax cuts that 
are fair to all the people in this country, and this bill is absolutely 
not fair to the children in America.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute to the gentlewoman from 
Colorado [Ms. DeGette].
  Ms. DeGETTE. Mr. Chairman, I support tax relief for working families 
in America. It is not right that so many hard-working parents are 
struggling to make ends meet. Yet, instead of helping these families 
today, we are slamming the door on them. We are telling school 
teachers, law enforcement officers, factory workers and nurses and 
every other hard-working American that we just do not care about their 
economic struggles. We are telling the next generation that we prefer 
tax giveaways to America's wealthy at the expense of real deficit 
reduction.
  Let me tell my colleagues what is really happening in my home State 
of Colorado. Forty percent of the kids under this proposal will be left 
behind, kids from moderate and low-income families. Nearly 96 percent 
of the 23 million children whose parents earn less than $23,000 would 
be denied any child care credit under this bill. This is inexcusable.
  I urge my colleagues to pause for a moment and think about what this 
means to their constituents back home, think about the struggling 
families they are leaving behind with this bill, think about the next 
generation. Let us pave a straight path, not a U-turn.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute to the gentleman from 
Pennsylvania [Mr. Doyle].
  (Mr. DOYLE asked and was given permission to revise and extend his 
remarks.)
  Mr. DOYLE. Mr. Chairman, I rise in strong support of the Democratic 
tax cut plan. I came to Congress in 1995

[[Page H4692]]

committed to balancing the budget, and in an effort to move the budget 
process forward, I was one of the 51 Democrats who voted for the 
reconciliation spending bill yesterday.
  I subscribe to the view that we should balance the budget first and 
then consider tax cuts. However, this bipartisan budget agreement 
demands that tax cuts be enacted this year. I recognize we must work 
within these given parameters, so I will support equitable, responsible 
tax relief that adheres to the budget agreement.
  The Democratic alternative will provide tax relief for middle class 
families that can really use it and is still compatible with real long-
term deficit reduction. It is a stronger measure than the Republican 
plan because it goes further in helping middle class families cope with 
the cost of owning a home and paying for their kids' college education.
  However, the biggest difference is the fact that the alternative is 
more economically responsible and fair. It does not lay the groundwork 
for decades of mounting debt.
  Mr. Chairman, I ask that Members support the Democratic plan.
  Mr. RANGEL. Mr. Chairman I yield myself the balance of my time.
  I really think that this President of the United States has singled 
out one of the most important issues that we as Americans face, and 
that is whether or not we are paying attention to hard-working 
Americans as relates to the burden of taxes that we placed on them. Our 
President saw fit to reach out and to recognize that in the House and 
Senate, Democrats did not win, but he won, and the Republicans won.
  To that extent, he thought he was pulling together a group to present 
to the American people a bipartisan agreement as to spending in the 
budget and in reducing taxes, and in providing assistance for American 
education. Somewhere along the line, when it got to taxes, our 
Republican colleagues forgot the bipartisanship, because to my 
knowledge, the Secretary Treasurer, representing the President, did not 
know what was in that package until the chairman released it. 
Notwithstanding that, there was great hope that during the process of 
amendment, that we might work out a bill that would lend itself for the 
President of the United States to say, it is not all that I wanted, it 
is not all the Democrats wanted, but it is the basis for us to move 
forward in a bipartisan way. Notwithstanding my feelings about it, I 
knew one thing was abundantly clear, that the American people did want 
and did deserve a bipartisan effort.
  Now when we get to what do we have left here, the President of the 
United States looked at the package and said, but where is the 
Democratic part of this? Why did Congress elect to put something in the 
bill that would be so costly, no matter how much we would want to do 
it, and I am talking about capital gains indexing, when the President 
has made it known, at least informally, that he did not think that the 
budget agreement could afford that luxury. And where would Congress go 
to get the money to pay for this type of thing?
  A lot of debate is being had today by my Republican friends in 
saying, if one does not pay Federal income taxes, one does not get 
Federal relief. Well, let me congratulate them, because up until 
yesterday, they were actually calling these people that work every day 
receiving welfare, and I am glad to see that has stopped, because as 
mean-spirited as it sounds to other people who work and the people that 
the President had included, it is so important that when we say tax 
relief, that my colleagues on the other side do not start a class 
system.
  There is one group of people that we should talk about, and that is 
the working class. I promise that there is no reason for us to call 
people by class, except my Republican colleagues are saying that if 
these people do not make enough money to pay Federal taxes, then the 
taxes they pay for food for their children, the taxes they pay for 
clothes, the excise taxes, and these are Federal taxes that are put on 
airplane flights, these are taxes. Why should they be so sophisticated 
because they do not make that much money that they should understand 
now that they belong to a different class?
  The President and the Congress allowed people to believe that when we 
say $500 for a child tax credit, that we really mean it. And if we can 
find a way to give to the working people, the people that find that 
inflation has eaten them up, the people that every time they see an 
excise tax, it means more to them than it means to people that get the 
salary we get. We do not care how much a bottle of milk goes up or a 
loaf of bread, but to many families, these changes in supermarket costs 
mean how much money they would have for other things.

  So let me join with the Republicans in saying, let us stop this class 
war and let us start talking about the people who work and do not put 
them in different categories. If one is a working American, they 
deserve the relief that the President wants.
  I do not know how long we will be able to stick with this 
bipartisanship. The President is looking for the principles of 
fairness. The President is looking for his HOPE scholarship that 
somehow was promised around $35 billion. Somewhere along the line the 
President thinks that he lost several billions, and that he did not see 
anything close to what he thought was an agreement.
  Mr. Chairman, we Democrats, we have stuck together. We have gone to 
the President, we have provided an alternative, we have stuck with his 
principles, and one of the most important things is we expand on the 
education package. So, Mr. Chairman, I think it is safe to say, without 
getting involved in the class war, that there is a difference 
philosophically between the Democratic program and the Republican 
program.
  We are asking that my colleagues join with the President of the 
United States. We can reject this package today by the Republicans. We 
can do better with an alternative that we are working with, and maybe 
if we allow this to go into conference that we will be able to pick out 
the best from both of the bills and allow us to come forward once again 
in an effort to be bipartisan.
  Mr. Chairman, I yield back the balance of my time.
  Mr. ARCHER. Mr. Chairman, I yield the balance of my time to the 
gentleman from Texas [Mr. Armey], the respected majority leader of the 
House of Representatives.
  Mr. ARMEY. Mr. Chairman, I thank the gentleman for yielding.
  Mr. Chairman, let me first pay my regards to the committee for the 
fine work that they have done on writing this bill. It is such a 
privilege for me to be here today and to stand here in support of this 
legislation and to stand here, quite frankly, in appreciation for this 
legislation.
  This legislation is tax reduction for American families. It is 
legislation that realizes that American families come in all shapes and 
sizes and all configurations of income-earners, and with all 
configurations of problems, but all American families are tied together 
today by some common understandings and some common hopes and dreams, 
and that it is our job in Congress to reflect our understanding of 
these things faced by the American family and to represent the best of 
their hopes and dreams.
  I think of mom and dad sitting around the kitchen table looking at 
the little ones and thinking about all of the things they want to do 
for them. We have all done that while we are doing our bills at the 
first of the month, scared half to death we will run out of paycheck 
before we run out of bills. And every time we do that we start with the 
realization that at the beginning of that month, our taxes are too high 
and if they were lower, we could do more for the kids.

                              {time}  1530

  Mr. Chairman, I realize that mom and dad struggled on that, and yet 
they accept their responsibility and they say, to the best of our 
ability to understand it, we will do our duty to support the programs 
for this country, and yes, especially those programs that touch our 
heart, because they are programs that help those who are more needy 
than ourselves. So while we struggle with our taxes, we appreciate the 
fact that for the low-income, the working poor, there is an earned 
income tax credit that allows them to offset those terribly burdensome 
payroll taxes; that somebody has understood and cared about that.

[[Page H4693]]

  I am willing to pay my share of the taxes, and I am willing to do 
that in appreciation that someone with a lesser job than mine, a 
smaller income, the same hopes and dreams for their children, have a 
little relief for that burden.
  Yet I know, we all know, if we could have that $500 for a tax credit, 
we could do so much for each and every one of these children every 
year; if we both work, mom and dad both work, and we get that child 
care tax credit, we do not need the $500 per child tax credit as much 
as a family that has only one income earner. Because we have the second 
paycheck and we get some compensation with the child tax credit, we are 
willing to accept the trade offer, my $500 a year for this child 
credit, over and against the tax credit. That is fair.
  I look at my neighbor and I look at me and I see the difference in 
the way we construct our families, they are configured, and I say that 
is fair. We all accept that.
  We all need tax reductions, but we need to reduce the taxes on those 
people who are paying the taxes. If we think in terms of giving tax 
breaks to people who have no tax liability, the $500 child tax 
deduction means, when you finish filing your taxes and you know what 
you have to pay, you take the $500 away from that tax liability. If I 
do not have anything to pay, I have nothing from which to make the 
subtraction.
  Mr. Chairman, then we dream about children and their education. We 
want to save. We know the importance of savings. We want children to 
see that. There is the idea of the education savings account, so we can 
have a hand in determining where our children will go to school. The 
tuition tax deduction is so important.
  I just finished with five children going through school. I remember 
when I was a grad student raising my own baby girl, Kathy. That money 
we paid out for tuition, we thought then and think now, there ought to 
be a deduction on that in your taxes. It is fair.
  We put that in there, because we understand how we struggled in order 
to pay that tuition and those fees so that education can be obtained. 
That is the best of our dream for our children, that they will have 
that education, and we can afford for us to do that, for us to work 
with them and for them to do that.
  Parents begin a married life, and I look at my son David and his 
beautiful wife, Laurie, with my gorgeous grandbaby with his grandpa's 
eyes, and they say, we want to own our own home. They struggled hard to 
save money for a down payment. They want to own their own home. They do 
not want somebody to credit the hypothetical rent they would pay 
themselves if they were renting it out instead of living in it as a 
double increase in their tax, in their income, some hypothetical way to 
say you do not deserve a tax break.
  They need the tax break. They need the American dream savings account 
so they can again save for their children, so they can save for 
emergencies. They work so hard and they try so hard, and they do not 
begrudge other people the help we give.
  I laugh at that because, when the little ones are little, of course 
you know they cost money and the $500 is very important, but they do 
not stop costing money at the age of 13. We know by fact from the 
Department of Agriculture that at the age of 12 they jump up to $1,000 
more. Mom and dad know that. Why do the people on the other side of the 
aisle not understand that: the prom dresses, braces, all the things 
that come?
  Are we going to cut it off at age 13? No, we say. Let us keep it in 
effect until the child is 17, before his 18th birthday. Then, as long 
as we can, let us give this relief to moms and dads. We do that.
  Now, about the time the child is 13 or 14, mom and dad begin to have 
a different realization in their life. They begin to understand that 
the best of the American dream is not to have our own home for the 
children, but the best of the American dream is to get them out of it. 
So we know that saving for that education is going to pay off someday 
when that youngster will have a chance for a job.
  When will we get the best job opportunities for our children? When 
the economy is growing more, when people are willing to make 
investments. I was talking to a machinist just a few months ago in 
Dallas, TX. He was looking at the machine on which he worked.
  He said: Congressman, I can get better levels of tolerance, I can do 
better quality work, I have more productivity with this than I had 
before. I can work all my life and I could not afford to buy a machine 
for myself like this machine. I thank those folks that saved, I thank 
those folks that invested, for putting that machine in place so that I 
can have a better job, and I can make a higher rate of pay and I can do 
more for my children.
  Working men and women know better than anyone else, if you are a 
truck driver, if you do not have the truck, you do not have a job. 
Investment is what gives you the capital with which to work. The 
capital gains tax reduction is about jobs.
  How about that family that decides, let us get together and build our 
own business? Mom and dad and the kids pitch in. They build their own 
business, they want and need to be able to make the investments, to 
make it safe. The alternative minimum tax should not come down on them. 
The alternative minimum tax says, if you are investing in your business 
and if you are building your business and you are taking depreciation 
under the Tax Code, and it comes to the point where you do not have any 
net earnings that are taxable, you have to pay taxes on earnings you 
did not have.

  Mr. Chairman, my colleagues are saying on the $500 per child tax 
credit, let us give it to somebody who has no tax liability, and on the 
alternative minimum tax, let us put taxes on people who have no 
earnings. They have it exactly backwards.
  What does that mean? It means mom and dad are going to build a 
business. You build a business so you can provide a living for your 
family. You hope it is a success and you hope it is something the kids 
can be proud of. They look at the youngsters, and my dad when I was 
young was a grain dealer and built his own business, he looked at us 
and said, one of these boys should take over that business. It is my 
creation, my life's work.
  That did not happen. He could not pass it on. When he died, half of 
it went to government. Do you think your dad works all his life, mom 
pitches in, as my mom did, as partners, so that at the time of their 
death the government can come and take half of their life's work away 
from their children? This is not fair. This is not fair. We try to give 
the family some relief for that. If you have just some kind of 
accomplishment, some kind of a legacy that you can hold, the family 
farm has been in the family for three generations and it has to be sold 
for taxes, that is not right.
  We hear about this being an unfair tax bill. This is a fair tax bill. 
It is a tax bill that knows the goodness of the American people and 
respects the goodness of the American people. It is a tax bill that 
says, Mr. and Mrs. America, we know your dreams, we know how hard you 
work, we know how much you share your caring and your good fortune with 
other people and how little you begrudge somebody else a break and a 
reduction of taxes.
  Mr. and Mrs. America, we want to give you, at this time that we are 
marching towards a balanced budget, at this time when we can afford to 
do so, we want to give you a reduction in your taxes that reflects our 
understanding of your goodness, where you can look at us, look at the 
bill, and hear us say through this legislation, Mr. and Mrs. America, 
we are on your side. We agree with you. This tax should be a tax that 
allows you to do the things you dream about getting to do. It should 
not be a tax that tells you you must do those things that people in 
Washington think you should do.
  It should not only know the goodness of the American people, but it 
should respect that goodness and it should reward that goodness. It 
should say, you are Americans. You deserve to be free because you 
accept your responsibilities, and we endorse that and we reward it by 
letting you keep more of your own hard-earned dollars.
  Mr. Chairman, this is good legislation for America. I am proud to be 
associated with it. I am proud to tell my son and my daughter, build 
your business, save for the kids' education, have success in your life, 
and when your

[[Page H4694]]

days are over whatever it is that you have done in your life for your 
children will be your source of joy and happiness, and can probably be 
manifest in their life as you leave what you have to them, instead of 
to the government.
  How can we do better to respect the children of this great Nation?


                Announcement by the Chairman pro tempore

  The CHAIRMAN pro tempore (Mr. LaTourette). The Chair would remind all 
Members that comments by Members should be directed towards the Chair 
and no other party.
  Mr. PORTMAN. Mr. Chairman, the alternative minimum tax [AMT] is 
recognized on a bipartisan basis as one of the most punitive provisions 
in the Tax Code. Simply put, it's a job killer. It also is one of the 
most complicated provisions in the Tax Code--accounting for as much as 
26 percent of tax compliance costs. Anyone concerned about tax 
simplification and the integrity of the Tax Code has to be alarmed 
about the AMT.
  The current AMT was enacted in 1986 to ensure that no individual or 
business taxpayer with substantial economic income can avoid 
significant tax liability by using exclusions, deductions, and credits. 
While the drafters of the AMT might have been well-intentioned, in 
reality there is no longer a sound policy justification for this 
onerous and complicated provision.
  H.R. 2014, the tax cut package being considered today, doesn't repeal 
the AMT but it does provide some important AMT relief and that's good 
news for American workers. AMT relief will help put U.S. firms on more 
equal footing with our international competitors by eliminating the tax 
penalty on investments in new plant and equipment in the United States. 
The bill also averts an AMT trainwreck for individuals by indexing the 
annual exemption for the AMT. Without this change, there will be a ten-
fold increase over the next 10 years in the number of individuals who 
will be subject to the AMT.
  Mr. Chairman, I think the AMT provisions are an important job 
creating component of this bill and I hope it can be enacted soon.
  Mr. STARK. Mr. Chairman, I cannot support H.R. 2014, a bill to 
provide $85 billion in tax cuts because I believe the provisions of 
this bill are unfair and unwise.
  Our country would be far better off to delay tax cuts for a few years 
until we have a balanced budget. After almost two decades of trying to 
recover from the Reagan cuts of 1981, we should have learned that large 
tax cuts given when a budget is not yet balanced can create havoc for 
decades. We have not learned our lesson; this majority persists in 
pushing tax cuts with abandon.
  If we had the surplus, I would prefer to invest $85 billion to 
preserve the Medicare system--$85 billion would guarantee solvency past 
the year 2020, providing assurance of health security for millions of 
seniors. The majority party rejects that option.
  If the Nation had a balanced budget, I could support tax cuts but 
they would have to benefit all workers, not just the upper brackets. I 
could support education benefits, if they went to all young people, not 
just those whose parents have $10,000 a year to stuff in an education 
fund.
  If the Nation had a balanced budget, I could support a child credit 
to help the hard working families with the costs of raising children. I 
could never support the illusion of a family credit which is held out 
to all families but, in reality, available only to more affluent 
families.
  If the Nation had a balanced budget, I could support rate reduction 
for all taxpayers not just those who make their money from Wall Street 
investments.
  We don't have a balanced budget today. Until this bill got the House 
floor, the Nation was on the path to a balanced budget but we are not 
quite there. Perversely, in a bill designed to balance the budget, we 
are today considering measures which will have devastating budget 
results that go well into the next century.
  We owe it to our constituents, our children and ourselves to vote 
``no'' on this bill.
  Mr. CUNNINGHAM. Mr. Chairman, I rise in enthusiastic support of the 
Taxpayer Relief Act.
  After a 17-year wait, the American people finally receive tax relief 
under this measure. Families with children get a $500-per-child tax 
credit. There's tax relief to help with college. There's relief from 
the capital gains tax, which will help spur investment and grow the 
economy. And there's relief from the onerous death tax, so Americans 
who have built their businesses with their own hard work will be more 
able to pass their businesses on to their children.
  It is remarkable to contrast this product of a Republican Congress 
with the product adopted in 1993 by a Democratic Congress. President 
Clinton was elected in 1992, with a Democratic Congress, and enacted 
the largest tax increase in history without a single Republican vote in 
the House or the other body. President Clinton was re-elected in 1996, 
with a Republican Congress, and now we are working together to provide 
Americans the middle-class tax relief that he promised 5 years ago, but 
has thus far failed to deliver--until now.
  Together with the bill we adopted yesterday cutting spending and 
preserving Medicare, this tax relief contributes to a balanced Federal 
budget, and ends the tide of red ink and deficits that threaten our 
future.
  Other Members have discussed in detail the many excellent provisions 
of this bill. I would like to focus on just one. I would like to talk 
about how this legislation includes my provision to encourage companies 
to invest their computers and technology to upgrade our children's 
classrooms.


              The Need for the 21st Century Classroom Act

  The General Accounting Office reported in 1995 that ``America's 
schools are not designed or equipped for the 21st century.'' Yet, we 
all know that an excellent education that provides American children 
with a fighting chance at the American Dream includes rigorous academic 
basic instruction--plus the new requirement for technological literacy 
and proficiency in working with computers. The need for technological 
literacy is immediate. By the year 2000, just 3 years way, 60 percent 
of American jobs will require high technology skills. Thus, without 
early training in technological literacy, many of our future leaders 
will start their adult lives at a severe economic disadvantage.

  While America's classrooms are supported by dedicated teachers, 
involved families, and bright young children, many of our Nation's 
classrooms lack the important technological resources that they need to 
prepare both teachers and students for a technologically advanced 
present and future. While we are daily amazed at the ways that advanced 
technology has improved America's economic competitiveness, transformed 
commerce and communications, and improved the quality of life of 
millions of Americans, that same advanced technology has not yet made 
as transforming an impact on the way schools educate children. The 
Internet and the World Wide Web are revolutionizing the way individuals 
and organizations share and find information. Yet only 14 percent of 
our classrooms have a telephone jack, and about 1 in 50 are connected 
to the Internet. Furthermore, the most common computer in our Nation's 
schools is the Apple 2c, introduced over a decade ago and now on 
display at the Smithsonian Institution; and while 50 percent of schools 
have local area computer networks [LAN's], less than 10 percent of 
those networks connect with computers in classrooms.
  Therefore, bringing America's classrooms into the 21st century 
requires a major national investment in technology, including 
computers, software, and interactive interconnectivity.
  How can we accomplish this task?
  We have three choices. We can do nothing, which appears inexpensive 
but bears an immense cost in lost opportunity and foregone economic 
growth. We can create and expand Federal Government programs which 
invest in education technology. However, because of the immense scale 
of the need, and because primary and secondary education are primarily 
a local and State responsibility, bringing our classrooms into the 21st 
century is best done in a manner that does not increase Federal 
Government expenditures or bureaucracy. Or we can encourage and 
maximize private investment for this purpose, keeping control as close 
as possible to the children, parents, and teachers who will benefit. 
This last choice is the option taken by the 21st Century Classrooms 
Act.
  We are fortunate that many businesses invest their time and resources 
into classrooms. But we must do more, and we can do better.
  The tremendous need for additional computer equipment and software in 
our classrooms, plus the wave of computer upgrades taking place among 
businesses in the United States, argue persuasively for an additional 
financial incentive to encourage businesses to invest their equipment 
into 21st century classrooms.
  The bipartisan balanced budget agreement offers Congress an 
opportunity to expand technological investment in our schools through 
specialized tax incentives. The budget agreement includes tax relief 
for American families. And it also includes tax cuts related to 
education--but only for higher education. With so many students 
entering universities, community colleges and other higher education 
needing remedial coursework, it is right and wise for Congress to use 
this opportunity to spur private investment into technology upgrades 
for K-12 education.


             provisions of the 21st century classrooms act

  The 21st Century Classrooms Act (Cunningham--H.R. 1153), included in 
the Taxpayer Relief Act as title II, subtitle C, sec. 223, is designed 
to spur private investment for technological upgrades to create and 
sustain a greater number of 21st century classrooms. Enactment of the 
21st Century Classrooms

[[Page H4695]]

Act will help provide schools the tools they need to offer a better 
education to our young people, increase local private investment in our 
schools, and ensure a better future for our country.
  This provision expands the tax deduction currently available to 
computer manufacturers making donations of high-tech equipment to 
university research institutions. It expands the class of donors to 
include any corporation, not just computer manufacturers. And it 
expands the class of recipients to include K-12 schools, certain 
private foundations, and certain other recipients whose primary purpose 
is to support K-12 education.
  The measure is intended to provide corporations a greater incentive 
to donate the right kind of quality computer equipment and technology 
toward K-12 education. It takes advantage of the many ways such 
donations may be accomplished, including donations to computer 
recycling programs whose primary purpose is supporting K-12 education. 
It limits the expanded tax deduction to donations of relatively new 
equipment of 2 years age or less. It also limits the expanded tax 
deduction to donations which will expressly fit productively into the 
recipient's education plan.


    practical examples of how the 21st century classrooms act works

  Let me describe how this tax incentive works. For example, if a 
corporation buys a computer as an asset, it pays $1,000, which is the 
basis. If it sells the computer a year later, it may receive $400 in 
cash. If the company donates the computer to a nonprofit or school 
under current law, it may take a charitable tax deduction of the lower 
of fair market value--$400--or the amount that has not been 
depreciated. If the company donates the computer to an eligible K-12 
education recipient under this act, however, it may take a charitable 
tax deduction of $1,000, which is the basis of $1,000, plus one-half of 
the asset's appreciation, which is zero.
  If a corporation buys a computer as inventory, for example, it pays 
$500 to build it. If it sells the computer on the open market, it 
receives $1,000 in cash. If instead of selling the computer, the 
company donates it to a nonprofit or school--not to a scientific 
research institution--it may take a charitable tax deduction of $500, 
which is the lower of fair market value--$1,000--or the amount that has 
not depreciated, an amount equal to or less than the basis of $500. If 
instead of selling the computer, the company donates it to a qualified 
scientific research institution under current law, it may take a 
charitable tax deduction of $750, which is the $500 basis, plus one 
half of the $500 appreciation, totaling no more than twice the basis. 
And, finally, if instead of selling the computer, the company donates 
it to a qualified K-12 education recipient under the 21st Century 
Classrooms Act, it may take the charitable tax deduction of $750, which 
is now only available to donations to certain scientific research 
institutions.

  This measure is designed to work hand-in-hand with the educational 
connectivity provisions of the Telecommunications Act. As the Federal 
Communications Commission develops regulations to insure that schools 
have affordable high-technology telecommunications connectivity 
available to them, the 21st Century Classrooms Act accelerates the 
availability of high-tech equipment in our schools and our classrooms.


                supported by educators and corporations

  The 21st Century Classrooms Act has gained the support of over 30 
members of the House, both Republicans and Democrats, including the 
chairman of the House Education and Workforce Committee, Mr. Goodling. 
And obviously it was included in the Taxpayer Relief Act by the Ways 
and Means Committee Chairman, Mr. Archer.
  Let me summarize just a few of the letters I have received in support 
of this measure:
  Dr. Bertha Pendleton, superintendent of San Diego City Schools, says 
``The 21st Century Classroom Act will provide additional incentives for 
private enterprise to involve themselves in preparing students for 
future employment by giving tax (deductions) to corporations who donate 
used computer equipment to schools. We applaud this effort and fully 
support this measure to help further education technology.''
  Michael Casserly, executive director of the Council of the Great City 
Schools, says ``the Council is supportive of incentives to attract 
contemporary technology into our schools, particularly the neediest 
schools. As such, the Council is also supportive of H.R. 1153.* * *  
Congratulations on your success.* * *''
  Thomas Tauke, executive vice president of government affairs for 
Nynex, says, ``Nynex fully supports your efforts to encourage 
businesses to invest in our children. Your new legislative proposal, 
the 21st Century Classrooms Act for Private Technology Investment, 
through its expanded tax incentives, will enable schools to immerse 
students into the new technological environment that they will live and 
work in!''
  There are many more letters of support. But these excerpts summarize 
the enthusiasm which greets this initiative to technologically upgrade 
our K-12 classrooms.


                            in appreciation

  There are many men and women who deserve credit for helping me to 
develop this measure, and include it into our bipartisan Taxpayer 
Relief Act.
  In San Diego County, I want to specifically recognize Scott 
Himelstein and Bill Lynch at the Lynch Foundation for Children, John 
and Diana Detwiler at the Detwiler Foundation Computers for Schools 
Program in San Diego, and the students, teachers and principals at all 
of the San Diego County schools that showed me their education 
technology and their need for more. I also want to express my 
appreciation to the House Republican Leadership and to Chairman Archer 
for including this provision into the Taxpayer Relief Act.
  Mr. Chairman, a vote today for the Taxpayer Relief Act provides 
Americans long overdue tax cuts. It also spurs private investment into 
technology upgrades for our schools and for our children, through 
inclusion of the 21st Century Classrooms Act.
  I encourage adoption and enactment of this bill.
  Mr. CONYERS. Mr. Chairman, I rise in opposition to the so-called 
Taxpayer Relief Act. Yet again, the majority has demonstrated that 
their first priority is to line the pockets of the richest Americans at 
the expense of working, taxpaying families.
  I urge you not to be fooled by the majority's effort to pull the wool 
over the American taxpayers' eyes. Despite claims to the contrary, this 
tax bill will devastate both middle- and working-class families in 
order to pay for tax breaks for the rich. The majority has done 
everything possible to ensure that the wealthiest families will get the 
bulk of the benefits. A recent study by the Center for Budget and 
Policy Priorities found that the effect of the combined budget and tax 
bills will give a $27,000 annual boost to the top 1 percent of 
Americans while raising taxes for the bottom 20 percent of families.
  Not only does this bill work against families, it is fiscally unsound 
and irresponsible. Paying for these tax breaks will cost us $85 billion 
over the next 5 years. In the next 10 years, that amount jumps up to 
$250 billion. And 10 years after that we will be spending $700 billion 
on these tax cuts. If you support this bill, you will be giving away 
$700 billion in tax breaks to the wealthiest Americans. All of 
America's taxpaying families should share fairly in any tax cuts that 
we propose, not just the select few who will profit under this bill.
  With these facts in mind, I hope that you will join me in asking a 
few questions of the bill's supporters. We should ask why they 
constructed a bill where the bottom 60 percent of our population shares 
only 4 percent of the benefits and the top 20 percent of the U.S. 
population receives 87 percent of the benefits from this tax cut. We 
should ask why they support a bill that adds to the assault on our 
already fragile social safety net. We should ask them why they're 
giving a capital gains break to the 5 percent of Americans who earn 
$100,000 a year and will reap 75 percent of the benefits.
  But don't expect an answer to any of these questions. With their 
underhanded approach, the majority has abandoned millions of 
hardworking, taxpaying Americans. If the supporters of these tax breaks 
on both sides of the aisle wanted to be honest about this bill's 
effects, they should stand up and tell the American people: ``We don't 
care if you can't afford day care for your children. We don't care if 
you can't afford to send your sons and daughters to college. We don't 
care that our tax and budget plans will assure that the rich get richer 
at your expense.''
  But don't expect this kind of honesty from a group that has 
constructed a child tax credit that is more restrictive than the one 
proposed in the contract on America. Passing this bill will mean that 
virtually all families with incomes under $20,000 a year would not be 
eligible for this child tax credit. If you support this bill, 28 
million of our neediest children and their families will receive no tax 
credit because their incomes are too low to qualify. We cannot allow 
such an attack on the American family to continue unchecked.
  I urge my colleagues to oppose this inequitable tax cut. Unlike Mr. 
Gingrich, who labels any proposal that gives lower and middle class 
families their proper share of these tax cuts welfare, I believe that 
hardworking Americans should be treated fairly under any tax cut 
proposal. I hope that you will demand answers to the questions I have 
raised and join me in exposing this bill for what it really is--a 
thinly veiled scheme to provide welfare for the rich.
  Mr. STEARNS. Mr. Chairman, I would like to talk to you about an 
amendment I offered at the Rules Committee to the Budget Reconciliation 
Act. This amendment would have established a national fund for health 
research. I offered this amendment because I believe one of the best 
ways to bring health care costs down is to fund health care research. 
Did you know that nearly four to five

[[Page H4696]]

peer reviewed projects deemed worthy of funding by the National 
Institutes of Health [NIH] are not funded?
  The purpose of my amendment was to provide additional funds for 
biomedical research by investing 1 percent of the Medicare savings 
included in the bill in critical projects at NIH. This would 
accomplished by transferring to this account each year an amount equal 
to 1 percent of the savings which are achieved in that year from the 
Medicare amendment included in the 1997 Budget Reconciliation Act. It 
is estimated that this would provide approximately $1.2 billion over 5 
years.
  This amendment provides that funds deposited in the research fund 
shall be distributed among NIH centers in the same proportion as 
provided in the regular appropriations bill. It is estimated that an 
additional 1,000 or more research grants could be funded over 5 years 
in such critical areas as Alzheimer's, Parkinson's disease, diabetes, 
breast cancer, etc.
  It also ensures that the full $155 billion of savings required are 
still achieved by providing that no funds will be transferred to the 
NIH unless net savings to Medicare are estimated by CBO to reach the 
$115 billion level. Thus, no transfer would occur until gross savings 
exceed $116.5 billion. It does not impose any new taxes.
  Less than 3 percent of the nearly $1 trillion our Nation spends on 
health care is devoted to health research, while the defense industry 
spends 15 percent of its budget on research and development.
  Public opinion surveys have shown that Americans want more Federal 
resources put into health research and are willing to pay for it. That 
is why I support the initiative to double the NIH budget over the next 
5 years.
  The Alliance for Aging has recently conducted a study that supports 
the savings for health care costs for the elderly and permanently 
disabled who are Medicare eligible by investing in biomedical research 
efforts as proposed under my amendment.
  In 1995, NIH issued a report that found the economic burden of 
several diseases was estimated to be of tremendous proportions. For 
instance: The costs involved with heart disease was $128 billion; 
cancer, $104 billion; Alzheimer's, $100 billion; diabetes, $138 
billion; mental disorders, $148 billion; arthritis, $65 billion, 
stroke, $30 billion, and osteoporosis, $10 billion.
  It is apparent to me that we must do all that we can to either 
prevent or least slow down the onset of these diseases. And we know 
that many of these diseases do not strike until we are in our golden 
years. These years would, in fact, be golden if we could prevent or 
least find a way to treat diseases such as Alzheimer's.
  Current data tells us that one-third of the $1 trillion spent on 
health care today goes to people 65 and older. In a scant 15 years, the 
baby boom generation will begin qualifying for Social Security and 
Medicare and so, too, will their susceptibility to age-related 
diseases.
  That is why it is incumbent upon us to find better ways to treat, 
prevent, or slow down these diseases and we can and must do this 
through research funded by the National Institutes of Health because 
the future costs of health care will increase dramatically as the 
boomers begin to experience these age-related maladies.
  In these days of trying to balance the budget, we must not lose sight 
of the fact that by delaying the onset of diseases such as Alzheimer's, 
stroke, and cardiovascular disease we would save an estimated $35 
billion through a reduction in the need for nursing home care. Now, to 
my way of thinking that's not chump change.
  Ample evidence exists to demonstrate that health research has 
improved the quality of health care in the United States. Advances such 
as the development of vaccines, the cure of many childhood cancers, 
drugs that effectively treat a host of diseases and disorders, a 
process to protect our Nation's blood supply from HIV virus, progress 
against cardiovascular disease including heart attack and stroke, and 
new strategies for the early detection and treatment of diseases such 
as colon, breast, and prostate cancer clearly demonstrates the benefits 
of health research.
  Expanded Medicare research is critical to holding down the long-term 
costs of the Medicare Program under title XVIII of the Social Security 
Act. For example, recent research had demonstrated that delaying the 
onset of debilitating and costly conditions like Alzheimer's disease 
could reduce general health care and Medicare costs by billions of 
dollars annually. I am hopeful that such a proposal will be enacted by 
Congress in the future.
  Mr. KOLBE. Mr. Chairman, this is a great day for this House and for 
the citizens of the United States. Today we take a giant step in 
providing the tax relief that Americans so desperately need and 
deserve.
  Today we are about to let people keep more of their income to spend 
as they want--not as the Federal Government wants. This is the right 
thing to do. Taxpayers deserve to enjoy more of the fruits of their 
labors. The Federal Government has become too greedy, continually 
increasing the burden on our citizens so Washington can distribute 
taxpayer earnings to other groups in society. Today we begin to reverse 
that condition. Even so, we still have a long way to go.
  Mr. Chairman, I am pleased with many provisions of this bill. But two 
stand out as especially important for working Americans. The child tax 
credit and the education incentives. These provisions actually put 
money back in the pockets of ordinary, middle income people and help 
them provide for their children's education.
  Taxpayers with children get to take $500 per child off their total 
tax liability. Think of what that means to a young family struggling to 
get ahead and give their children opportunities.
  This bill gives families who send their children to college or other 
post secondary institutions a chance to keep more of their earnings to 
help with those higher education expenses. It provides a tax credit, up 
to $1,500 for each student, for half of the tuition and related 
expenses during the first 2 years of college or vocational training. It 
provides a $10,000 deduction per student per year for expenses through 
State prepaid tuition plans or education investment accounts. Further, 
it allows families to make penalty-free withdrawals from any IRA to 
cover the cost of education after high school Think what a relief this 
will be for hardworking families struggling to make sure their kids get 
an education.
  Mr. Chairman, I wish we could be voting on bigger tax cuts. I wish 
the capital gains tax had been cut more. I wish we had abolished the 
estate tax. I wish we had given more relief in many areas. But I am 
very happy with this major step forward. I am going to consider it a 
substantial down payment on a commitment we made to the American people 
4 years ago when we promised to downsize Government, balance the 
budget, and cut taxes.
  We must continue to work in this House and in this Congress to 
totally deliver that promise in the next few years.
  Mr. CRANE. Mr. Chairman, I rise in enthusiastic support of this bill 
to provide long-overdue tax relief to the American people.
  I have heard criticisms of this bill primarily from liberals who are 
playing the old tired game of class warfare. I find their arguments--
that this tax relief is unfairly targeted to the rich--rather 
ridiculous. These class warfare antagonists are from the same crowd who 
in 1993 rammed through the largest tax increase in the history of our 
Republic. It is no wonder that they are resisting the attempt by House 
Republicans to allow Americans to keep more of their own money, rather 
than sending it to Washington's bureaucrats.
  The liberal misinformation campaign about this tax package is so out 
of touch with reality that they are alienating their overtaxed rank and 
file constituents. The fact of the matter is that the vast majority of 
the tax relief in this bill is provided for individuals, not 
corporations. More specifically, over 71 percent of the tax relief in 
this bill will go to those who earn between $20,000 and $75,000 a year. 
I do not know what some of my liberal colleagues consider the rich, but 
a family earning $40,000 a year with two children living in Palatine, 
IL, a city in my district, is far from rich.
  Let me put this in another perspective. It has been 16 years since 
American taxpayers have had a significant tax cut from Washington. 
President Clinton signed the largest tax increase in history in 1993 
and when vetoed a major tax cut bill, the Balanced Budget Act, in 1995. 
All the while, middle-income families have shouldered the largest tax 
burden than at any other time in our history. A family at the median 
income level budgets over half of their annual income to pay for 
government at all levels. Tax relief for them is long overdue.
  I am pleased to see a number of items in this bill that I have been 
working on for some time. For example, I have promoted legislation to 
increase the value of the tax exemption for children and other 
dependents. The $500-per-child tax credit will give parents this tax 
relief I have sought for so long. In addition, I have pushed for 
capital gains tax relief, provided in this bill, which is so valuable 
to home and small business owners. I also support the relief in this 
bill from the estate or death tax which has been particularly 
devastating on family farms and small businesses. I would rather 
abolish the capital gains and death taxes, but I believe this bill 
makes significant improvements in both areas.
  While the bulk of this bill provides tax cuts to individuals, 
employers also receive some much-needed tax relief. And let me make it 
clear that tax relief for businesses is about job creation, 
competitiveness in world markets, and more money in the pockets of 
American workers. Although the Constitution protects its citizens from 
double jeopardy in criminal cases, the Tax Code offers no similar 
protection. The alternative-minimum-tax [AMT] forces businesses into 
double jeopardy with two different sets of tax rules, the regular 
corporate schedule and the AMT schedule. If, after following the 
complex rules and regulations in

[[Page H4697]]

the corporate tax code, the company does not owe enough taxes, they 
must start all over with the AMT code, with its own rules and 
regulations. The compliance costs, in addition to the tax burden, has 
hurt the competitiveness of U.S. businesses against foreign businesses. 
This translates into lost jobs and lower wages for American workers. 
H.R. 2014 provides some much-needed relief from the burdens of the AMT.
  If I had any criticism of this bill, it is that it does not provide 
as much tax relief as the American people deserve. I also appreciate 
the view of those who suggest that this bill does not provide for Tax 
Code simplification. I, too, am disappointed on both of these counts, 
but given the current political situation in Washington, we must deal 
with a President who, despite his rhetoric, is not interested in 
providing large-scale tax relief or reform to our country. Given these 
constraints, I believe that Chairman Bill Archer of our Committee on 
Ways and Means did an admirable job in constructing this tax bill.
  I urge my colleagues to support H.R. 2014 and I look forward to 
moving ahead and meeting with members of the other body to put the 
finishing touches on tax relief for Americans. I only hope that the 
President will see fit to sign this bill into law.
  Mr. KLECZKA. Mr. Chairman, I rise today to voice two major concerns 
regarding H.R. 2014, the reconciliation tax legislation before the 
House today. I understand that section 1053 of this bill is Republican 
payback against the unions who mainly supported Democrats in the last 
election. I object to use of the Tax Code to punish political 
adversaries, but that is not even among the two main reasons I will 
cast my vote against this bill today.
  To begin with, I believe we should give the American people capital 
gains tax relief, but this bill clearly provides more than is 
reasonable. It both cuts the capital gains rates as well as indexes the 
values of assets for inflation. I am all for providing relief, but 
considering the huge potential revenue loss of these combined 
provisions 10, 15, or 20 years from now, we should pare down the 
capital gains cuts to a more reasonable size. After all, as the bill 
stands today, the capital gains cuts lead to a loss of $36 billion in 
2003 through 2007 alone. This bill should either cut the capital gains 
rate or index assets, but not both.
  But, Mr. Chairman, I rise today mainly to express my concerns about 
another provision in the tax bill before us today that could have a 
devastating impact on workers and their benefits. The measure is not 
only bad policy, but it does not belong in this bill in the first 
place. It is an attack on working men and women disguised as a Tax Code 
clarification. It could lead to the end of employee benefits and 
workplace protections as we know it.
  The provision, innocently labeled as a safe harbor for independent 
contractors, would permit many employers to reclassify their workers as 
independent contractors and thus deny those workers employee benefits 
and worker protections.
  Much of the social safety net enjoyed by workers in this country 
depends on employment status. Workers classified as independent 
contractors are not eligible for employer-provided health insurance or 
pensions. Independent contractors are not eligible for unemployment 
compensation. Independent contractors also have to pay the employer 
side of the Social Security and Medicare payroll taxes, an additional 
7.65 percent.
  In addition, although this provision purports to be limited to 
classification for tax purposes, it is likely that employers will also 
treat workers as independent contractors for other purposes. Worker 
compensation laws, minimum wage and hour laws, occupational safety 
laws, and age discrimination laws do not apply in the case of workers 
classified as independent contractors.
  Reclassification is already being used against workers and this bill 
would make it even easier for employers to drop worker wages, benefits, 
and protections. The potential for abuse of this provision is real. 
Last year the Department of Labor found that 134 workers in Ohio were 
improperly classified as independent contractors and were receiving as 
little as $1.50 per hour. In October of last year, the Ninth Circuit 
Court of Appeals found that Microsoft must pay benefits to a group of 
workers that the company had intentionally misclassified as independent 
contractors. Reclassification has been regularly employed by some in 
the construction industry with respect to laborers and other workers 
such as supervised carpenters, masons, plumbers, and electricians. This 
practice is being carried out across this country by both large and 
small employers.

  This provision--identical to H.R. 1972 of last Congress--too easily 
allows an employee to be reclassified as an independent contractor. The 
measure establishes a test which is too easy to meet, and therefore 
many workers could be reclassified if it were to become law. First, the 
worker must sign a written agreement providing that he or she will not 
be treated as an employee. This is not voluntary in any sense of the 
word: if a worker wants the job, he is going to have to sign that 
agreement or he returns home without work. Under the measure, once the 
written agreement has been signed, a worker can be classified as an 
independent contractor if the worker meets one criteria in test 1 and 
one criteria in test 2.
  Test 1: The worker--has a significant investment in assets or 
training; or incurs significant unreimbursed expenses; or agrees to 
perform services for a particular time or to complete a specific 
result; or is paid primarily on a commission basis; or purchases 
products for resale.
  Test 2: The worker--has a principal place of business; or does not 
primarily provide the service at the employer's place of business; or 
pays fair market rent for use of the employer's place of business; or 
is not required to perform services exclusively for the employer, and 
in the current, preceding, or subsequent year has: performed a 
significant amount of services for others, or offered to perform 
services for others through advertising, solicitations, or listing with 
referral agencies, or provided services under a registered business 
name.
  Let me give an example to illustrate my point. Bill is a plumber who 
is an employee for a plumbing construction and repair company. If this 
provision were to pass into law, Bill would meet the criteria under 
this provision because he has his own tools and has paid for his own 
training and performs his work on-site at residences and businesses 
throughout the metropolitan area. Therefore he could be reclassified as 
an independent contractor. He would now have to pay double--about 15 
percent--his previous payroll tax for Social Security and Medicare 
while his former employer would pay nothing. He could lose the ability 
to participate in the company pension plan. If either Bill or his wife, 
Debbie, needed to see a doctor, they might be surprised to find that 
they no longer had employer health coverage through Bill's work. If 
Bill was badly injured on the job, he might be disappointed to find 
that he could no longer collect workers compensation to help put food 
on the table and pay the mortgage while laid up. If he was laid off 
during a slow period, he might show up at his State labor office to 
collect unemployment, but would no longer qualify for unemployment 
insurance through his employer.

  Similar reclassifications could occur not just for other tradespeople 
like electricians and carpenters, but also delivery people, policemen, 
reporters, and others.
  It is not only workers who are concerned about this provision, but 
conscientious firms who are wary of unfair competition by unscrupulous 
employers. A group of construction industry employers testified before 
the Senate Finance Committee on June 5 of this year opposing a similar 
proposal. The Mechanical/Electrical/Sheet Metal Alliance consists of 
the Mechanical Contractors Association, the National Electrical 
Contractors Association, and the Sheet Metal and Air Conditioning 
Contractors National Association. They testified that: ``the Alliance 
does not support the proposals under consideration today because we are 
gravely concerned that the proposed classification criteria--when 
applied to the skilled construction workforce--would jeopardize the 
entire structure of training, health and welfare, pension and other 
workforce development and retention benefits.'' Citing a Bureau of 
Labor Statistics study showing independent contractors 
disproportionately represented in construction, the construction 
industry alliance witness alleged that: ``The rise of worker 
misclassification in construction has nothing to do with career 
enhancement and everything to do with unfair low-wage competition.''
  The alliance alleged that this provision represents a threat to those 
conscientious construction businesses that undertake to pay, at the 
very least, the legally obligated minimum employer overhead taxes that 
are a legitimate cost of doing business. He concluded by stating that 
``businesses that cannot afford to pay for the social policy objectives 
of unemployment insurance, social security and workers compensation 
should not per permitted greater leeway to avoid paying for these 
established social responsibility programs and shifting even greater 
costs on their employees, fair employers and the government, as well.''
  This is a dangerous provision that will result in a race to the 
bottom where working men and women will lose workplace benefits and 
protections as we know them while legitimate employers will be forced 
to reduce benefits and worker protections to compete with unscrupulous 
employers taking advantage of the Republican independent contractor 
provision.
  Mr. Chairman, because of the presence of this ill-conceived provision 
and the combination of both a capital gains rate cut in addition to 
capital gains indexing, I must vote against the bill before us today. I 
am hopeful that during conference my concerns will be addressed and I 
will be able to support the final version of this legislation.

[[Page H4698]]

  Mr. DINGELL. Mr. Chairman, a few weeks ago. I cast my vote in favor 
of the budget resolution with the hope that it would yield a well-
reasoned reconciliation package which I could support. Clearly, the 
majority has failed to assembled such a package.
  I have heard the quote, ``Here we go again,'' used by some of my 
Republican colleagues. While I applaud the rhetorical effulgence and I 
agree that it is appropriate in this instance, I question the context 
in which it is being used. The legacy of that former President--who so 
eloquently spoke those words--is the massive Federal debt we are 
confronting today. So, after a careful review of this tax package, the 
only proper conclusion is, ``Here we go again.''
  We have yet to learn the lesson of 1981. Yesterday, I spoke of how 
the proposed $20.3 billion savings from the broadcast spectrum auctions 
are an illusion. It isn't surprising that those very savings account 
for nearly one quarter of the offset for the tax package.
  The budget gimmickry used for the capital gains tax cut will explode 
the deficit after 2002. Because wealthy Americans can pay their accrued 
capital gains in 2002 to receive the benefit of indexation, the end 
result is a one time $6 billion golden egg paid to the U.S. Treasury. 
It is a Ponzi scheme which benefits the wealthiest Americans, a 
throwback to the ``voodoo economics'' another Republican President 
warned us against.
  In 1948, my father argued against a Republican plan to allow 
employers to skip out on Social Security taxes. It is ironic that I am 
here nearly 50 years later to argue the same position. This bill allows 
employers to easily reclassify employees as independent contractors and 
to deny employees health care coverage as well as their Social Security 
contribution. Republicans speak of class warfare; it is obvious who is 
on the offensive. This is a blatant assault on hard-working Americans.
  It is clear that we are not talking about granting tax relief for 
those who need it most. A majority of the benefits in this package go 
to the wealthiest Americans and it squeezes those who need relief most, 
the working poor. Why will millionaires be able to sell off stock 
portfolios and pay less in taxes than middle-class Americans currently 
pay on income tax? It is shameful.
  The Democratic substitute would correct these flaws. Our tax relief 
plan would allow the parents of 24 million more children to benefit 
from the $500-per-child tax credit. Capital gains and estate tax relief 
are targeted towards small businesses and families. It permits 
homeowners to who sell their homes at a loss to take a tax deduction. 
Most importantly, two-thirds of the benefit go to those making less 
than $75,000.
  I urge all of my colleagues to oppose this shameful Republican tax 
scheme and vote for the Democratic substitute.
  Mr. COYNE. Mr. Chairman, I rise today in opposition to the tax 
provisions of the 1997 reconciliation bill. I oppose this legislation 
for a number of reasons. The most important reason is that I believe 
that now is not the time for tax cuts. I believe that such a move would 
be irresponsible. Given the widespread support in Congress for a tax 
cut bill, however, I believe that a much more equitable bill could--and 
should--be enacted.
  The economy today is in better shape than at any other time in the 
last 25 years. The economy is growing and inflation is low. The Federal 
deficit has been reduced from more than 6 percent of our national 
output to roughly 1 percent. These are things to celebrate, and I join 
with my colleagues in rejoicing over our good fortune and relatively 
responsible management. But as tempting as it would be to indulge 
ourselves, given these happy circumstances, in cutting taxes, I believe 
that it would be unwise and irresponsible to do so. It is at just such 
a prosperous time that we should begin addressing the long-term 
problems that we know will confront us in a few short years. Let's not 
wait until a crisis is upon us and more draconian solutions are 
necessary. Let us show some leadership today.
  What problems lie on the horizon? What should we be doing instead of 
enacting tax cuts? In the coming years, we will face an increasingly 
competitive global economy and a demographic shift unparalleled in 
modern history. We will need to dedicate more of our national resources 
to caring for an increasingly older population and taking steps to 
increase our economic productivity. That means taking modest steps now 
to ensure the long-term solvency of Social Security and Medicare. That 
means keeping Federal deficits under control. That means investing in 
our infrastructure and promoting research and development. It means 
investing in early childhood development and improving public 
education. It means increasing access to higher education. And it means 
making health care available to all Americans. Our country would be 
better served by addressing these challenges than by cutting taxes for 
the affluent.
  In addition, I am concerned that these tax cuts will increase Federal 
deficits substantially once they are fully phased in. I feel compelled 
to remind my colleagues that the last time we indulged in a package of 
massive tax cuts, we precipitated a long series of budget deficits that 
we are still paying off. As every spendthrift knows, you can have a 
pretty good time spending borrowed money, but eventually the money runs 
out and the loan comes due. The massive budget deficits of the Reagan 
years helped spur economic growth following the recession of the early 
1980's, but at a heavy cost. Much of the more than $200 billion in 
interest payments the Federal Government makes each year is due to the 
deficit spending of the 1980's. The tax cuts enacted in 1981 
contributed substantially to those deficits. Similarly, the tax cuts 
contained in the legislation we are considering here today will produce 
large revenue losses in the coming decades--just when the retirement of 
the baby boom generation will place increasing pressure on the Federal 
budget. I believe that the short-term benefits this legislation would 
provide would be more than offset in the out-years by the long-term 
fiscal difficulties that it would produce. That is a second reason that 
I believe these tax cuts are unwise.

  As I stated earlier, however, it is clear that Congress intends to 
pass a substantial tax bill this year. Given the likelihood that we 
will, in fact, do so, I strongly believe that we should pass a bill 
that is more equitable than the bill we have before us today. The 
Republicans have produced a bill that would do relatively little for 
the average American family.
  The $500 family tax credit is not refundable, which means that 
families that do not have any Federal income tax liability will not 
receive any family tax credit money. Many low-income families make so 
little money that they have no Federal income tax liability. While 
these families pay a significant percentage of their incomes in Federal 
payroll and excise taxes, many of them will nevertheless be denied the 
family credit. In addition, under the House Republicans' bill, the 
family tax credit is stacked after the earned income tax credit, 
meaning that taxpayers must offset their tax liability with the EITC 
before they can claim the family credit. Given that the family credit 
is nonrefundable, many working families will not have enough income tax 
liability left to claim the credit; other working families will receive 
far less than the full $500 credit. In all of these cases, the low- and 
moderate-income families who deserve and need a tax break as much or 
more than more affluent families will receive little or no tax relief 
under this bill. This is especially unfortunate, given that a modest 
increase in their disposable income would make a real difference in 
their lives.
  Other provisions in this legislation would reduce taxes on capital 
gains and index future capital gains for inflation. These provisions 
would do little or nothing for most Americans, whose major life-time 
capital gain, the sale of their home after age 55, already goes untaxed 
in most cases. And because most capital gains taxes are paid by the 
wealthiest Americans, such a change would reduce the progressivity of 
the Federal Tax Code significantly. Moreover, the lower capital gains 
tax rate and the indexation of capital gains for inflation would result 
in a substantial Federal revenue loss in the years beyond the 5- and 
10-year windows used in the budget reconciliation process. That revenue 
loss would kick in at just the time when the Federal Government will 
need to increase spending substantially for Social Security and 
Medicare to cover the costs associated with the retirement of the baby 
boom generation.
  Similarly, this legislation has changed the college tuition tax 
credit proposed by President Clinton so that only taxpayers that spend 
over $3,000 on college costs will get the full $1,500 credit. The 
President's HOPE credit would have provided a full dollar-for-dollar 
tax credit for the first $1,500 in higher education costs. These 
changes from the President's proposal would make the credit less 
helpful to the low-income students who often attend low-cost community 
colleges, and they could prevent some of these students from pursuing 
education beyond high school. Such an outcome would deny many low-
income individuals access to educational opportunity, but we would all 
suffer from the adverse impact that this outcome would have on our 
country's productivity.
  The pattern is clear. The distributional effects of this tax cut 
package are abysmal. More than half of the tax relief in this bill 
would go to the top 5 percent of taxpayers--those with incomes of more 
than $100,000--once its provisions are completely phased in. If 
Congress is determined to pass a tax cut, it should at least ensure 
that the bulk of the tax relief that it provides goes to the people who 
need it most--the hard-pressed, hard-working low- and moderate-income 
households that are playing by the rules and struggling to make ends 
meet.

  There are a number of other objectionable provisions in this 
legislation, too many to be mentioned here. Let me just mention one in 
passing. The bill would change the way in

[[Page H4699]]

which independent contractor status is determined. This change would 
most likely have the result of stripping thousands--and perhaps 
millions--of workers of their employee status and the benefits that 
that status conveys. It could lead to lower pay, the loss of health 
insurance coverage, ineligibility for pensions, and the loss of 
protection under State and Federal labor and workplace safety laws for 
many hard-working individuals.
  Mr. Speaker, this legislation has very serious problems. I urge my 
colleagues to reject a major tax cut and, instead, to address the long-
term fiscal problems that confront our country. Barring that approach, 
I urge them to work with me to produce a reconciliation bill that we 
can all support--one that provides tax relief for America's working 
families in a fiscally responsible fashion.
  Mr. VENTO. Mr. Chairman, this legislation reminds me of Cinderella's 
stepsister trying to slip a size 10 foot in a size 5 glass slipper. It 
just won't work. And hopefully the American people will, like the 
Prince's emissary, discover what a fraud this legislation is.
  I supported the budget framework adopted by Congress this year. 
Frankly, I was concerned and did have reservations about the tax 
portion of the agreement. I was concerned that the Republican majority 
would not be able to resist the opportunity to load up the tax bill 
with provisions that benefit the very rich at the expense of working 
and middle class Americans and that despite its rhetoric, the majority 
leadership is willing to sacrifice deficit reduction and the real 
progress that we have made over the past 4 years.
  Unfortunately, these fears have been realized. Like children in a 
candy store, the majority party has not been able to restrain 
themselves from loading up with goodies. Like all candy, this bill is 
fattening. It will fatten the pocketbooks of the wealthiest in our 
Nation while swelling the Federal deficit.
  The nonpartisan research organization, the Citizens for Tax Justice, 
has analyzed the real impacts of this tax bill. Their analysis has 
determined that 57 percent of the benefits of the tax cuts will go to 
people with incomes over $109,000, while average families, with incomes 
between $21,000 and $57,500, will only receive 17 percent of the 
benefits. Incredibly, families with income levels below $21,000 will 
get no tax cut or could actually pay more taxes under this bill. This 
outcome is particularly harsh for young families trying to succeed. The 
discrepancy between the very rich and ordinary working families is 
highlighted by the disclosure that this tax bill contains a $9 million 
tax break that benefits approximately 1,000 individuals.
  Through a creative implementation schedule, the tax bill masks the 
true impact the loss of revenue and size of the tax breaks, resulting 
in a gap between tax expenditures and program expenditures. Just when 
the American taxpayer thinks the long fight to end the Federal deficit 
is at an end, the full impact of this backend loaded legislation will 
hit. The Center on Budget and Policy Priorities estimates that the 
Republican tax bill will blow a hole of between $600 and $700 billion 
for the second 10-year period from 2008 through 2017. That type of 
fiscal time bomb should not be fused by the passage of such a tax 
policy measure. Indexation of various tax breaks in this measure 
further digs the deficit hole that we are trying to extract ourselves 
from, experience would dictate and common sense prevail that such 
aspects of the Tax Code shouldn't be placed on automatic.
  While I do not support the present tax bill, I do strongly support 
the alternative that will be offered today. That alternative provides a 
more targeted approach to tax relief. The Democratic substitute 
legislation fulfills the commitment to helping middle and working class 
families and children to afford the costs of post-secondary education. 
This alternative provides a child credit and does not deny that credit 
to families that have lower incomes and whose major tax payments are 
the payroll tax. The Democratic substitute maintains the commitment to 
estate tax reform and to reducing the real estate capital gains taxes 
without mortgaging our future. It permits the full earned income tax 
credit to remain in place, benefiting the working poor.
  Mr. Speaker, the Rangel alternative builds upon the outstanding 
success that Congress has had in working with President Clinton to 
reduce the deficit. This has not been an easy process but now that the 
goal of a balanced budget is so close we must not yield to the siren 
call of tax breaks without discipline. We cannot and should not turn 
back on that progress to merely score political points. I urge my 
colleague to support meaningful deficit reduction and balanced tax 
reform by passing the Democratic alternative.
  Mr. SOUDER. Mr. Chairman, on Wednesday, May 21, the Christian Action 
Network, a nonprofit lobbying organization dedicated to the protection 
of the American family, tried to display art funded by the National 
Endowment for the Arts on the steps of the U.S. Capitol as part of 
their touring exhibit, ``A Graphic Picture is Worth a Thousand votes.'' 
The purpose of this touring exhibit is to protest NEA funding of 
obscene and anti-Christian art.
  However, the U.S. Capitol Police would not let the Christian Action 
Network display the NEA funded art on the basis that the art was 
obscene. In addition, the Capitol Police confiscated 17 pieces of NEA-
funded art and are seeking a warrant for the arrest of Christian Action 
Network president, Martin Mawyer.
  The simple fact that the U.S. Capitol Police would not let the 
Christian Action Network display this art proves Mr. Mawyer's point 
that the National Endowment for the Arts is using taxpayer money to pay 
for obscenity and to support people who produce illegal art. The NEA is 
an affront to religious beliefs, heritage, and sense of fairness and 
the agency needs to be eliminated. It has been proven over and over 
again that simple restrictions and reforms on the NEA don't work.
  Jane Alexander maintains that she has cleaned up the NEA but this is 
clearly in doubt. For instance, the NEA has given $112,700 over the 
past 3 years to Women Make Movies, Inc., a nonprofit organization that 
produces and distributes independent films by and about women. One such 
film was ``Watermelon Woman'' which portrays graphic sex images, is 
strewn with graphic and degrading sexual language, and portrays the use 
of illegal drugs as a normal recreational activity. There are at least 
14 other controversial films distributed by Women Makes Movies, Inc.
  The Federal Government should not be in the business of determining 
what is art and what isn't art. Individual citizens and private groups 
should have the freedom to choose what art we wish to patronize and 
what we choose to ignore.
  Today, I would like to enter into the Congressional Record a copy of 
a brief article from the May 30th edition of Human Events which covered 
Christian Action Network's art exhibit on Capitol Hill. I urge my 
colleagues to read this article and to vote to abolish the National 
Endowment for the Arts for fiscal year 1998.

                   [From Human Events, May 30, 1997]

             Capitol Police Confiscate NEA `Art' as Obscene

       On May 21, the U.S. Capitol Police confiscated 17 pieces of 
     taxpayer-funded ``art'' displayed on the Capitol steps as a 
     part of an exhibit put on by the Christian Action Network 
     (CAN). Congress' security force is now seeking an arrest 
     warrant for CAN President Martin Mawyer for publicly 
     displaying obscene images.
       The National Endowment for the Arts (NEA), long a target of 
     conservatives for being wrong in principle, wasting taxpayer 
     money and funding obscene and blasphemous art, granted 
     federal funds to the artists who created the unfit-to-be-seen 
     works. ``Finally,'' Mawyer told Human Events, ``someone in 
     law enforcement authority has decided this is obscene. . . . 
     Now, when we go around from [congressional] district to 
     district to increase support for eliminating the NEA, we can 
     show pictures of the Capitol Hill police confiscating this.''
       NEA-funded photographs titled ``Bobby Masturbating'' and 
     ``Woman Castrating a Man'' were among the confiscated 
     material, as was a collection of stories called the 
     ``Highways Brochure.'' One of them ``included a description 
     of sex with [House Speaker] Newt Gingrich's mother,'' said 
     Mawyer.
       U.S. Capitol Police spokesman Sgt. Dan Nichols said May 22, 
     ``It is up to the U.S. attorney's office for the District of 
     Columbia to decide whether or not to issue a warrant. We will 
     probably submit an affidavit today, perhaps tomorrow.'' He 
     said they were definitely seeking Mawyer's arrest.
       Since taking over Congress, Republicans have cut the NEA's 
     budget to $99.5 million a year. But conservatives vow to 
     enforce a deal struck in 1995 with House GOP moderates which 
     called for the complete elimination of the NEA's funding by 
     Fiscal 1998.
  Mr. BERRY. Mr. chairman, I rise today in regretful opposition to the 
Republican tax proposal.
  I am a strong supporter of tax relief for the American family and for 
our small business. Were I to craft the perfect tax package, I would 
devote over half of its tax relief to small business--reducing the 
estate tax so that families can pass on their business from generation 
to generation--establishing a better home office deduction--including 
provisions to allow for some independent contracting. In addition, I 
would provide relief for our families by including a $500 per-child tax 
credit--the President's tax credits for higher education--and 
deductibility of tuition and expenses.
  This proposal violates the bipartisan budget deal and results in an 
escalating deficit over

[[Page H4700]]

the next 10 years. Not only does it not meet our objectives of 
balancing the budget, it worsens the deficit.
  My ideal proposal would not include the Republicans' costly reduction 
in tax cuts to large corporations that explode our Nation's deficit and 
make it impossible to balance the Federal budget. While I support and 
will continue to fight for the enactment of the small business 
proposals included in the Republican package, and would in fact have 
preferred a larger reduction in the estate tax, I cannot support a 
return to the so-called trickle down economics that resulted in the 
rapid expansion of our national deficit since 1981. I am old enough to 
remember the incredibly adverse impact of the Reagan plan on our 
national economy.
  In casting this vote today, I had to carefully consider what was best 
for those I represent--the citizens of the First District. I believe 
that the immediate, temporary political gain from supporting this 
Republican tax reform proposal is not worth the ultimate, long-term 
harm to America's economy that would result from the enactment of this 
tax package. The Republican tax proposal makes a lot of promises but 
does not contain any mechanism to ensure that the budget will continue 
to be balanced. It is fiscally irresponsible--phasing in the largest 
tax cuts over a 10-year period harms the budget and will destroy the 
deficit.
  The Blue Dog Democratic alternative that I am supporting today is 
better for the American taxpayer, and better for American small 
business, than the Republican proposal for the following reasons: Our 
bill eliminates the so-called back loading from the Republican plan, 
which harms the economy in the long term and will increase the federal 
deficit; it provides more estate tax relief than the Republican plan--
phasing it in immediately for our family farms and businesses; it 
eliminates the corporate welfare provisions in the Republic bill and 
dedicates that money to deficit reduction; and, it includes a $500 per-
child tax credit; the President's Hope Scholarship, and deductibility 
of tuition for students.
  Mr. Speaker, today's vote is simply the first step in a long budget 
process. I am confident that Congress will be able to work in a 
bipartisan manner to provide meaningful tax relief to America's 
families and small businesses.
  Mr. FAZIO of California. Mr. Chairman, I thank the ranking member.
  It is easy to see what the special interests want in a tax cut. Just 
look at the Republican bill.
  But American families, according to a poll in the Wall Street Journal 
published today, want two things: A tax cut to make college affordable, 
and a tax credit so they can afford child care.
  On both counts, the Democratic alternative wins hands down.
  Instead of being loaded with fat capital gains cuts and benefits for 
corporations, it puts higher education in reach for millions of more 
Americans.
  Instead of tax breaks for the rich, it makes community college an 
option for nearly every American who wants the opportunity to enroll.
  Instead of massive estate tax reductions, it allows workers who want 
to learn new skills needed in our changing economy, tax credits so they 
can afford to learn--and earn--much more.
  This debate isn't about whether we cut taxes. It's who we cut them 
for.
  The Democratic plan is the one that makes the most sense for our 
economy, for education, and for our future.
  Mr. UNDERWOOD. Mr. Chairman, it is truly unfortunate that this bill 
shortchanges the working poor of this Nation and carves out tremendous 
benefits for the wealthy. Those who need the relief the most are given 
the least under this legislation. It uses the language of helping all 
families with children but delivers to only half--the top half. But Mr. 
Chairman, I rise this afternoon to bring to the attention of my 
colleagues an issue of specific concern to Guam and the Insular areas--
the airline tax provision contained in this reconciliation bill. I want 
my colleagues to know when they vote for this bill they will be voting 
to treat American citizens as foreigners. The new international tax of 
$15.50 for both departure and arrival may be a good idea when applied 
to just that--international passengers--but unfortunately this tax goes 
beyond just taxing international tourists. It affects American citizens 
flying from Guam traveling to the mainland United States. This issue 
has been addressed by a special rule for other communities that face a 
similar burden during an already costly trip to the U.S. mainland. I 
hope that the chairman examines this provision in conference and works 
to bring fairness in a bipartisan way to our American citizens from 
Guam and the other insular areas.
  Mr. DUNCAN. Mr. Chairman, as members of the House of Representatives, 
we each hold dear to us a number of founding principles which make our 
democracy truly exceptional. One of these principles I am sure we all 
cherish is sensible, responsible, and coordinated government.
  It has been a long-standing, established practice in the aviation 
industry to deduct as current expenses the costs of FAA-mandated 
aircraft safety inspections, maintenance, and repairs.
  Recently, however, the IRS has sought to drastically reverse this 
policy. This reversal forces the cost of major FAA-mandated safety 
inspections, maintenance, and repairs to be capitalized, rather than 
being immediately expensed. This action unfairly penalizes airlines for 
complying with the FAA's mandated safety regulations.
  Further, the IRS has not submitted this change to Congress as 
proposed regulation, nor as a proposed regulation change. If it had, 
these actions would be open to public scrutiny, interagency 
coordination and congressional review.
  Changing tax-policy on airline safety-related activities should be 
consistent with, not contradict, the actions of the FAA. It is bad 
public policy to create a tax penalty on the safety-related efforts 
that others within the administration are trying to encourage.
  In addition, the IRS, by avoiding the regulatory rulemaking and 
legislative process, is denying the public, other affected agencies, 
and, to some degree, even Congress participation in this aviation 
safety policy matter.
  Mr. PORTMAN. Mr. Chairman, as many of you know, for the last year, I 
have cochaired the Commission on Restructuring the Internal Revenue 
Service. Yesterday we issued our report--the culmination of a year-long 
study of the IRS. One of our central recommendations deals with the 
need to simplify our tax system. In fact, quoting from our report, the 
Commission ``strongly recommends that Congress and the President work 
toward simplifying the tax code wherever possible.''
  We provided Congress with 60 specific provisions of the tax code that 
the tax writing committees could consider simplifying or reforming. 
And, I'm pleased to note that, under the leadership of Chairman Archer, 
23 of these tax simplification proposals are in this bill.
  I'd like to mention two: providing broad capital gains tax relief for 
those who sell their homes; and protecting State and local public 
pension plans from needless IRS regulation.
  Several months ago, Ben Cardin and I introduced legislation to 
provide a capital gains exclusion from taxes for home sales. Under our 
proposal, which is incorporated in this bill, the number of people 
paying capital gains on the sale of a home will be reduced from 150,000 
to 10,000 a year. This provision will eliminate the need to keep 
detailed records and file complicated reports. Mr. Speaker, that's real 
simplification.
  And by doing away with the current rollover rules and the limited 
``over 55 exclusion,'' homeowners will have more flexibility. They no 
longer will be forced to buy up in order avoid the tax bite. This will 
allow homeowners to use their savings to plan for retirement, meet 
education expenses for their kids and otherwise enhance their quality 
of life.
  Our proposal recognizes that a home is the primary source of savings 
for most American families. Instead of forcing homeowners to give up 
all the money they've made on their home sale to Uncle Sam, Congress 
can give families a real break.
  The second proposal, which I also authored with Ben Cardin, will 
ensure that State and local pension plans will not have to undergo 
unnecessary and costly testing of their plans for compliance with 
complicated pension coverage rules. These rules are inappropriate for 
public plans. In fact, participation in public pension plans is often 
mandatory, and full-time public employees enjoy almost twice the 
pension coverage rate of their counterparts in the private sector. 
Furthermore, State and local governmental plans already come under a 
high level of scrutiny from elected officials, voters, and the media. 
There simply is no need to burden plans with unnecessary IRS 
regulations and costs.
  Mr. Chairman, both of these proposals offer true simplification. I'm 
pleased the Ways and Means Committee included them and I'd like to note 
that the other body has incorporated them in its tax package as well. I 
urge my colleagues to support H.R. 2014.
  Mr. PACKARD. Mr. Chairman, Americans are working harder than ever 
before, too often struggling to make ends meet, even with two incomes. 
The Taxpayer Relief Act is a first step toward allowing taxpayers to 
keep more of what they earn. We need to send more money back to hard-
working Americans and keep it out of the Government coffers.
  The Taxpayer Relief Act gives the American people the tax relief they 
deserve. We are helping every taxpayer at every stage of life. This tax 
relief proposal helps every taxpayer at every stage of life. Our child 
tax credit will help parents meet the needs of children and teenagers. 
Higher education is more within reach because we have built on the 
President's HOPE education proposal. And those who have worked hard, 
played by the rules and saved for retirement will be rewarded, not 
penalized.

[[Page H4701]]

  Mr. Speaker, critics of our tax relief plan claim that it is geared 
toward the rich. Three-quarters of the tax relief provided in this 
proposal will go to those earning less than $75,000. I'd say it's 
obvious that hard-working, middle-income Americans benefit the most 
from our plan.
  Under our plan, the typical family of four with a household income of 
$35,000 a year would see its taxes slashed 40 percent from $2,625 to 
$1,573 a year. If one child were in college, the tax relief would rise 
to 78 percent. This is real relief for middle-income families.
  Mr. Speaker, the average Californian spends 2 hours and 45 minutes of 
each working day laboring to pay taxes. This is greater than the time 
worked to pay for food, shelter and clothing combined. It hasn't always 
been that way. Our plan ensures that this will not be the case in the 
future.
  Hard-working, tax-paying citizens have finally won a major victory. 
Tax relief has become a reality because the American people spoke 
loudly and we have listened.
  Ms. VELAZQUEZ. Mr. Chairman, I rise in strong opposition to this tax 
giveaway for the rich act of 1997. From capital gains tax breaks to 
hidden loopholes for the privileged few--Republicans have loaded this 
budget.
  America's wealthy have much to celebrate under this bill--41 percent 
of the tax cuts will benefit taxpayers making more than $250,000. 
Meanwhile, families earning less than $23,000 will get no tax relief. 
This is unfair, Mr. speaker. Democrats and the American people will not 
stand for this tax sham.
  Who do Republicans think they are fooling? They want to fatten the 
pockets of the rich and of the big corporations. Even the Wall Street 
Journal admits that the poor and middle class are given scraps. Just 
look at how this outrageous bill treats working mothers.
  Republicans promised a $500 child tax credit to help all families. 
But now they want to exclude more than half of the children around the 
country. In New York alone, they would exclude over 3 million children. 
To Republicans, the child tax credit is acceptable only for a wealthy 
family, but they call it welfare for a working family.
  If that injustice is not enough, Republicans want to punish 2 million 
working, middle-class women by reducing their child tax credit for 
child care. it is sad that the party of ``family values'' does not want 
to help working families.
  Real tax relief should go to the struggling single mother with 
children, to the low-income family fighting poverty, to the middle 
class who carry the vast majority of the tax burden. These are the 
victims of your tax bill. These are the Americans who will suffer. We 
need tax relief that fairly benefits all communities.
  The Republicans could not be trusted to keep their word under the 
budget agreement. And, they cannot be trusted with our children's 
future. They have failed working women. They have failed our children. 
They have failed the hard-working American family struggling to bring 
in a paycheck.
  I strongly urge my colleagues to fail this outrageous Republican tax 
plan.
  Mrs. McCARTHY of New York. Mr. Chairman: I rise in support of H.R. 
2014, the budget reconciliation tax legislation.
  When I talk to my constituents back home, they tell me overwhelmingly 
that taxes are by far their biggest concern. The median household 
income in the Fourth Congressional District is 50 percent higher than 
the national average, but we are not rich, because taxes and the cost 
of electricity take so much out of our pockets. It is not uncommon for 
a two-income household in my district to make over $70,000 a year and 
still just get by, having trouble putting their kids through college.
  Long Island is a great place to live and raise a family, but the tax 
burden is driving young people and businesses away from our region. My 
constituents tell me that the best way to ensure Long Island remains 
productive and healthy is through tax relief.
  The bill we are debating today is far from perfect, but I cannot in 
good conscience deny my constituents much-needed relief from taxes by 
letting the perfect be the enemy of the good. This bill will make a 
positive difference in the lives of people in my district, and for that 
reason alone, I plan to support it.
  The family tax credit will provide relief for families struggling to 
make ends meet. The capital gains tax reductions will provide direct 
tax relief for the Fourth District, where the average home value is 
$173,600. The bill also provides needed estate tax reform, increasing 
the exemption from $600,000 to $1 million. This will help family-owned 
businesses in New York, a State which has over 600,000 small 
businesses.
  Most importantly, this bill will provide tax incentives for higher 
education. My constituents believe very strongly in the importance of 
education, and they tell me that they want the Federal Government to 
help prepare young people for the future. As a member of the House 
Education and the Workforce Committee, I believe expanding access to 
education will lead young people to success in life and away from crime 
and gun violence.
  As I said, there are several provisions in this bill which trouble 
me. For one thing, I am deeply concerned that section 931 will threaten 
the economic well-being of thousands of bakery drivers and their 
families. This provision, which would drastically overturn longstanding 
Federal policy, was attached to this bill with no debate or discussion 
in committee or the full House.
  in addition, I oppose provisions which would reduce the retirement 
savings of current and future college and university retirees by 
removing the tax-exempt status of the Teachers Insurance and Annuity 
Association-College Retirement Equities Fund [TIAA-CREF].
  Furthermore, I am afraid that provisions of this bill unfairly 
penalize graduate students by repealing section 117(d), which makes 
remitted tuition tax-free, and by failing to extend the section 127 
exclusion for employer-provided tuition assistance for graduate 
students. As a cosponsor of H.R. 127, legislation to permanently extend 
section 127 for both undergraduate and graduate students, I will work 
to make this provision fair for all higher education students.
  I pledge my continued efforts in the coming weeks to address these 
concerns, and I am hopeful that the bill will be improved in the 
conference committee. More importantly, I plan to work hard to ensure 
that Congress passes immediate, meaningful tax relief for the families 
and businesses of the Fourth Congressional District and the entire 
Nation.
  Mr. POMEROY. Mr. Chairman, I believe that there are three important 
principles that Congress and the President should follow in delivering 
tax relief for American families: First, tax cuts should not explode 
the deficit in future years, increasing the tax burden on our children; 
second, the majority of the tax cut benefits should flow to those who 
need it most, working and middle-income families; and third, tax cuts 
should enhance the economic and retirement security of average 
Americans.
  Unfortunately, in my view, the Ways and Means tax bill fails to 
adhere to these principles. I am especially concerned about the bill's 
shortcoming with regard to retirement security. First, the bill makes 
the wrong choices when it comes to expanding individual retirement 
accounts [IRA's]. And second, it targets educators for pension 
reductions.
  Mr. Chairman, I am a strong proponent of expanding IRA's for working 
and middle-income families and have introduced legislation to do so. 
Yet, there is a right way to go about IRA expansion and a wrong way. 
The right way is to create new savers by providing extra tax incentives 
for low-wage workers and making more middle-income families eligible 
for IRA tax deductions. Working income Americans have tremendous 
difficulty saving today amid the press of monthly expenses and it is 
toward this group that we should direct IRA tax savings.
  Unfortunately, the bill before goes about IRA expansion in precisely 
the wrong way. It establishes so-called backloaded IRA's which almost 
exclusively benefit the wealthy and which absolutely explode in cost 
outside the budget window. With backloaded IRA's, wealthy individuals 
can place substantial amounts of their investment income in an account 
where earnings and distributions will never be taxed. While the well-
to-do can shelter their income in this way, backloaded IRA's do nothing 
to provide tax relief to the low- and moderate-income families who have 
such a difficult time saving for retirement. In fact, while taxpayers 
with incomes in the top 5 percent would save thousands per year with 
backloaded IRA's, families in the bottom 40 percent would realize no 
tax savings whatsoever.
  Mr. Chairman, if there was one group whose retirement security we 
should all want to protect it is the dedicated individuals who educate 
our children. Yet, this bill singles out for pension reductions the 
educators who work to impart knowledge and values to our young people, 
the researchers who achieve the scientific and medical breakthroughs so 
critical to our quality of life, and the office and service workers who 
help make our universities the pride of the world. These are the people 
who have been served for 80 years by the Teachers Insurance and Annuity 
Association-College Retirement Equities Fund [TIAA-CREF].
  This tax bill would revoke the longstanding tax-exempt status of 
TIAA-CREF's pension operations, a change which could reduce the incomes 
of retired university personnel by as much as 3 to 5 percent. And we're 
not talking about a group of wealthy professors here. The average TIAA-
CREF beneficiary earns less than $12,000 per year in pension income. 
Mr. Chairman, at a time when we are rightly trying to attract the very 
best talent to help educate our Nation's children, we should not single 
out educators and jeopardize their retirement security.
  Mr. Chairman, I urge may colleagues to oppose this tax bill. The 
Senate has taken a more balanced approach and I sincerely hope that the 
tax bill will come back from the conference in a form that we can all 
support.

[[Page H4702]]

However, this bill represents the wrong tax relief priorities and 
undermines rather than advances our Nation's retirement security.
  Mr. OWENS. Mr. Chairman, I rise in vehement opposition to H.R. 2014, 
the Budget Reconciliation Tax Act. It is appalling that just 1 month 
ago, Republicans enjoyed photo opportunities and media blitzes in which 
they celebrated an historic agreement between the White House and the 
Republican leadership. Unsurprisingly, the parameters of this agreement 
have begun to unravel and H.R. 2014 represents the consummate slap in 
the face to everyone who was told that this agreement was honorable and 
genuinely beneficial to all of the children, women, and men of America. 
It must be exposed the H.R. 2014 is a moral and economic sneak attack 
on people who are not lucky enough to be rich, realize capital gains, 
utilize a corporate depreciation allowance, work on a job that provides 
real benefits.
  At a time when individuals are bearing a larger share of the Federal 
tax burden, H.R. 2014 includes changes to U.S. tax policy which would 
overwhelmingly benefit the corporate wealth. H.R. 2014 would reduce the 
capital gains tax and modify the estate tax structure. According to the 
Center on Budget and Policy Priorities, the top 20 percent of the U.S. 
population would receive 87 percent of the benefits, while the bottom 
60 percent of the population would receive a paltry 4 percent of these 
tax benefits. In fact, the wealthiest 1 percent of the population would 
enjoy a rise in after-tax income of approximately $27,000. And more 
than half of the benefits of the Republican tax plan would go to the 
wealthiest 5 percent--people making an average of $250,000 a year.
  Moreover, H.R. 2014 would deny the highly publicized child tax credit 
to working-class families. Some families would be able to benefit from 
the $500 per child tax credit. However, those lower income families who 
receive the earned income tax credit [EITC] and have no Federal tax 
liability would be declared ineligible for the child credit--15 million 
families. Under H.R. 2014, the child tax credit could be nonrefundable 
and reduced by amounts received by families under EITC or the dependent 
care tax credit--which pays a portion of child care expenses. This 
means that a family with two children earning $25,000 per year would 
not receive the child credit. Republicans argue that the credit is not 
for families who have no Federal tax liability. Unfortunately, this 
shortsighted argument presents only half the picture: These families 
still pay payroll taxes, State taxes, and local taxes. As such, they 
deserve relief.
  The Republicans further contend that families already receive a 
credit [EITC] and should not benefit from another one. This argument is 
laughable given that the majority is prepared to repeal and scale back 
the alternative minimum tax [AMT]--a tax that was first levied in 1969 
and strengthened in 1986 when it was discovered that corporations took 
advantage of hundred of billions of dollars' worth of tax breaks and 
ended up paying no income taxes at all. The scaling back and repeal of 
AMT is expected to cost U.S. taxpayers an abominable $22 billion over a 
10-year period. Because the Tax Code is rife with more than $70 billion 
in tax breaks, deductions, and credits--corporate welfare--billion-
dollar corporations can end up owning $0 in taxes.
  In despicable disregard for the nonwealthy American worker, 
Republicans have included a provision in H.R. 2014 that would expand 
the definition of independent contractor providing employers wholesale 
freedom to change the classification of their workers from employees to 
independent contractors. No one prepared the American people for 
another assault on the average worker and this provision was definitely 
not apart of the White House-Republican budget agreement. If a worker 
is classified as an employee then he or she is protected by a myriad of 
laws regarding minimum wage, overtime pay, workers' compensation, and 
health care and retirement benefits packages. However, if a worker is 
classified as an independent contractor, the employer can deny this 
worker these very basic protections and benefits. It is estimated that 
millions of workers would be affected should this provision be enacted 
into law.

  Finally, H.R. 2014 would provide small tax incentives to economically 
depressed areas in the District of Columbia--a laudable goal at first 
glance. However, given the overall economic hunger in many U.S. cities, 
including our Capital City, the crumbs in this bill are grossly 
inadequate. The bill would designate a number of areas in the District 
of Columbia as enterprise zones for 5 years--four specific areas and 
any census tract where the poverty level is at least 35 percent. 
However, the Democratic substitute bill would expand the number of 
current empowerment zones from 9 to 29--and the number of enterprise 
communities from 20 to 100. Empowerment zones receive a combination of 
tax incentives and Federal grants in order to enhance employment 
opportunities and encourage community development in blighted areas. In 
1994, when the first round of Federal EX's and EC's was completed, out 
of the 500 applications, only 29 were awarded. There are hundreds of 
cities in the United States with double-digit unemployment rates and 
high poverty rates and the Republicans wish to focus only on the 
District of Columbia--a city where a great deal of media attention is 
concentrated. We cannot be satisfied by this pittance when the overall 
need is so dramatic.
  The Children's Defense Fund, Public Citizen, National Low-Income 
Housing Coalition, AFL-CIO, the National Education Association, and two 
dozen other organizations have circulated a letter to Members of 
Congress in collective opposition to the regressive tax cuts that are 
included in H.R. 2014. They state unequivocally,

       We * * * urge you to oppose significant tax cuts for our 
     Nation's wealthiest citizens. * * * The budget accord diverts 
     important resources to tax reductions * * * we hope you will 
     focus on moderate tax cuts for low and middle-income 
     Americans, not tax subsidies for the wealthy that have little 
     economic rationale and blow a hole in the deficit.

  I challenge my colleagues to declare the Republican crown jewel null 
and void. Send it back to the drawing board and bring the American 
people and this Congress a bill that is fair and genuinely poised to 
provide the economic relief that is needed by all of our communities 
and families. A great injustice is taking place. Vote ``no;; on H.R. 
2014.
  Mr. COSTELLO. Mr. Chairman, I rise today in opposition to the 
Republican leadership's tax bill. While I have supported a balanced 
budget amendment since coming to Congress in 1988, this bill mostly 
provides tax relief for upper income Americans with little relief for 
middle-income families.
  A report issued by the Center on Budget and Policy Priorities shows 
that under this bill, the very wealthiest 1 percent of families would 
get their incomes boosted by an average of $27,000 a year, while 
families struggling at the bottom 20 percent of the economic ladder 
actually end up losing an average of $63 a year.
  I will be supporting the Democratic alternative because it ensures 
that over 70 percent of the tax cuts go to families earning less than 
$100,000 per year. The American people want to see our Federal budget 
balanced. However, lower- and middle-income families need tax 
incentives themselves as they struggle to make ends meet financially.
  The cost of college education for children is of major concern to 
many lower- and middle-income families. College tuition rates continue 
to increase at a staggering rate each year. The Democratic bill makes 
the HOPE scholarship tax credit available for all 4 years of college 
education, instead of just 2 years under the GOP bill. In the final 2 
years, a 20-percent credit for tuition costs would be available. Also, 
the HOPE scholarship credits would not be reduced by a student's Pell 
grant and other nontaxable Federal scholarships.
  Many middle-income families operate small businesses and farms and 
need estate and gift tax reform. The Democratic substitute raises the 
exemption among from paying estate taxes from $600,000 to $1 million 
effective January 1, 1998, instead of the year 2007 in the Republican 
version. Many of our family farms and family-owned businesses cannot 
survive from one generation to the next because of the high taxes our 
current laws bring about. Family-owned businesses are vital to expand 
our national economy, and this substitute allows for these businesses 
and farms to thrive.
  Finaly, the Democratic bill targets the capital gains reductions to 
middle-income American families. Mr. Speaker, I realize that difficult 
choice have to be made to take on a challenge as large as reducing the 
Federal debt once and for all by 2002. However, I cannot support 
legislation which ignores the financial needs of lower- and middle-
income families in order to benefit the wealthy.
  All time for general debate has expired.
  The CHAIRMAN pro tempore. Pursuant to the rule, the amendment 
numbered 2 in the Congressional Record is adopted. The bill, as 
amended, is considered as an original bill for the purpose of further 
amendment and is considered as read.
  The text of H.R. 2014, as amended, pursuant to House Resolution 174, 
is as follows:

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

       (a) Short Title.--This Act may be cited as the ``Taxpayer 
     Relief 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.--The table of contents for this Act 
     is as follows:
Sec. 1. Short title; amendment of 1986 Code.

[[Page H4703]]

TITLE I--CHILD TAX CREDIT; TAX INCENTIVES FOR DEPENDENT CARE AND HEALTH 
                           CARE FOR CHILDREN

Sec. 101. Child tax credit.
Sec. 102. Inflation adjustment of limits and other modifications of 
              dependent care credit.

                     TITLE II--EDUCATION INCENTIVES

        Subtitle A--Tax Benefits Relating to Education Expenses

Sec. 201. Hope credit for higher education tuition and related 
              expenses.
Sec. 202. Deduction for qualified higher education expenses.
Sec. 203. Penalty-free withdrawals from individual retirement plans for 
              higher education expenses.
Sec. 204. Expenses for education which supplements elementary and 
              secondary education.

    Subtitle B--Expanded Education Investment Savings Opportunities

Sec. 211. Eligible educational institutions permitted to maintain 
              qualified tuition programs; other modifications of 
              qualified State tuition programs.
Sec. 212. Education investment accounts.

                Subtitle C--Other Education Initiatives

Sec. 221. Extension of exclusion for employer-provided educational 
              assistance.
Sec. 222. Increase in limitation on qualified 501(c)(3) bonds other 
              than hospital bonds.
Sec. 223. Contributions of computer technology and equipment for 
              elementary or secondary school purposes.
Sec. 224. Treatment of cancellation of certain student loans.

              TITLE III--SAVINGS AND INVESTMENT INCENTIVES

                     Subtitle A--Retirement Savings

Sec. 301. Establishment of American Dream IRA.

                       Subtitle B--Capital Gains

                    Part I--Individual Capital Gains

Sec. 311. 20 percent maximum capital gains rate for individuals.
Sec. 312. Indexing of certain assets acquired after December 31, 2000, 
              for purposes of determining gain.
Sec. 313. Exemption from tax for gain on sale of principal residence.

                    Part II--Corporate Capital Gains

Sec. 321. Reduction of alternative capital gain tax for corporations.

                TITLE IV--ALTERNATIVE MINIMUM TAX REFORM

Sec. 401. Adjustment of exemption amounts for taxpayers other than 
              corporations.
Sec. 402. Exemption from alternative minimum tax for small 
              corporations.
Sec. 403. Repeal of adjustment for depreciation.
Sec. 404. Minimum tax not to apply to farmers' installment sales.

     TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS

               Subtitle A--Estate and Gift Tax Provisions

Sec. 501. Cost-of-living adjustments relating to estate and gift tax 
              provisions.
Sec. 502. 20-year installment payment where estate consists largely of 
              interest in closely held business.
Sec. 503. No interest on certain portion of estate tax extended under 
              section 6166, reduced interest on remaining portion, and 
              no deduction for such reduced interest.
Sec. 504. Extension of treatment of certain rents under section 2032A 
              to lineal descendants.
Sec. 505. Clarification of judicial review of eligibility for extension 
              of time for payment of estate tax.
Sec. 506. Gifts may not be revalued for estate tax purposes after 
              expiration of statute of limitations.
Sec. 507. Termination of throwback rules for domestic trusts.
Sec. 508. Unified credit of decedent increased by unified credit of 
              spouse used on split gift included in decedent's gross 
              estate.
Sec. 509. Reformation of defective bequests, etc., to spouse of 
              decedent.

             Subtitle B--Generation-Skipping Tax Provisions

Sec. 511. Severing of trusts holding property having an inclusion ratio 
              of greater than zero.
Sec. 512. Expansion of exception from generation-skipping transfer tax 
              for transfers to individuals with deceased parents.

  TITLE VI--EXTENSION AND MODIFICATION OF CERTAIN EXPIRING PROVISIONS

Sec. 601. Research tax credit.
Sec. 602. Contributions of stock to private foundations.
Sec. 603. Work opportunity tax credit.
Sec. 604. Orphan drug tax credit.
Sec. 605. Budgetary treatment of expiring preferential excise tax rates 
              which are dedicated to trust funds.

  TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA

Sec. 701. Tax incentives for revitalization of the District of 
              Columbia.
Sec. 702. Incentives conditioned on other DC reform.

                 TITLE VIII--WELFARE-TO-WORK INCENTIVES

Sec. 801. Incentives for employing long-term family assistance 
              recipients.

                   TITLE IX--MISCELLANEOUS PROVISIONS

            Subtitle A--Provisions Relating to Excise Taxes

Sec. 901. Repeal of tax on diesel fuel used in recreational boats.
Sec. 902. Continued application of tax on imported recycled Halon-1211.
Sec. 903. Uniform rate of tax on vaccines.
Sec. 904. Operators of multiple gasoline retail outlets treated as 
              wholesale distributor for refund purposes.
Sec. 905. Exemption of electric and other clean-fuel motor vehicles 
              from luxury automobile classification.

    Subtitle B--Provisions Relating to Pensions and Fringe Benefits

Sec. 911. Section 401(k) plans for certain irrigation and drainage 
              entities.
Sec. 912. Extension of moratorium on application of certain 
              nondiscrimination rules to State and local governments.
Sec. 913. Treatment of certain disability benefits received by former 
              police officers or firefighters.
Sec. 914. Portability of permissive service credit under governmental 
              pension plans.
Sec. 915. Gratuitous transfers for the benefit of employees.
Sec. 916. Treatment of certain transportation on non-commercially 
              operated aircraft as a fringe benefit excludable from 
              gross income.
Sec. 917. Minimum pension accrued benefit distributable without consent 
              increased to $5,000.
Sec. 918. Clarification of certain rules relating to employee stock 
              ownership plans of S corporations.

              Subtitle C--Revisions Relating to Disasters

Sec. 921. Authority to postpone certain tax-related deadlines by reason 
              of presidentially declared disaster.
Sec. 922. Use of certain appraisals to establish amount of disaster 
              loss.
Sec. 923. Treatment of livestock sold on account of weather-related 
              conditions.
Sec. 924. Mortgage financing for residences located in disaster areas.

          Subtitle D--Provisions Relating to Employment Taxes

Sec. 931. Clarification of employment tax status of individuals 
              distributing bakery products.
Sec. 932. Clarification of standard to be used in determining 
              employment tax status of retail securities brokers.
Sec. 933. Clarification of exemption from self-employment tax for 
              certain termination payments received by former insurance 
              salesmen.
Sec. 934. Standards for determining whether individuals are not 
              employees.

          Subtitle E--Provisions Relating to Small Businesses

Sec. 941. Waiver of penalty through 1998 on small businesses failing to 
              make electronic fund transfers of taxes.
Sec. 942. Clarification of treatment of home office use for 
              administrative and management activities.

                      Subtitle F--Other Provisions

Sec. 951. Use of estimates of shrinkage for inventory accounting.
Sec. 952. Assignment of workmen's compensation liability eligible for 
              exclusion relating to personal injury liability 
              assignments.
Sec. 953. Tax-exempt status for certain State worker's compensation act 
              companies.
Sec. 954. Election to continue exception from treatment of publicly 
              traded partnerships as corporations.
Sec. 955. Exclusion from unrelated business taxable income for certain 
              sponsorship payments.
Sec. 956. Associations of holders of timeshare interests to be taxed 
              like other homeowners associations.
Sec. 957. Additional advance refunding of certain Virgin Island bonds.
Sec. 958. Nonrecognition of gain on sale of stock to certain farmers' 
              cooperatives.
Sec. 959. Exception from reporting of real estate transactions for 
              sales and exchanges of certain principal residences.
Sec. 960. Increased deductibility of business meal expenses for 
              individuals subject to Federal hours of service.
Sec. 961. Qualified lessee construction allowances for short-term 
              leases.
Sec. 962. Tax treatment of consolidations of life insurance departments 
              of mutual savings banks.
Sec. 963. Offset of past-due, legally enforceable State tax obligations 
              against overpayments.
Sec. 964. Exemption of the incremental cost of a clean fuel vehicle 
              from the limits on depreciation for vehicles.

[[Page H4704]]

Sec. 965. Tax benefits for law enforcement officers killed in the line 
              of duty.
Sec. 966. Temporary suspension of taxable income limit on percentage 
              depletion for marginal production.

 Subtitle G--Extension of Duty-Free Treatment Under Generalized System 
  of Preferences; Tariff Treatment of Certain Equipment and Repair of 
                                Vessels

Sec. 971. Generalized system of preferences.
Sec. 972. Equipment and repair of vessels.

    Subtitle H--United States-Caribbean Basin Trade Partnership Act

Sec. 981. Short title.
Sec. 982. Findings and policy.
Sec. 983. Definitions.
Sec. 984. Temporary provisions to provide NAFTA parity to partnership 
              countries.
Sec. 985. Effect of NAFTA on sugar imports from beneficiary countries.
Sec. 986. Duty-free treatment for certain beverages made with Caribbean 
              rum.
Sec. 987. Meetings of trade ministers and USTR.
Sec. 988. Report on economic development and market oriented reforms in 
              the Caribbean.

                           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.
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. Modification of levy exemption.
Sec. 1036. Confidentiality and disclosure of returns and return 
              information.
Sec. 1037. 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 Tax Provisions

Sec. 1041. Extension and modification of Airport and Airway Trust Fund 
              taxes.
Sec. 1042. Kerosene taxed as diesel fuel.
Sec. 1043. Restoration of Leaking Underground Storage Tank Trust Fund 
              taxes.
Sec. 1044. Application of communications tax to long-distance prepaid 
              telephone cards.

         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.
Sec. 1052. Limitation on increase in basis of property resulting from 
              sale by tax-exempt entity to a related person.
Sec. 1053. Modifications to exception from reporting, etc. of lobbying 
              activities.
Sec. 1054. Termination of certain exceptions from rules relating to 
              exempt organizations which provide commercial-type 
              insurance.

                  Subtitle G--Other Revenue Provisions

Sec. 1061. Termination of suspense accounts for family corporations 
              required to use accrual method of accounting.
Sec. 1062. Modification of taxable years to which net operating losses 
              may be carried.
Sec. 1063. Expansion of denial of deduction for certain amounts paid in 
              connection with insurance.
Sec. 1064. Allocation of basis among properties distributed by 
              partnership.
Sec. 1065. Repeal of requirement that inventory be substantially 
              appreciated.
Sec. 1066. Extension of time for taxing precontribution gain.
Sec. 1067. Restrictions on availability of earned income credit for 
              taxpayers who improperly claimed credit in prior year.
Sec. 1068. Limitation on property for which income forecast method may 
              be used.
Sec. 1069. Repeal of special rule for rental use of vacation homes, 
              etc., for less than 15 days.
Sec. 1070. Expansion of requirement that involuntarily converted 
              property be replaced with property acquired from an 
              unrelated person.
Sec. 1071. Treatment of exception from installment sales rules for 
              sales of property by a manufacturer to a dealer.

     TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS

                     Subtitle A--General Provisions

Sec. 1101. Treatment of computer software as FSC export property.
Sec. 1102. Adjustment of dollar limitation on section 911 exclusion.
Sec. 1103. Certain individuals exempt from foreign tax credit 
              limitation.
Sec. 1104. Exchange rate used in translating foreign taxes.
Sec. 1105. Election to use simplified section 904 limitation for 
              alternative minimum tax.
Sec. 1106. Treatment of personal transactions by individuals under 
              foreign currency rules.
Sec. 1107. All noncontrolled section 902 corporations which are not 
              passive foreign investment companies in one foreign tax 
              limitation basket.

        Subtitle B--Treatment of Controlled Foreign Corporations

Sec. 1111. Gain on certain stock sales by controlled foreign 
              corporations treated as dividends.
Sec. 1112. Miscellaneous modifications to subpart F.
Sec. 1113. Indirect foreign tax credit allowed for certain lower tier 
              companies.

     Subtitle C--Treatment of Passive Foreign Investment Companies

Sec. 1121. United States shareholders of controlled foreign 
              corporations not subject to PFIC inclusion.
Sec. 1122. Election of mark to market for marketable stock in passive 
              foreign investment company.
Sec. 1123. Effective date.

   Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities

Sec. 1131. Repeal of excise tax on transfers to foreign entities; 
              recognition of gain on certain transfers to foreign 
              trusts and estates.

                   Subtitle E--Information Reporting

Sec. 1141. Clarification of application of return requirement to 
              foreign partnerships.
Sec. 1142. Controlled foreign partnerships subject to information 
              reporting comparable to information reporting for 
              controlled foreign corporations.
Sec. 1143. Modifications relating to returns required to be filed by 
              reason of changes in ownership interests in foreign 
              partnership.
Sec. 1144. Transfers of property to foreign partnerships subject to 
              information reporting comparable to information reporting 
              for such transfers to foreign corporations.
Sec. 1145. Extension of statute of limitation for foreign transfers.
Sec. 1146. Increase in filing thresholds for returns as to organization 
              of foreign corporations and acquisitions of stock in such 
              corporations.

Subtitle F--Determination of Foreign or Domestic Status of Partnerships

Sec. 1151. Determination of foreign or domestic status of partnerships.

              Subtitle G--Other Simplification Provisions

Sec. 1161. Transition rule for certain trusts.
Sec. 1162. Repeal of stock and securities safe harbor requirement that 
              principal office be outside the United States.

                      Subtitle H--Other Provisions

Sec. 1171. Definition of foreign personal holding company income.
Sec. 1172. 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. 1173. Holding period requirement for certain foreign taxes.
Sec. 1174. Penalties for failure to disclose position that certain 
              international transportation income is not includible in 
              gross income.

[[Page H4705]]

Sec. 1175. Denial of treaty benefits for certain payments through 
              hybrid entities.
Sec. 1176. Interest on underpayments not reduced by foreign tax credit 
              carrybacks.
Sec. 1177. Clarification of period of limitations on claim for credit 
              or refund attributable to foreign tax credit 
              carryforward.
Sec. 1178. Miscellaneous clarifications.

   TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
                               BUSINESSES

             Subtitle A--Provisions Relating to Individuals

Sec. 1201. Basic standard deduction and minimum tax exemption amount 
              for certain dependents.
Sec. 1202. Increase in amount of tax exempt from estimated tax 
              requirements.
Sec. 1203. Optional methods for computing SECA tax combined.
Sec. 1204. Treatment of certain reimbursed expenses of rural mail 
              carriers.
Sec. 1205. Treatment of traveling expenses of certain Federal employees 
              engaged in criminal investigations.
Sec. 1206. Payment of tax by commercially acceptable means.

        Subtitle B--Provisions Relating to Businesses Generally

Sec. 1211. Modifications to look-back method for long-term contracts.
Sec. 1212. Minimum tax treatment of certain property and casualty 
              insurance companies.

   Subtitle C--Simplification Relating to Electing Large Partnerships

                       Part I--General Provisions

Sec. 1221. Simplified flow-through for electing large partnerships.
Sec. 1222. Simplified audit procedures for electing large partnerships.
Sec. 1223. Due date for furnishing information to partners of electing 
              large partnerships.
Sec. 1224. Returns may be required on magnetic media.
Sec. 1225. Treatment of partnership items of individual retirement 
              accounts.
Sec. 1226. Effective date.

      Part II--Provisions Related to TEFRA Partnership Proceedings

Sec. 1231. Treatment of partnership items in deficiency proceedings.
Sec. 1232. Partnership return to be determinative of audit procedures 
              to be followed.
Sec. 1233. Provisions relating to statute of limitations.
Sec. 1234. Expansion of small partnership exception.
Sec. 1235. Exclusion of partial settlements from 1-year limitation on 
              assessment.
Sec. 1236. Extension of time for filing a request for administrative 
              adjustment.
Sec. 1237. Availability of innocent spouse relief in context of 
              partnership proceedings.
Sec. 1238. Determination of penalties at partnership level.
Sec. 1239. Provisions relating to court jurisdiction, etc.
Sec. 1240. Treatment of premature petitions filed by notice partners or 
              5-percent groups.
Sec. 1241. Bonds in case of appeals from certain proceeding.
Sec. 1242. Suspension of interest where delay in computational 
              adjustment resulting from certain settlements.
Sec. 1243. Special rules for administrative adjustment requests with 
              respect to bad debts or worthless securities.

  Part III--Provision Relating to Closing of Partnership Taxable Year 
                 With Respect to Deceased Partner, Etc.

Sec. 1246. Closing of partnership taxable year with respect to deceased 
              partner, etc.

    Subtitle D--Provisions Relating to Real Estate Investment Trusts

Sec. 1251. Clarification of limitation on maximum number of 
              shareholders.
Sec. 1252. De minimis rule for tenant services income.
Sec. 1253. Attribution rules applicable to tenant ownership.
Sec. 1254. Credit for tax paid by REIT on retained capital gains.
Sec. 1255. Repeal of 30-percent gross income requirement.
Sec. 1256. Modification of earnings and profits rules for determining 
              whether REIT has earnings and profits from non-REIT year.
Sec. 1257. Treatment of foreclosure property.
Sec. 1258. Payments under hedging instruments.
Sec. 1259. Excess noncash income.
Sec. 1260. Prohibited transaction safe harbor.
Sec. 1261. Shared appreciation mortgages.
Sec. 1262. Wholly owned subsidiaries.
Sec. 1263. Effective date.

   Subtitle E--Provisions Relating to Regulated Investment Companies

Sec. 1271. Repeal of 30-percent gross income limitation.

                    Subtitle F--Taxpayer Protections

Sec. 1281. Reasonable cause exception for certain penalties.
Sec. 1282. Clarification of period for filing claims for refunds.
Sec. 1283. Repeal of authority to disclose whether prospective juror 
              has been audited.
Sec. 1284. Clarification of statute of limitations.
Sec. 1285. Awarding of administrative costs.
Sec. 1286. Penalty for unauthorized inspection of tax returns or tax 
              return information.
Sec. 1287. Civil damages for unauthorized inspection of returns and 
              return information; notification of unlawful inspection 
              or disclosure.

TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES

Sec. 1301. Gifts to charities exempt from gift tax filing requirements. 

Sec. 1302. Clarification of waiver of certain rights of recovery. 
Sec. 1303. Transitional rule under section 2056A.
Sec. 1304. Clarifications relating to disclaimers.
Sec. 1305. Increase of amount of lapse of general power of appointment 
              not treated as release for purposes of estate and gift 
              tax (5 or 5 power).
Sec. 1306. Treatment for estate tax purposes of short-term obligations 
              held by nonresident aliens.
Sec. 1307. Certain revocable trusts treated as part of estate.
Sec. 1308. Distributions during first 65 days of taxable year of 
              estate.
Sec. 1309. Separate share rules available to estates.
Sec. 1310. Executor of estate and beneficiaries treated as related 
              persons for disallowance of losses, etc.
Sec. 1311. Limitation on taxable year of estates.
Sec. 1312. Treatment of funeral trusts.
Sec. 1313. Adjustments for gifts within 3 years of decedent's death.
Sec. 1314. Clarification of treatment of survivor annuities under 
              qualified terminable interest rules.
Sec. 1315. Treatment under qualified domestic trust rules of forms of 
              ownership which are not trusts.
Sec. 1316. Opportunity to correct certain failures under section 2032A.
Sec. 1317. Authority to waive requirement of United States trustee for 
              qualified domestic trusts.

  TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
                    EXEMPT BONDS, AND OTHER MATTERS

                 Subtitle A--Excise Tax Simplification

          Part I--Excise Taxes on Heavy Trucks and Luxury Cars

Sec. 1401. Increase in de minimis limit for after-market alterations 
              for heavy trucks and luxury cars.
Sec. 1402. Credit for tire tax in lieu of exclusion of value of tires 
              in computing price.

   Part II--Provisions Related to Distilled Spirits, Wines, and Beer

Sec. 1411. Credit or refund for imported bottled distilled spirits 
              returned to distilled spirits plant.
Sec. 1412. Authority to cancel or credit export bonds without 
              submission of records.
Sec. 1413. Repeal of required maintenance of records on premises of 
              distilled spirits plant.
Sec. 1414. Fermented material from any brewery may be received at a 
              distilled spirits plant.
Sec. 1415. Repeal of requirement for wholesale dealers in liquors to 
              post sign.
Sec. 1416. Refund of tax to wine returned to bond not limited to 
              unmerchantable wine.
Sec. 1417. Use of additional ameliorating material in certain wines.
Sec. 1418. Domestically produced beer may be withdrawn free of tax for 
              use of foreign embassies, legations, etc.
Sec. 1419. Beer may be withdrawn free of tax for destruction.
Sec. 1420. Authority to allow drawback on exported beer without 
              submission of records.
Sec. 1421. Transfer to brewery of beer imported in bulk without payment 
              of tax.
Sec. 1422. Transfer to bonded wine cellars of wine imported in bulk 
              without payment of tax.

                 Part III--Other Excise Tax Provisions

Sec. 1431. Authority to grant exemptions from registration 
              requirements.
Sec. 1432. Repeal of expired provisions.

                 Subtitle B--Tax-Exempt Bond Provisions

Sec. 1441. Repeal of $100,000 limitation on unspent proceeds under 1-
              year exception from rebate.
Sec. 1442. Exception from rebate for earnings on bona fide debt service 
              fund under construction bond rules.
Sec. 1443. Repeal of debt service-based limitation on investment in 
              certain nonpurpose investments.
Sec. 1444. Repeal of expired provisions.
Sec. 1445. Effective date.

                    Subtitle C--Tax Court Procedures

Sec. 1451. Overpayment determinations of Tax Court.

[[Page H4706]]

Sec. 1452. Redetermination of interest pursuant to motion.
Sec. 1453. Application of net worth requirement for awards of 
              litigation costs.
Sec. 1454. Proceedings for determination of employment status.

                      Subtitle D--Other Provisions

Sec. 1461. Extension of due date of first quarter estimated tax payment 
              by private foundations.
Sec. 1462. Clarification of authority to withhold Puerto Rico income 
              taxes from salaries of Federal employees.
Sec. 1463. Certain notices disregarded under provision increasing 
              interest rate on large corporate underpayments.

TITLE XV--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION 
                   ACT OF 1996 AND OTHER LEGISLATION

Sec. 1501. Amendments related to Small Business Job Protection Act of 
              1996.
Sec. 1502. Amendments related to Health Insurance Portability and 
              Accountability Act of 1996.
Sec. 1503. Amendments related to Taxpayer Bill of Rights 2.
Sec. 1504. Miscellaneous provisions.
    TITLE I--CHILD TAX CREDIT; MODIFICATION OF DEPENDENT CARE CREDIT

     SEC. 101. CHILD TAX CREDIT.

       (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. CHILD TAX CREDIT.

       ``(a) Allowance of Credit.--There shall be allowed as a 
     credit against the tax imposed by this chapter for the 
     taxable year an amount equal to $500 multiplied by the number 
     of qualifying children of the taxpayer.
       ``(b) Limitations.--
       ``(1) Limitation based on adjusted gross income.--For 
     limitation based on adjusted gross income, see section 26(c).
       ``(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).''.
       ``(C) No reduction for dependent care of individuals 
     incapable of self-care.--Subparagraph (A) shall not apply to 
     so much of the credit which would have been allowed under 
     section 21 (determined without regard to section 26(c)) if 
     only qualifying individuals described in subparagraph (B) or 
     (C) of section 21(b)(1) were taken into account.
       ``(3) Limitation based on amount of tax.--The credit 
     allowed by subsection (a) (determined after paragraphs (1) 
     and (2)) shall not exceed the excess (if any) of--
       ``(A) the taxpayer's regular tax liability for the taxable 
     year reduced by the credits allowable against such tax under 
     this subpart (other than this section), over
       ``(B) the sum of--
       ``(i) the taxpayer's tentative minimum tax for such taxable 
     year (determined without regard to the alternative minimum 
     tax foreign tax credit), plus
       ``(ii) the credit allowed for the taxable year under 
     section 32.
       ``(c) Qualifying Child.--For purposes of this section--
       ``(1) In general.--The term `qualifying child' means any 
     individual if--
       ``(A) the taxpayer is allowed a deduction under section 151 
     with respect to such individual for the taxable year,
       ``(B) such individual has not attained the age of 17 as of 
     the close of the calendar year in which the taxable year of 
     the taxpayer begins, and
       ``(C) such individual bears a relationship to the taxpayer 
     described in section 32(c)(3)(B).
       ``(2) Exception for certain noncitizens.--The term 
     `qualifying child' shall not include any individual who would 
     not be a dependent if the first sentence of section 152(b)(3) 
     were applied without regard to all that follows `resident of 
     the United States'.
       ``(d) Taxable Year Must Be Full Taxable Year.--Except in 
     the case of a taxable year closed by reason of the death of 
     the taxpayer, no credit shall be allowable under this section 
     in the case of a taxable year covering a period of less than 
     12 months.
       ``(e) Phasein of Credit.--In the case of taxable years 
     beginning in 1998, subsection (a) shall be applied by 
     substituting `$400' for `$500'.''.
       (b) High Risk Pools Permitted To Cover Dependents of High 
     Risk Individuals.--Paragraph (26) of section 501(c) is 
     amended by adding at the end the following flush sentence:

     ``A qualifying child (as defined in section 24(c)) of an 
     individual described in subparagraph (B) (without regard to 
     this sentence) shall be treated as described in subparagraph 
     (B).''.
       (c) Conforming Amendments.--
       (1) Subsection (a) of section 26 is amended by inserting 
     ``(other than the credit allowed by section 24)'' after 
     ``credits allowed by this subpart''.
       (2) 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. Child tax credit.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
       (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 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.

     SEC. 102. INFLATION ADJUSTMENT OF LIMITS AND OTHER 
                   MODIFICATIONS OF DEPENDENT CARE CREDIT.

       (a) Inflation Adjustment.--
       (1) In general.--Subsection (c) of section 21 (relating to 
     expenses for household and dependent care services necessary 
     for gainful employment) is amended to read as follows:

[[Page H4707]]

       ``(c) Dollar Limit on Amount Creditable.--
       ``(1) In general.--The amount of the employment-related 
     expenses incurred during any taxable year which may be taken 
     into account under subsection (a) shall not exceed--
       ``(A) $2,400 if there is 1 qualifying individual with 
     respect to the taxpayer for such taxable year, or
       ``(B) $4,800 if there are 2 or more qualifying individuals 
     with respect to the taxpayer for such taxable year.

     The amount determined under subparagraph (A) or (B) 
     (whichever is applicable) shall be reduced by the aggregate 
     amount excludable from gross income under section 129 for the 
     taxable year.
       ``(2) Inflation adjustment.--In the case of taxable years 
     beginning in a calendar year after 1997, each of the dollar 
     amounts contained in paragraph (1) 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.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $50, such amount shall be rounded to the next 
     lowest multiple of $50.''.
       (2) Conforming amendment.--Paragraph (2) of section 21(d) 
     is amended by striking ``(c)(1)'' and inserting ``(c)(1)(A)'' 
     and by striking ``(c)(2)'' and inserting ``(c)(1)(B)''.
       (b) Reduction of Benefit Based on Adjusted Gross Income.--
       (1) In general.--Section 26 is amended by redesignating 
     subsection (c) as subsection (d) and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Reduction of Dependent Care Credit and Child Credit 
     Based on Adjusted Gross Income.--
       ``(1) In general.--The aggregate amount which would (but 
     for subsection (a), this subsection, and paragraphs (2) and 
     (3) of section 24(b)) be allowed under sections 21 and 24 
     shall be reduced (but not below zero) by $25 for each $1,000 
     (or fraction thereof) by which the taxpayer's modified 
     adjusted gross income exceeds the threshold amount. For 
     purposes of the preceding sentence, the term `modified 
     adjusted gross income' means adjusted gross income increased 
     by any amount excluded from gross income under section 911, 
     931, or 933.
       ``(2) Threshold amount.--For purposes of paragraph (1), the 
     term `threshold amount' means--
       ``(A) $110,000 in the case of a joint return,
       ``(B) $75,000 in the case of an individual who is not 
     married, and
       ``(C) $55,000 in the case of a married individual filing a 
     separate return.

     For purposes of this paragraph, marital status shall be 
     determined under section 7703.
       ``(3) Remaining credit treated as attributable to dependent 
     care tax credit.--The aggregate amount allowable under 
     sections 21 and 24 after the application of paragraph (1) 
     shall be treated as allowable solely under section 21 to the 
     extent such amount does not exceed the amount allowable under 
     section 21 (determined without regard to section 
     21(a)(3)).''.
       (2) Conforming amendments.--
       (A) Subsection (a) of section 21 is amended by adding at 
     the end the following new paragraph:
       ``(3) Limitation based on adjusted gross income.--

  ``For limitation based on adjusted gross income, see section 
26(c).''.

       (B) The section heading for section 26 is amended by 
     inserting before the period ``; phaseout of certain credits 
     based on income''.
       (C) The item relating to section 26 in the table of 
     sections for subpart A of part IV of subchapter A of chapter 
     1 is amended by inserting before the period ``; phaseout of 
     certain credits based on income''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
                     TITLE II--EDUCATION INCENTIVES
        Subtitle A--Tax Benefits Relating to Education Expenses

     SEC. 201. HOPE CREDIT FOR HIGHER EDUCATION TUITION AND 
                   RELATED EXPENSES.

       (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 25 the following new 
     section:

     ``SEC. 25A. HIGHER EDUCATION TUITION AND RELATED EXPENSES.

       ``(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 50 
     percent of qualified tuition and related expenses paid by the 
     taxpayer during such taxable year for education furnished 
     during any academic period beginning in such year.
       ``(b) Limitations.--
       ``(1) Dollar limitation.--The amount allowed as a credit 
     under subsection (a) for any taxable year with respect to the 
     qualified tuition and related expenses of any 1 individual 
     shall not exceed $1,500.
       ``(2) Credit allowed only for 2 taxable years.--No credit 
     shall be allowed under subsection (a) for a taxable year with 
     respect to the qualified tuition and related expenses of an 
     individual unless the taxpayer elects to have this section 
     apply with respect to such individual for such year. An 
     election under this paragraph shall not take effect with 
     respect to an individual for any taxable year if an election 
     under this paragraph (by the taxpayer or any other 
     individual) is in effect with respect to such individual for 
     any 2 prior taxable years.
       ``(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 tuition and related expenses of an 
     individual unless such individual is an eligible student for 
     at least one academic period which begins during such year.
       ``(4) Credit allowed only for first two years of 
     postsecondary education.--No credit shall be allowed under 
     subsection (a) for a taxable year with respect to the 
     qualified tuition and related 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 eligible educational institution.
       ``(c) Limitation Based on Modified Adjusted Gross Income.--
       ``(1) In general.--The amount which would (but for this 
     subsection) be taken into account 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 amount which would be so taken into account as--
       ``(A) the excess of--
       ``(i) the taxpayer's modified adjusted gross income for 
     such taxable year, over
       ``(ii) $40,000 ($80,000 in the case of a joint return), 
     bears to
       ``(B) $10,000 ($20,000 in the case of a joint return).
       ``(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 tuition and related expenses.--
       ``(A) In general.--The term `qualified tuition and related 
     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 eligible educational institution and books required for 
     courses of instruction of such individual at such 
     institution.
       ``(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) Eligible educational institution.--The term `eligible 
     educational institution' 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.
       ``(4) Other terms relating to the higher education act.--
     The following terms shall have the meanings prescribed in 
     regulations under section 481(g) of the Higher Education Act 
     of 1965 (20 U.S.C. 1088(g)), as added by the Student 
     Financial Aid Improvements Act of 1997:
       ``(A) Academic period.
       ``(B) Normal full-time workload.
       ``(C) First two years of postsecondary education.
       ``(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 tuition and related 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 
     tuition and related 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) Identification requirement.--No credit shall be 
     allowed under subsection (a)

[[Page H4708]]

     to a taxpayer with respect to the qualified tuition and 
     related 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.
       ``(2) Adjustment for certain scholarships, etc.--The amount 
     of qualified tuition and related expenses otherwise taken 
     into account under subsection (a) with respect to an 
     individual for an academic period shall be reduced (before 
     the application of subsections (b) and (c)) by the sum of any 
     amounts paid for the benefit of such individual which are 
     allocable to such period as--
       ``(A) a qualified scholarship which is excludable from 
     gross income under section 117,
       ``(B) 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, and
       ``(C) 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 eligible educational 
     institution, which is excludable from gross income under any 
     law of the United States.
       ``(3) Denial of credit if student convicted of a felony 
     drug offense.--No credit shall be allowed under subsection 
     (a) for qualified tuition and related expenses for the 
     enrollment or attendance of a student for any academic period 
     if such student has been convicted of a Federal or State 
     felony offense consisting of the possession or distribution 
     of a controlled substance before the end of the taxable year 
     with or within which such period ends.
       ``(4) Denial of double benefit.--No credit shall be allowed 
     under this section for any expense for which a deduction is 
     allowed under any other provision of this chapter.
       ``(5) 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.
       ``(6) 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 1998, the $1,500 amount in subsection (b)(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 the calendar year in which the taxable 
     year begins, determined by substituting `calendar year 1997' 
     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 $40,000 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 
     25A(g)(1) (relating to higher education tuition and related 
     expenses) to be included on a return.''.
       (c) Returns Relating to Tuition and Related 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 TUITION 
                   AND RELATED EXPENSES.

       ``(a) In General.--Any person--
       ``(1) which is an eligible educational institution which 
     receives payments for qualified tuition and related expenses 
     with respect to any individual for any calendar year, or
       ``(2) which is engaged in a trade or business and 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 
     tuition and related 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, and
       ``(C) the--
       ``(i) aggregate amount of payments for qualified tuition 
     and related 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 subsection 
     (b)(2)(C).

     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 
     `eligible educational institution' and `qualified tuition and 
     related expenses' have the meanings given such terms by 
     section 25A.
       ``(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.''.
       (2) Assessable penalties.--
       (A) Subparagraph (B) of section 6724(d)(1) (relating to 
     definitions) is amended by redesignating clauses (ix) through 
     (xiv) as clauses (x) through (xv), respectively, and by 
     inserting after clause (viii) the following new clause:
       ``(ix) section 6050S (relating to returns relating to 
     payments for qualified tuition and related expenses),''.
       (B) Paragraph (2) of section 6724(d) is amended 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 tuition and related 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 tuition and related 
              expenses.''.

       (d) Coordination With Section 135.--Subsection (d) of 
     section 135 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) Coordination with higher education credit.--The 
     amount of the qualified higher education expenses otherwise 
     taken into account under subsection (a) with respect to the 
     education of an individual shall be reduced (before the 
     application of subsection (b)) by the amount of such expenses 
     which are taken into account in determining the credit 
     allowable to the taxpayer or any other person under section 
     25A with respect to such expenses.''.

[[Page H4709]]

       (e) Clerical 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 25 the following 
     new item:

``Sec. 25A. Higher education tuition and related expenses.''.

       (f) Effective Date.--The amendments made by this section 
     shall apply to expenses paid after December 31, 1997 (in 
     taxable years ending after such date), for education 
     furnished in academic periods beginning after such date.

     SEC. 202. DEDUCTION FOR QUALIFIED HIGHER EDUCATION EXPENSES.

       (a) Deduction Allowed.-- Part VII of subchapter B of 
     chapter 1 (relating to additional itemized deductions for 
     individuals) is amended by redesignating section 221 as 
     section 222 and by inserting after section 220 the following 
     new section:

     ``SEC. 221. QUALIFIED HIGHER EDUCATION EXPENSES.

       ``(a) Allowance of Deduction.--In the case of an 
     individual, there shall be allowed as a deduction the amount 
     of qualified higher education expenses paid by the taxpayer 
     during the taxable year for education furnished during any 
     academic period (within the meaning of section 25A) beginning 
     in such year.
       ``(b) Limitations.--
       ``(1) Annual limit.--The amount allowed as a deduction 
     under subsection (a) for any taxable year with respect to 
     expenses paid for education furnished to any 1 individual 
     shall not exceed the lesser of--
       ``(A) $10,000, or
       ``(B) the amount includible in the taxpayer's gross income 
     for such taxable year by reason of a distribution from a 
     qualified tuition program (as defined in section 529), or an 
     education investment account (as defined in section 530), the 
     beneficiary of which is such individual.
       ``(2) Aggregate limit.--The amount allowed as a deduction 
     under subsection (a) to the taxpayer or any other individual 
     with respect to expenses paid for education furnished to any 
     1 individual shall not exceed $40,000 for all taxable years.
       ``(3) Deduction allowed for year only if individual is at 
     least \1/2\ time student for portion of year.--No deduction 
     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 (as 
     defined in section 25A(d)(3)) for at least one academic 
     period which begins during such year.
       ``(4) Deduction allowed only for first 4 years of 
     postsecondary education.--No deduction shall be allowed under 
     subsection (a) 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 equivalent of the first 4 years of 
     postsecondary education at an eligible educational 
     institution (determined under the rules of section 25A).
       ``(5) Coordination with credit for higher education 
     expenses.--No deduction shall be allowed under this section 
     for a taxable year with respect to the qualified higher 
     education expenses of an individual if an election is in 
     effect under section 25A with respect to such individual for 
     such taxable year.
       ``(c) Qualified Higher Education Expenses.--The term 
     `qualified higher education expenses' means qualified higher 
     education expenses (as defined in section 529) for the 
     education of--
       ``(1) the taxpayer,
       ``(2) the taxpayer's spouse, or
       ``(3) any dependent of the taxpayer with respect to whom 
     the taxpayer is allowed a deduction under section 151,

     at an eligible educational institution (as defined in section 
     529(e)(5)).
       ``(d) 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 deduction 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.
       ``(e) Coordination With Amounts Includible in Gross Income 
     Under Section 529 or 530.--If any deduction is allowed under 
     subsection (a) with respect to the qualified higher education 
     expenses of an individual with respect to whom the taxpayer 
     is allowed a deduction under section 151(c), any amount which 
     would (but for this subsection) be includible in such 
     individual's gross income by reason of section 529 or section 
     530 shall be includible in the gross income of the taxpayer 
     and not such individual.
       ``(f) Adjustment for Certain Scholarships, Etc.--The amount 
     of qualified higher education expenses otherwise taken into 
     account under subsection (a) with respect to an individual 
     for an academic period shall be reduced (before the 
     application of subsection (b)) by the sum of--
       ``(1) the aggregate amount of the reductions under section 
     25A(g)(2) for the benefit of such individual for such period, 
     and
       ``(2) the amount excludable from gross income under section 
     135 by reason of such expenses with respect to such 
     individual which are allocable to such period.
       ``(g) Denial of Deduction if Student Convicted of a Felony 
     Drug Offense.--No deduction shall be allowed under subsection 
     (a) for qualified higher education expenses for the 
     enrollment or attendance of a student for any academic period 
     if such student has been convicted of a Federal or State 
     felony offense consisting of the possession or distribution 
     of a controlled substance before the end of the taxable year 
     with or within which such period ends.
       ``(h) Denial of Double Benefit.--No deduction shall be 
     allowed under subsection (a) for any expense for which a 
     deduction is allowed to the taxpayer under any other 
     provision of this chapter.''.
       (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
     Other Deductions.--
       (1) In general.--Subsection (b) of section 63 is amended by 
     striking ``and'' at the end of paragraph (1), by striking the 
     period at the end of paragraph (2) and inserting ``, and'', 
     and by adding at the end the following new paragraph:
       ``(3) the deduction allowed by section 221 (relating to 
     deduction for qualified higher education expenses).''.
       (2) Conforming amendment.--Subsection (d) of section 63 is 
     amended by striking ``and'' at the end of paragraph (1), by 
     striking the period at the end of paragraph (2) and inserting 
     ``, and'', and by adding at the end the following new 
     paragraph:
       ``(3) the deduction allowed by section 221 (relating to 
     deduction for qualified higher education expenses).''.
       (c) Phaseout of Exclusion for Qualified Tuition 
     Reductions.--Subsection (d) of section 117 is amended by 
     redesignating the last paragraph as paragraph (4) and by 
     adding at the end the following new paragraph:
       ``(5) Phaseout of exclusion.--
       ``(A) Termination.--Paragraph (1) shall not apply to any 
     qualified tuition reduction for any course of instruction 
     beginning after December 31, 2001.
       ``(B) Phaseout.--The amount excludable from gross income 
     under paragraph (1) for any course of instruction beginning 
     in a calendar year after 1997 and before 2002 shall not 
     exceed the applicable percentage (determined in accordance 
     with the following table) for such calendar year of the 
     amount which would be so excludable but for this 
     subparagraph:

    In the case of                                       The applicable
      calendar year:                                     percentage is:
      1998..........................................................80 
      1999..........................................................60 
      2000..........................................................40 
      2001.......................................................20.''.

       (d) Technical Amendments.--
       (1) Subparagraph (A) of section 529(e)(3) is amended by 
     inserting ``(except as provided in section 221(e))'' after 
     ``distributee''.
       (2) The table of sections for part VII of subchapter B of 
     chapter 1 is amended by striking the item relating to section 
     221 and inserting:

``Sec. 221. Qualified higher education expenses.
``Sec. 222. Cross reference.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to expenses paid after December 31, 1997 (in 
     taxable years ending after such date), for education 
     furnished in academic periods beginning after such date.

     SEC. 203. PENALTY-FREE WITHDRAWALS FROM INDIVIDUAL RETIREMENT 
                   PLANS FOR HIGHER EDUCATION EXPENSES.

       (a) In General.--Paragraph (2) of section 72(t) (relating 
     to exceptions to 10-percent additional tax on early 
     distributions from qualified retirement plans) is amended by 
     adding at the end the following new subparagraph:
       ``(E) Distributions from individual retirement plans for 
     higher education expenses.--Distributions to an individual 
     from an individual retirement plan to the extent such 
     distributions do not exceed the qualified higher education 
     expenses (as defined in paragraph (7)) of the taxpayer for 
     the taxable year. Distributions shall not be taken into 
     account under the preceding sentence if such distributions 
     are described in subparagraph (A), (C), or (D) or to the 
     extent paragraph (1) does not apply to such distributions by 
     reason of subparagraph (B).''.
       (b) Definition.--Section 72(t) is amended by adding at the 
     end the following new paragraph:
       ``(7) Qualified higher education expenses.--For purposes of 
     paragraph (2)(E)--
       ``(A) In general.--The term `qualified higher education 
     expenses' means qualified higher education expenses (as 
     defined in section 529(e)(3) without regard to subparagraph 
     (C) thereof) for education furnished to--
       ``(i) the taxpayer,
       ``(ii) the taxpayer's spouse, or
       ``(iii) any child (as defined in section 151(c)(3)) or 
     grandchild of the taxpayer or the taxpayer's spouse,

     at an eligible educational institution (as defined in section 
     529(e)(5)).
       ``(B) Coordination with other benefits.--The amount of 
     qualified higher education expenses for any taxable year 
     shall be reduced as provided in section 25A(g)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 1997, with 
     respect to expenses paid after such date (in taxable years 
     ending after such date), for education furnished in academic 
     periods beginning after such date.

[[Page H4710]]

     SEC. 204. EXPENSES FOR EDUCATION WHICH SUPPLEMENTS ELEMENTARY 
                   AND SECONDARY EDUCATION.

       (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 25A, as added by this 
     title, the following new section:

     ``SEC. 25B. EXPENSES FOR EDUCATION WHICH SUPPLEMENTS 
                   ELEMENTARY AND SECONDARY EDUCATION.

       ``(a) Allowance of Credit.--In the case of an individual, 
     there shall be allowed a credit against the tax imposed by 
     this chapter for the taxable year an amount equal to 50 
     percent of the qualifying educational assistance expenses 
     paid by the taxpayer during the taxable year.
       ``(b) Limitations.--
       ``(1) Dollar limitation.--The amount allowed as a credit 
     under subsection (a) for any taxable year with respect to the 
     qualified educational assistance expenses of any 1 individual 
     shall not exceed $150.
       ``(2) Reduction of credit based on adjusted gross income.--
       ``(A) In general.--The aggregate amount which would (but 
     for this paragraph) be allowed by this section shall be 
     reduced (but not below zero) by $25 for each $1,000 (or 
     fraction thereof) by which the taxpayer's modified adjusted 
     gross income exceeds the threshold amount. For purposes of 
     the preceding sentence, the term `modified adjusted gross 
     income' means adjusted gross income increased by any amount 
     excluded from gross income under section 911, 931, or 933.
       ``(B) Threshold amount.--For purposes of subparagraph (A), 
     the term `threshold amount' means--
       ``(i) $80,000 in the case of a joint return,
       ``(ii) $50,000 in the case of an individual who is not 
     married, and
       ``(iii) $40,000 in the case of a married individual filing 
     a separate return.
     For purposes of this subparagraph, marital status shall be 
     determined under section 7703.
       ``(c) Qualified Educational Assistance Expenses.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified educational 
     assistance expenses' means amounts paid to a qualified entity 
     to provide supplementary education to any dependent (within 
     the meaning of section 152) of the taxpayer--
       ``(A) who is less than 18 years of age as of the close of 
     the taxable year, and
       ``(B) who is enrolled as a full-time student in an 
     elementary or secondary school.
       ``(2) Supplementary education.--For purposes of paragraph 
     (1), supplementary education is education provided with 
     respect to reading, mathematics, or any subject that the 
     dependent student is studying at the time in elementary or 
     secondary school classes. Eligible courses of study shall not 
     include courses providing assistance with respect to 
     preparation for college entrance examinations.
       ``(3) Qualified entity.--The term `qualified entity' means 
     a person that is accredited as a supplementary education 
     service provider by an accreditation organization that is 
     recognized by the Secretary of Education or by any other 
     agency, association, or group that is certified by the 
     Secretary for purposes of this section.''.
       (b) Clerical 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 25A the 
     following new item:

``Sec. 25B. Expenses for education which supplements elementary and 
              secondary education.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
    Subtitle B--Expanded Education Investment Savings Opportunities

     SEC. 211. ELIGIBLE EDUCATIONAL INSTITUTIONS PERMITTED TO 
                   MAINTAIN QUALIFIED TUITION PROGRAMS; OTHER 
                   MODIFICATIONS OF QUALIFIED STATE TUITION 
                   PROGRAMS.

       (a) Eligible Educational Institutions Permitted to Maintain 
     Qualified Tuition Programs.--Paragraph (1) of section 529(b) 
     (defining qualified State tuition program) is amended by 
     inserting ``or by one or more eligible educational 
     institutions'' after ``maintained by a State or agency or 
     instrumentality thereof''.
       (b) Qualified Higher Education Expenses To Include Room and 
     Board.--Paragraph (3) of section 529(e) (defining qualified 
     higher education expenses) is amended to read as follows:
       ``(3) Qualified higher education expenses.--
       ``(A) In general.--The term `qualified higher education 
     expenses' means tuition, fees, books, supplies, and equipment 
     required for the enrollment or attendance of a designated 
     beneficiary at an eligible education institution.
       ``(B) Room and board included for students who are at least 
     half-time.--In the case of an individual who is an eligible 
     student (as defined in section 25A(d)(3)) for any academic 
     period, such term shall also include reasonable costs for 
     such period (as determined under the qualified tuition 
     program) incurred by the designated beneficiary for room and 
     board while attending such institution. The amount treated as 
     qualified higher education expenses by reason of the 
     preceding sentence shall not exceed the minimum amount 
     (applicable to the student) included for room and board for 
     such period in the cost of attendance (as defined in section 
     472 of the Higher Education Act of 1965, 20 U.S.C. 1087ll, as 
     in effect on the date of the enactment of this paragraph) for 
     the eligible educational institution for such period.
       ``(C) Exclusion for graduate level courses.--Such term 
     shall not include expenses for 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. Such courses shall not be 
     taken into account in determining whether an individual is 
     described in subsection (f)(3)(A).''.
       (c) Additional Modifications.--
       (1) Member of family.--Paragraph (2) of section 529(e) 
     (relating to other definitions and special rules) is amended 
     to read as follows:
       ``(2) Member of family.--The term `member of the family' 
     means--
       ``(A) an individual who bears a relationship to another 
     individual which is a relationship described in paragraphs 
     (1) through (8) of section 152(a), and
       ``(B) the spouse of any individual described in 
     subparagraph (A).''.
       (2) Eligible educational institution.--Section 529(e) is 
     amended by adding at the end the following:
       ``(5) Eligible educational institution.--The term `eligible 
     educational institution' 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 paragraph, and
       ``(B) which is eligible to participate in a program under 
     title IV of such Act.''.
       (3) No contributions after beneficiary attains age 18; 
     distributions required in certain cases.--Subsection (b) of 
     section 529 (as amended by subsection (f) of this section) is 
     amended by adding at the end the following new paragraph:
       ``(7) Restrictions relating to age of beneficiary; 
     completion of education.--
       ``(A) In general.--A program shall be treated as a 
     qualified tuition program only if--
       ``(i) no contribution is accepted on behalf of a designated 
     beneficiary after the date on which such beneficiary attains 
     age 18, and
       ``(ii) any balance to the credit of a designated 
     beneficiary (if any) on the account termination date shall be 
     distributed within 30 days after such date to such 
     beneficiary (or in the case of death, the estate of the 
     beneficiary).
       ``(B) Account termination date.--For purposes of 
     subparagraph (A), the term `account termination date' means 
     whichever of the following dates is the earliest:
       ``(i) The date on which the designated beneficiary 
     completes the equivalent of 4 years of post-secondary 
     education (whether or not at the same eligible educational 
     institution).
       ``(ii) The date on which the designated beneficiary attains 
     age 30.
       ``(iii) The date on which the designated beneficiary 
     dies.''.
       (4) Estate and gift tax treatment.--
       (A) Gift tax treatment.--
       (i) Paragraph (2) of section 529(c) is amended to read as 
     follows:
       ``(2) Gift tax treatment of contributions.--For purposes of 
     chapters 12 and 13, any contribution to a qualified tuition 
     program on behalf of any designated beneficiary--
       ``(A) shall be treated as a completed gift to such 
     beneficiary which is not a future interest in property, and
       ``(B) shall not be treated as a qualified transfer under 
     section 2503(e).''.
       (ii) Paragraph (5) of section 529(c) is amended to read as 
     follows:
       ``(5) Other gift tax rules.--For purposes of chapters 12 
     and 13--
       ``(A) Treatment of distributions.--In no event shall a 
     distribution from a qualified tuition program be treated as a 
     taxable gift.
       ``(B) Treatment of designation of new beneficiary.--The 
     taxes imposed by chapters 12 and 13 shall apply to a transfer 
     by reason of a change in the designated beneficiary under the 
     program (or a rollover to the account of a new beneficiary) 
     only if the new beneficiary is a generation below the 
     generation of the old beneficiary (determined in accordance 
     with section 2651).''.
       (B) Estate tax treatment.--Paragraph (4) of section 529(c) 
     is amended to read as follows:
       ``(4) Estate tax treatment.--
       ``(A) In general.--No amount shall be includible in the 
     gross estate of any individual for purposes of chapter 11 by 
     reason of an interest in a qualified tuition program.
       ``(B) Amounts includible in estate of designated 
     beneficiary in certain cases.--Subparagraph (A) shall not 
     apply to amounts distributed on account of the death of a 
     beneficiary.''.
       (5) Limitation on contributions to qualified tuition 
     programs not maintained by a state.--Subsection (b) of 
     section 529 is amended by adding at the end the following new 
     paragraph:
       ``(9) Limitation on contributions to qualified tuition 
     programs not maintained by a state.--In the case of a program 
     not maintained by a State or agency or instrumentality 
     thereof, such program shall not be treated as a qualified 
     tuition program unless it limits the annual contribution to 
     the program on behalf of a designated beneficiary to an 
     amount equal to the lesser of--
       ``(A) $5,000, or
       ``(B) the excess of--

[[Page H4711]]

       ``(i) $50,000, over
       ``(ii) the aggregate amount contributed to such program on 
     behalf of such beneficiary for all prior taxable years.''.
       (d) Additional Tax on Amounts Not Used For Higher Education 
     Expenses.--Section 529 is amended by adding at the end the 
     following new subsection:
       ``(f) Imposition of Additional Tax.--
       ``(1) In general.--The tax imposed by this chapter for any 
     taxable year on any taxpayer who receives a payment or 
     distribution from a qualified tuition program which is 
     includible in gross income shall be increased by 10 percent 
     of the amount which is so includible.
       ``(2) Exceptions.--Paragraph (1) shall not apply if the 
     payment or distribution is--
       ``(A) used for qualified higher education expenses of the 
     designated beneficiary,
       ``(B) made to a beneficiary (or to the estate of the 
     designated beneficiary) on or after the death of the 
     designated beneficiary,
       ``(C) attributable to the designated beneficiary's being 
     disabled (within the meaning of section 72(m)(7)), or
       ``(D) made on account of a scholarship, allowance, or 
     payment described in subparagraph (A), (B), or (C) of section 
     135(d)(1) received by the account holder to the extent the 
     amount of the payment or distribution does not exceed the 
     amount of the scholarship, allowance, or payment.
       ``(3) Excess contributions returned before due date of 
     return.--In the case of a qualified tuition program not 
     maintained by a State or any agency or instrumentality 
     thereof, paragraph (1) shall not apply to the distribution to 
     a contributor of any contribution made during a taxable year 
     on behalf of a designated beneficiary to the extent that such 
     contribution exceeds the limitation in section 4973(e) if--
       ``(A) such distribution is received on or before the day 
     prescribed by law (including extensions of time) for filing 
     such contributor's return for such taxable year, and
       ``(B) such distribution is accompanied by the amount of net 
     income attributable to such excess contribution.

     Any net income described in subparagraph (B) shall be 
     included in the gross income of the contributor for the 
     taxable year in which such excess contribution was made.''.
       (e) Coordination With Education Savings Bond.--Section 
     135(c)(2) (defining qualified higher education expenses) is 
     amended by adding at the end the following:
       ``(C) Contributions to qualified tuition program.--Such 
     term shall include any contribution to a qualified tuition 
     program (as defined in section 529) on behalf of a designated 
     beneficiary (as defined in such section) who is an individual 
     described in subparagraph (A); but there shall be no increase 
     in the investment in the contract for purposes of applying 
     section 72 by reason of the portion of such contribution 
     which is not includible in gross income by reason of this 
     subparagraph.''.
       (f) Tax on Excess Contributions.--
       (1) In general.--Subsection (a) of section 4973 is amended 
     by striking ``or'' at the end of paragraph (2) and by 
     inserting after paragraph (3) the following new paragraphs:
       ``(4) a qualified tuition program (as defined in section 
     529) not maintained by a State or any agency or 
     instrumentality thereof, or
       ``(5) an education investment account (as defined in 
     section 530),''.
       (2) Excess contributions defined.--Section 4973 is amended 
     by adding at the end the following new subsection:
       ``(e) Excess Contributions to Private Qualfied Tuition 
     Program and Education Investment Accounts.--For purposes of 
     this section--
       ``(1) In general.--In the case of private education 
     investment accounts maintained for the benefit of any 1 
     beneficiary, the term `excess contributions' means the amount 
     by which the amount contributed for the taxable year to such 
     accounts exceeds the lesser of--
       ``(A) the excess of--
       ``(i) $5,000, over
       ``(ii) the aggregate amount contributed to all qualified 
     tuition programs (as defined in section 529) maintained by a 
     State or any agency or instrumentality thereof on behalf of 
     such beneficiary for such taxable year, or
       ``(B) the excess of--
       ``(i) $50,000, over
       ``(ii) the sum of--

       ``(I) the aggregate amount contributed to such accounts for 
     all prior taxable years, and
       ``(II) the aggregate amount contributed to all qualified 
     tuition programs (as defined in section 529) maintained by a 
     State or any agency or instrumentality thereof on behalf of 
     such beneficiary for such taxable year and all prior taxable 
     years.

       ``(2) Private education investment account.--For purposes 
     of paragraph (1), the term `private education investment 
     account' means--
       ``(A) a qualified tuition program (as defined in section 
     529) not maintained by a State or any agency or 
     instrumentality thereof, and
       ``(B) an education investment account (as defined in 
     section 530).
       ``(3) Special rules.--For purposes of paragraph (1), the 
     following contributions shall not be taken into account:
       ``(A) Any contribution which is distributed out of the 
     education investment account in a distribution to which 
     section 530(c)(3)(B) applies.
       ``(B) Any contribution to a qualified tuition program (as 
     so defined) described in section 530(b)(2)(B) from any such 
     account.
       ``(C) Any rollover contribution.''.
       (g) Technical Amendments.--
       (1) Paragraph (2) of section 26(b) is amended by 
     redesignating subparagraphs (E) through (P) as subparagraphs 
     (F) through (Q), respectively, and by inserting after 
     subparagraph (D) the following new subparagraph:
       ``(E) section 529(f) (relating to additional tax on certain 
     distributions from qualified tuition programs),''.
       (2) The text of section 529 is amended by striking 
     ``qualified State tuition program'' each place it appears and 
     inserting ``qualified tuition program''.
       (3) Subsection (b) of section 529 is amended by striking 
     paragraph (3) and by redesignating paragraphs (4) through (7) 
     as paragraphs (3) through (6), respectively.
       (4)(A) The section heading of section 529 is amended to 
     read as follows:

     ``SEC. 529. QUALIFIED TUITION PROGRAMS.''.

       (B) The item relating to section 529 in the table of 
     sections for part VIII of subchapter F of chapter 1 is 
     amended by striking ``State''.
       (5)(A) The heading for part VIII of subchapter F of chapter 
     1 is amended to read as follows:

           ``PART VIII--HIGHER EDUCATION SAVINGS ENTITIES''.

       (B) The table of parts for subchapter F of chapter 1 is 
     amended by striking the item relating to part VIII and 
     inserting:
``Part VIII. Higher education savings entities.''.
       (h) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall take 
     effect on January 1, 1998.
       (2) Expenses to include room and board, etc.--The 
     amendments made by subsection (b) and (c)(2) shall apply to 
     distributions after December 31, 1997, with respect to 
     expenses paid after such date (in taxable years ending after 
     such date), for education furnished in academic periods 
     beginning after such date.
       (3) Penalty for noneducation withdrawals.--The amendment 
     made by subsection (d) shall apply to distributions after 
     December 31, 1997.
       (4) Coordination with education savings bonds.--The 
     amendment made by subsection (e) shall apply to taxable years 
     beginning after December 31, 1997.
       (5) Estate and gift tax changes.--
       (A) Gift tax changes.--Paragraphs (2) and (5) of section 
     529(c) of the Internal Revenue Code of 1986, as amended by 
     this section, shall apply to transfers (including 
     designations of new beneficiaries) made after the date of the 
     enactment of this Act.
       (B) Estate tax changes.--Paragraph (4) of such section 
     529(c) shall apply to estates of decedents dying after June 
     8, 1997.

     SEC. 212. EDUCATION INVESTMENT ACCOUNTS.

       (a) In General.--Part VIII of subchapter F of chapter 1 
     (relating to qualified State tuition programs) is amended by 
     adding at the end the following new section:

     ``SEC. 530. EDUCATION INVESTMENT ACCOUNTS.

       ``(a) General Rule.--An education investment account shall 
     be exempt from taxation under this subtitle. Notwithstanding 
     the preceding sentence, the education investment account 
     shall be subject to the taxes imposed by section 511 
     (relating to imposition of tax on unrelated business income 
     of charitable organizations).
       ``(b) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Education investment account.--The term `education 
     investment account' means a trust created or organized in the 
     United States exclusively for the purpose of paying the 
     qualified higher education expenses of the account holder, 
     but only if the written governing instrument creating the 
     trust meets the following requirements:
       ``(A) No contribution will be accepted--
       ``(i) unless it is in cash,
       ``(ii) after the date on which the account holder attains 
     age 18, or
       ``(iii) in excess of $5,000 for the taxable year.
       ``(B) The trustee is a bank (as defined in section 408(n)) 
     or another person who demonstrates to the satisfaction of the 
     Secretary that the manner in which that person will 
     administer the trust will be consistent with the requirements 
     of this section.
       ``(C) No part of the trust assets will be invested in life 
     insurance contracts.
       ``(D) The assets of the trust shall not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(E) Any balance in the account will be distributed as 
     required under section 529(b)(8)(B) (as if such account were 
     a qualified tuition program).
     For $50,000 limit on aggregate contributions to accounts, see 
     section 4973(e).
       ``(2) Qualified higher education expenses.--
       ``(A) In general.--The term `qualified higher education 
     expenses' has the same meaning given such term by section 
     529(e)(3).
       ``(B) Qualified tuition programs.--Such term shall include 
     amounts paid or incurred to purchase tuition credits or 
     certificates, or to make contributions to an account, under a 
     qualified tuition program (as defined in section 529(b)) for 
     the benefit of the account holder.
       ``(3) Eligible educational institution.--The term `eligible 
     educational institution' has the meaning given such term by 
     section 529(e)(5).

[[Page H4712]]

       ``(4) Account holder.--The term `account holder' means the 
     individual for whose benefit the education investment account 
     is established.
       ``(c) Tax Treatment of Distributions.--
       ``(1) In general.--Any amount paid or distributed shall be 
     includible in gross income as required by section 529(c)(3) 
     (determined as if such account were a qualified tuition 
     program).
       ``(2) Special rules for applying estate and gift taxes with 
     respect to account.--Rules similar to the rules of paragraphs 
     (2), (4), and (5) of section 529(c) shall apply for purposes 
     of this section.
       ``(3) Additional tax for distributions not used for 
     educational expenses.--
       ``(A) In general.--The tax imposed by section 529(f) shall 
     apply to payments and distributions from an education 
     investment account in the same manner as such tax applies to 
     qualified tuition programs (as defined in section 529).
       ``(B) Excess contributions returned before due date of 
     return.--Subparagraph (A) shall not apply to the distribution 
     to a contributor of any contribution paid during a taxable 
     year to an education investment account to the extent that 
     such contribution exceeds the limitation in section 4973(e) 
     if such distribution (and the net income with respect to such 
     excess contribution) meet requirements comparable to the 
     requirements of section 529(f)(3).
       ``(4) Rollover contributions--Paragraph (1) shall not apply 
     to any amount paid or distributed from an education 
     investment account to the extent that the amount received is 
     paid into another education investment account for the 
     benefit of the account holder or a member of the family 
     (within the meaning of section 529(e)(2)) of the account 
     holder not later than the 60th day after the date of such 
     payment or distribution. The preceding sentence shall not 
     apply to any payment or distribution if it applied to any 
     prior payment or distribution during the 12-month period 
     ending on the date of the payment or distribution.
       ``(5) Change in account holder.--Any change in the account 
     holder of an education investment account shall not be 
     treated as a distribution for purposes of paragraph (1) if 
     the new account holder is a member of the family (as so 
     defined) of the old account holder.
       ``(6) Special rules for death and divorce.--Rules similar 
     to the rules of paragraphs (7) and (8) of section 220(f) 
     shall apply.
       ``(d) Tax Treatment of Accounts.--Rules similar to the 
     rules of paragraphs (2) and (4) of section 408(e) shall apply 
     to any education investment account.
       ``(e) Community Property Laws.--This section shall be 
     applied without regard to any community property laws.
       ``(f) Custodial Accounts.--For purposes of this section, a 
     custodial account shall be treated as a trust if the assets 
     of such account are held by a bank (as defined in section 
     408(n)) or another person who demonstrates, to the 
     satisfaction of the Secretary, that the manner in which he 
     will administer the account will be consistent with the 
     requirements of this section, and if the custodial account 
     would, except for the fact that it is not a trust, constitute 
     an account described in subsection (b)(1). For purposes of 
     this title, in the case of a custodial account treated as a 
     trust by reason of the preceding sentence, the custodian of 
     such account shall be treated as the trustee thereof.
       ``(g) Reports.--The trustee of an education investment 
     account shall make such reports regarding such account to the 
     Secretary and to the account holder with respect to 
     contributions, distributions, and such other matters as the 
     Secretary may require under regulations. The reports required 
     by this subsection shall be filed at such time and in such 
     manner and furnished to such individuals at such time and in 
     such manner as may be required by those regulations.''.
       (b) Tax on Prohibited Transactions.--
       (1) In general.--Paragraph (1) of section 4975(e) (relating 
     to prohibited transactions) is amended by striking ``or'' at 
     the end of subparagraph (D), by redesignating subparagraph 
     (E) as subparagraph (F), and by inserting after subparagraph 
     (D) the following new subparagraph:
       ``(E) an education investment account described in section 
     530, or''.
       (2) Special rule.--Subsection (c) of section 4975 is 
     amended by adding at the end of subsection (c) the following 
     new paragraph:
       ``(5) Special rule for education investment accounts.--An 
     individual for whose benefit an education investment account 
     is established and any contributor to such account shall be 
     exempt from the tax imposed by this section with respect to 
     any transaction concerning such account (which would 
     otherwise be taxable under this section) if section 530(d) 
     applies with respect to such transaction.''.
       (c) Failure To Provide Reports on Education Investment 
     Accounts.--
       (1) In general.--Paragraph (2) of section 6693(a) (relating 
     to failure to provide reports on individual retirement 
     accounts or annuities) is amended by striking ``and'' at the 
     end of subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) section 530(g) (relating to education investment 
     accounts).''.
       (2) Clerical amendment.--The section heading for section 
     6693 is amended by striking ``INDIVIDUAL RETIREMENT'' and 
     insert ``CERTAIN TAX-FAVORED''.
       (d) Technical Amendments.--
       (1) Subparagraph (F) of section 26(b)(2), as added by the 
     preceding section, is amended by inserting before the comma 
     ``and section 530(c)(3) (relating to additional tax on 
     certain distributions from education investment accounts)''.
       (2) Subparagraph (C) of section 135(c)(2), as added by the 
     preceding section, is amended by inserting ``, or to an 
     education investment account (as defined in section 530) on 
     behalf of an account holder (as defined in such section),'' 
     after ``(as defined in such section)''.
       (3) The table of sections for part VIII of subchapter F of 
     chapter 1 is amended by adding at the end the following new 
     item:

``Sec. 530. Education investment accounts.''.
       (4) The item relating to section 6693 in the table of 
     sections for part I of subchapter B of chapter 68 is amended 
     by striking ``individual retirement'' and inserting ``certain 
     tax-favored''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
                Subtitle C--Other Education Initiatives

     SEC. 221. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED 
                   EDUCATIONAL ASSISTANCE.

       (a) In General.--Subsection (d) of section 127 (relating to 
     educational assistance programs) is amended to read as 
     follows:
       ``(d) Termination.--This section shall not apply to 
     expenses paid with respect to courses of instruction 
     beginning after December 31, 1997.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 222. INCREASE IN LIMITATION ON QUALIFIED 501(C)(3) BONDS 
                   OTHER THAN HOSPITAL BONDS.

       (a) In General.--The text of paragraph (1) of section 
     145(b) is amended by striking ``$150,000,000.'' and inserting 
     ``the limitation determined in accordance with the following 
     table:

In the case of
  calendar year:                                     The limitation is:
  1998....................................................$160,000,000 
  1999.................................................... 170,000,000 
  2000.................................................... 180,000,000 
  2001.................................................... 190,000,000 
  2002 or thereafter................................... 200,000,000.''.

       (b) Conforming Amendment.--The heading for subsection (b) 
     of section 145 is amended by striking ``$150,000,000''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1998.

     SEC. 223. CONTRIBUTIONS OF COMPUTER TECHNOLOGY AND EQUIPMENT 
                   FOR ELEMENTARY OR SECONDARY SCHOOL PURPOSES.

       (a) Contributions of Computer Technology and Equipment for 
     Elementary or Secondary School Purposes.--Subsection (e) of 
     section 170 is amended by adding at the end the following new 
     paragraph:
       ``(6) Special rule for contributions of computer technology 
     and equipment for elementary or secondary school purposes.--
       ``(A) Limit on reduction.--In the case of a qualified 
     elementary or secondary educational contribution, the 
     reduction under paragraph (1)(A) shall be no greater than the 
     amount determined under paragraph (3)(B).
       ``(B) Qualified elementary or secondary educational 
     contribution.--For purposes of this paragraph, the term 
     `qualified elementary or secondary educational contribution' 
     means a charitable contribution by a corporation of any 
     computer technology or equipment, but only if--
       ``(i) the contribution is to--

       ``(I) an educational organization described in subsection 
     (b)(1)(A)(ii), or
       ``(II) an entity described in section 501(c)(3) and exempt 
     from tax under section 501(a) (other than an entity described 
     in subclause (I)) that is organized primarily for purposes of 
     supporting elementary and secondary education,

       ``(ii) the contribution is made not later than 2 years 
     after the date the taxpayer acquired the property (or in the 
     case of property constructed by the taxpayer, the date the 
     construction of the property is substantially completed),
       ``(iii) substantially all of the use of the property by the 
     donee is for use within the United States for educational 
     purposes in any of the grades K-12 that are related to the 
     purpose or function of the organization or entity,
       ``(iv) the property is not transferred by the donee in 
     exchange for money, other property, or services, except for 
     shipping, installation and transfer costs,
       ``(v) the property will fit productively into the entity's 
     education plan, and
       ``(vi) the entity's use and disposition of the property 
     will be in accordance with the provisions of clauses (iii) 
     and (iv).
       ``(C) Contribution to private foundation.--A contribution 
     by a corporation of any computer technology or equipment to a 
     private foundation (as defined in section 509) shall be 
     treated as a qualified elementary or secondary educational 
     contribution for purposes of this paragraph if--
       ``(i) the contribution to the private foundation satisfies 
     the requirements of clauses (ii) and (iv) of subparagraph 
     (B), and
       ``(ii) within 30 days after such contribution, the private 
     foundation--

[[Page H4713]]

       ``(I) contributes the property to an entity described in 
     clause (i) of subparagraph (B) that satisfies the 
     requirements of clauses (iii) through (vi) of subparagraph 
     (B), and
       ``(II) notifies the donor of such contribution.

       ``(D) Special rule relating to construction of property.--
     For the purposes of this paragraph, the rules of paragraph 
     (4)(C) shall apply.
       ``(E) Definitions.--For the purposes of this paragraph--
       ``(i) Computer technology or equipment.--The term `computer 
     technology or equipment' means computer software (as defined 
     by section 197(e)(3)(B)), computer or peripheral equipment 
     (as defined by section 168(i)(2)(B)), and fiber optic cable 
     related to computer use.
       ``(ii) Corporation.--The term `corporation' has the meaning 
     given to such term by paragraph (4)(D).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the calendar 
     year in which this Act is enacted.

     SEC. 224. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS.

       (a) Certain Direct Student Loans the Repayment of Which Is 
     Income Contingent.--Paragraph (1) of section 108(f) is 
     amended by striking ``any student loan if'' and all that 
     follows and inserting ``any student loan if--
       ``(A) such discharge was pursuant to a provision of such 
     loan under which all or part of the indebtedness of the 
     individual would be discharged if the individual worked for a 
     certain period of time in certain professions for any of a 
     broad class of employers, or
       ``(B) in the case of a loan made under part D of title IV 
     of the Higher Education Act of 1965 which has a repayment 
     schedule established under section 455(e)(4) of such Act 
     (relating to income contingent repayments), such discharge is 
     after the maximum repayment period under such loan (as 
     prescribed under such part).''.
       (b) Certain Loans by Exempt Organizations.--
       (1) In general.--Paragraph (2) of section 108(f) (defining 
     student loan) is amended by striking ``or'' at the end of 
     subparagraph (B) and by striking subparagraph (D) and 
     inserting the following:
       ``(D) any educational organization described in section 
     170(b)(1)(A)(ii) if such loan is made--
       ``(i) pursuant to an agreement with any entity described in 
     subparagraph (A), (B), or (C) under which the funds from 
     which the loan was made were provided to such educational 
     organization, or
       ``(ii) pursuant to a program of such educational 
     organization which is designed to encourage its students to 
     serve in occupations with unmet needs or in areas with unmet 
     needs and under which the services provided by the students 
     (or former students) are for or under the direction of a 
     governmental unit or an organization described in section 
     501(c)(3) and exempt from tax under section 501(a).

     The term `student loan' includes any loan made by an 
     educational organization so described or by an organization 
     exempt from tax under section 501(a) to refinance a loan 
     meeting the requirements of the preceding sentence.''.
       (2) Exception for discharges on account of services 
     performed for certain lenders.--Subsection (f) of section 108 
     is amended by adding at the end the following new paragraph:
       ``(3) Exception for discharges on account of services 
     performed for certain lenders.--Paragraph (1) shall not apply 
     to the discharge of a loan made by an organization described 
     in paragraph (2)(D) (or by an organization described in 
     paragraph (2)(E) from funds provided by an organization 
     described in paragraph (2)(D)) if the discharge is on account 
     of services performed for either such organization.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to discharges of indebtedness after the date of 
     the enactment of this Act.
              TITLE III--SAVINGS AND INVESTMENT INCENTIVES
                     Subtitle A--Retirement Savings

     SEC. 301. ESTABLISHMENT OF AMERICAN DREAM IRA.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 (relating to pension, profit-sharing, stock bonus 
     plans, etc.) is amended by inserting after section 408 the 
     following new section:

     ``SEC. 408A. AMERICAN DREAM IRA.

       ``(a) General Rule.--Except as provided in this section, an 
     American Dream IRA shall be treated for purposes of this 
     title in the same manner as an individual retirement plan.
       ``(b) American Dream IRA.--For purposes of this title, the 
     term `American Dream IRA' or `AD IRA' means an individual 
     retirement plan (as defined in section 7701(a)(37)) which is 
     designated at the time of the establishment of the plan as an 
     American Dream IRA. Such designation shall be made in such 
     manner as the Secretary may prescribe.
       ``(c) Treatment of Contributions.--
       ``(1) No deduction allowed.--No deduction shall be allowed 
     under section 219 for a contribution to an AD IRA.
       ``(2) Contribution limit.--
       ``(A) In general.--The aggregate amount of contributions 
     for any taxable year to all AD IRAs maintained for the 
     benefit of an individual shall not exceed $2,000.
       ``(B) Inflation adjustment.--In the case of taxable years 
     beginning in a calendar year after 1998, the $2,000 amount 
     contained in subparagraph (A) 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.

     If the amount as adjusted under the preceding sentence is not 
     a multiple of $50, such amount shall be rounded to the next 
     lowest multiple of $50.
       ``(3) Contributions permitted after age 70\1/2\.--
     Contributions to an AD IRA may be made even after the 
     individual for whom the account is maintained has attained 
     age 70\1/2\.
       ``(4) Mandatory distribution rules not to apply, etc.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     subsections (a)(6) and (b)(3) of section 408 (relating to 
     required distributions) and section 4974 (relating to excise 
     tax on certain accumulations in qualified retirement plans) 
     shall not apply to any AD IRA.
       ``(B) Post-death distributions.--Rules similar to the rules 
     of section 401(a)(9) (other than subparagraph (A) thereof) 
     shall apply for purposes of this section.
       ``(5) Rules relating to rollover contributions.--
       ``(A) In general.--No rollover contribution may be made to 
     an AD IRA unless it is a qualified rollover contribution.
       ``(B) Coordination with limit.--A qualified rollover 
     contribution shall not be taken into account for purposes of 
     paragraph (2).
       ``(6) Time when contributions made.--For purposes of this 
     section, the rule of section 219(f)(3) shall apply.
       ``(d) Distribution Rules.--For purposes of this title--
       ``(1) General rules.--
       ``(A) Exclusions from gross income.--Any qualified 
     distribution from an AD IRA shall not be includible in gross 
     income.
       ``(B) Nonqualified distributions.--In applying section 72 
     to any distribution from an AD IRA which is not a qualified 
     distribution, such distribution shall be treated as made from 
     contributions to the AD IRA to the extent that such 
     distribution, when added to all previous distributions from 
     the AD IRA, does not exceed the aggregate amount of 
     contributions to the AD IRA. For purposes of the preceding 
     sentence, all AD IRAs maintained for the benefit of an 
     individual shall be treated as 1 account.
       ``(C) Exception from penalty tax.--Section 72(t) shall not 
     apply to--
       ``(i) any qualified distribution from an AD IRA, and
       ``(ii) any qualified first-time homebuyer distribution 
     (whether or not a qualified distribution) from an AD IRA.
       ``(2) Qualified distribution.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified distribution' means 
     any payment or distribution--
       ``(i) made on or after the date on which the individual 
     attains age 59\1/2\,
       ``(ii) made to a beneficiary (or to the estate of the 
     individual) on or after the death of the individual,
       ``(iii) attributable to the individual's being disabled 
     (within the meaning of section 72(m)(7)), or
       ``(iv) which is a qualified first-time homebuyer 
     distribution.
       ``(B) Distributions within 5 years.--No payment or 
     distribution shall be treated as a qualified distribution 
     if--
       ``(i) it is made within the 5-taxable year period beginning 
     with the 1st taxable year for which the individual made a 
     contribution to an AD IRA (or such individual's spouse made a 
     contribution to an AD IRA) established for such individual, 
     or
       ``(ii) in the case of a payment or distribution properly 
     allocable (as determined in the manner prescribed by the 
     Secretary) to a qualified rollover contribution (or income 
     allocable thereto), it is made within the 5-taxable year 
     period beginning with the taxable year in which the rollover 
     contribution was made.
     Clause (ii) shall not apply to a qualified rollover 
     contribution from an AD IRA.
       ``(3) Rollovers.--
       ``(A) In general.--Paragraph (1) shall not apply to any 
     distribution which is transferred in a qualified rollover 
     contribution to an AD IRA.
       ``(B) Income inclusion for rollovers from non-ad iras.--
       ``(i) In general.--In the case of any distribution to which 
     this subparagraph applies--

       ``(I) sections 72(t) and 408(d)(3) shall not apply (but 
     section 4980A shall apply), and
       ``(II) any amount required to be included in gross income 
     by reason of this paragraph shall be so included ratably over 
     the 4-taxable year period beginning with the taxable year in 
     which the distribution is made.

       ``(ii) Distributions to which subparagraph applies.--This 
     subparagraph shall apply to a distribution before January 1, 
     1999, from an individual retirement plan (other than an AD 
     IRA) maintained for the benefit of an individual to an AD IRA 
     maintained for the benefit of such individual if such 
     distribution would be a qualified rollover contribution were 
     such individual retirement plan an AD IRA.
       ``(iii) Conversions.--The conversion of an individual 
     retirement plan (other than an

[[Page H4714]]

     AD IRA) to an AD IRA shall be treated for purposes of this 
     subparagraph as a distribution from such plan to such AD IRA.
       ``(C) Additional reporting requirements.--The Secretary 
     shall require that trustees of AD IRAs, trustees of 
     individual retirement plans, or both, whichever is 
     appropriate, shall include such additional information in 
     reports required under section 408(i) as is necessary to 
     ensure that amounts required to be included in gross income 
     under subparagraph (B) are so included.
       ``(4) Qualified first-time homebuyer distribution.--For 
     purposes of this section--
       ``(A) In general.--The term `qualified first-time homebuyer 
     distribution' means any payment or distribution received by 
     an individual to the extent such payment or distribution is 
     used by the individual before the close of the 60th day after 
     the day on which such payment or distribution is received to 
     pay qualified acquisition costs with respect to a principal 
     residence of a first-time homebuyer who is such individual, 
     the spouse of such individual, or any child, grandchild, or 
     ancestor of such individual or the individual's spouse.
       ``(B) Lifetime dollar limitation.--The aggregate amount of 
     payments or distributions received by an individual which may 
     be treated as qualified first-time homebuyer distributions 
     for any taxable year shall not exceed the excess (if any) 
     of--
       ``(i) $10,000, over
       ``(ii) the aggregate amounts treated as qualified first-
     time homebuyer distributions with respect to such individual 
     for all prior taxable years.
       ``(C) Qualified acquisition costs.--For purposes of this 
     paragraph, the term `qualified acquisition costs' means the 
     costs of acquiring, constructing, or reconstructing a 
     residence. Such term includes any usual or reasonable 
     settlement, financing, or other closing costs.
       ``(D) First-time homebuyer; other definitions.--For 
     purposes of this paragraph--
       ``(i) First-time homebuyer.--The term `first-time 
     homebuyer' means any individual if--

       ``(I) such individual (and if married, such individual's 
     spouse) had no present ownership interest in a principal 
     residence during the 2-year period ending on the date of 
     acquisition of the principal residence to which this 
     paragraph applies, and
       ``(II) subsection (h) or (k) of section 1034 (as in effect 
     on the day before the date of the enactment of this section) 
     did not suspend the running of any period of time specified 
     in section 1034 (as so in effect) with respect to such 
     individual on the day before the date the distribution is 
     applied pursuant to subparagraph (A).

       ``(ii) Principal residence.--The term `principal residence' 
     has the same meaning as when used in section 121.
       ``(iii) Date of acquisition.--The term `date of 
     acquisition' means the date--

       ``(I) on which a binding contract to acquire the principal 
     residence to which subparagraph (A) applies is entered into, 
     or
       ``(II) on which construction or reconstruction of such a 
     principal residence is commenced.

       ``(E) Special rule where delay in acquisition.--If any 
     distribution from any individual retirement plan fails to 
     meet the requirements of subparagraph (A) solely by reason of 
     a delay or cancellation of the purchase or construction of 
     the residence, the amount of the distribution may be 
     contributed to an individual retirement plan as provided in 
     section 408(d)(3)(A)(i) (determined by substituting `120 
     days' for `60 days' in such section), except that--
       ``(i) section 408(d)(3)(B) shall not be applied to such 
     contribution, and
       ``(ii) such amount shall not be taken into account in 
     determining whether section 408(d)(3)(A)(i) applies to any 
     other amount.
       ``(e) Qualified Rollover Contribution.--For purposes of 
     this section, the term `qualified rollover contribution' 
     means a rollover contribution to an AD IRA from another such 
     account, but only if such rollover contribution meets the 
     requirements of section 408(d)(3).''.
       (b) Repeal of Nondeductible Contributions.--
       (1) Subsection (f) of section 219 is amended by striking 
     paragraph (7).
       (2) Paragraph (5) of section 408(d) is amended by striking 
     the last sentence.
       (3) Section 408(o) is amended by adding at the end the 
     following new paragraph:
       ``(5) Termination.--This subsection shall not apply to any 
     designated nondeductible contribution for any taxable year 
     beginning after December 31, 1997.''.
       (4) Subsection (b) of section 4973 is amended by striking 
     the last sentence.
       (c) Excess Distributions Tax Not To Apply.--
       (1) Subparagraph (A) of section 4980A(d)(3) is amended by 
     inserting ``(other than AD IRAs, as defined in section 
     4980A(b))'' after ``individual retirement plans''.
       (2) Subparagraph (B) of section 4980A(e)(1) is amended by 
     inserting ``other than an AD IRA (as defined in section 
     408A(b))'' after ``retirement plan''.
       (d) Excess Contributions.--
       (1) Section 4973 is amended by adding at the end the 
     following new subsection:
       ``(f) Excess Contributions to American Dream IRAs.--For 
     purposes of this section, in the case of American Dream IRAs, 
     the term `excess contributions' means the amount by which the 
     amount contributed for the taxable year to such IRAs exceeds 
     the limitation in section 408A(c)(2).''.
       (2) Subsection (b) of section 4973 is amended by adding at 
     the end the following new sentence: ``For purposes of this 
     subsection, an American Dream IRA shall not be treated as an 
     individual retirement plan.''.
       (e) Clerical Amendment.--The table of sections for subpart 
     A of part I of subchapter D of chapter 1 is amended by 
     inserting after the item relating to section 408 the 
     following new item:

``Sec. 408A. American Dream IRA.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
                       Subtitle B--Capital Gains

                    PART I--INDIVIDUAL CAPITAL GAINS

     SEC. 311. 20 PERCENT MAXIMUM CAPITAL GAINS RATE FOR 
                   INDIVIDUALS.

       (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.--
       ``(1) In general.--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--
       ``(A) the base tax amount,
       ``(B) 10 percent of so much of the taxpayer's adjusted net 
     capital gain (or, if less, taxable income) as does not exceed 
     the excess (if any) of--
       ``(i) the amount of taxable income which would (without 
     regard to this paragraph) be taxed at a rate of 15 percent or 
     less, over
       ``(ii) the taxable income reduced by the adjusted net 
     capital gain, plus
       ``(C) 20 percent of the taxpayer's adjusted net capital 
     gain (or, if less, taxable income) in excess of the amount on 
     which a tax is determined under subparagraph (B).
       ``(2) Net capital gain taken into account as investment 
     income.--For purposes of this subsection, the net capital 
     gain for any taxable year shall be reduced (but not below 
     zero) by the amount which the taxpayer takes into account as 
     investment income under section 163(d)(4)(B)(iii).
       ``(3) Base tax amount.--For purposes of paragraph (1), the 
     base tax amount is the lesser of--
       ``(A) a tax computed at the rates and in the same manner as 
     if this subsection had not been enacted on taxable income 
     reduced by the adjusted net capital gain, or
       ``(B) the sum of--
       ``(i) a tax computed at the rates and in the same manner as 
     if this subsection had not been enacted on the greater of--

       ``(I) taxable income reduced by the net capital gain, or
       ``(II) the amount of taxable income taxed at a rate below 
     28 percent,

       ``(ii) a tax of 26 percent of the lesser of--

       ``(I) the section 1250 gain, or
       ``(II) the amount of taxable income in excess of the sum of 
     the amount on which tax is determined under clause (i) plus 
     the net capital gain determined without regard to section 
     1250 gain, plus

       ``(iii) a tax of 28 percent of the amount of taxable income 
     in excess of the sum of--

       ``(I) the adjusted net capital gain, plus
       ``(II) the sum of the amounts on which tax is determined 
     under clauses (i) and (ii).

       ``(4) Adjusted net capital gain.--For purposes of this 
     subsection, the term `adjusted net capital gain' means net 
     capital gain determined without regard to--
       ``(A) collectibles gain,
       ``(B) section 1202 gain, and
       ``(C) section 1250 gain.
       ``(5) Collectibles gain.--For purposes of paragraph (4)--
       ``(A) In general.--The term `collectibles gain' means gain 
     from the sale or exchange of a collectible (as defined in 
     section 408(m) without regard to paragraph (3) thereof) which 
     is a capital asset held for more than 1 year but only to the 
     extent such gain is taken into account in computing gross 
     income.
       ``(B) Coordination with section 1022.--Gain from the 
     disposition of a collectible which is an indexed asset to 
     which section 1022(a) applies shall be disregarded for 
     purposes of this subsection. A taxpayer may elect to treat 
     any collectible specified in such election as not being an 
     indexed asset for purposes of section 1022. Any such 
     election, and any specification therein, once made, shall be 
     irrevocable.
       ``(C) Partnerships, etc.--For purposes of subparagraph (A), 
     any gain from the sale of an interest in a partnership, S 
     corporation, or trust which is attributable to unrealized 
     appreciation in the value of collectibles shall be treated as 
     gain from the sale or exchange of a collectible. Rules 
     similar to the rules of section 751 shall apply for purposes 
     of the preceding sentence.
       ``(6) Section 1202 gain.--For purposes of paragraph (4), 
     the term `section 1202 gain' means gain from the sale or 
     exchange of any qualified small business stock (as defined in 
     section 1202(c)) held more than 5 years which is taken into 
     account in computing gross income.
       ``(7) Section 1250 gain.--For purposes of paragraph (4), 
     the term `section 1250 gain' means the excess (if any) of--
       ``(A) the amount which would be treated as ordinary income 
     under section 1245 if all section 1250 property disposed of 
     by the taxpayer were section 1245 property, over
       ``(B) the amount treated as ordinary income under section 
     1250.
     In the case of a taxable year which includes May 7, 1997, 
     section 1250 gain shall be determined by taking into account 
     only the gain

[[Page H4715]]

     properly taken into account for the portion of the taxable 
     year after May 6, 1997.
       ``(8) Pre-effective date gain.--
       ``(A) In general.--In the case of a taxable year which 
     includes May 7, 1997, adjusted net capital gain shall be 
     determined without regard to pre-May 7, 1997, gain.
       ``(B) Pre-may 7, 1997, gain.--The term `pre-May 7, 1997, 
     gain' means the amount which would be adjusted net capital 
     gain for the taxable year if adjusted net capital gain were 
     determined by taking into account only the gain or loss 
     properly taken into account for the portion of the taxable 
     year before May 7, 1997.
       ``(C) Special rules for pass-thru entities.--In applying 
     subparagraph (A) with respect to any pass-thru entity, the 
     determination of when gains and loss are properly taken into 
     account shall be made at the entity level.
       ``(D) Pass-thru entity defined.--For purposes of 
     subparagraph (C), 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.''.
       (b) Minimum tax.--
       (1) In general.--Subsection (b) of section 55 is amended by 
     adding at the end the following new paragraph:
       ``(3) Maximum rate of tax on net capital gain of 
     noncorporate taxpayers.--The amount determined under the 
     first sentence of paragraph (1)(A)(i) shall not exceed the 
     sum of--
       ``(A) the lesser of--
       ``(i) the amount determined under such first sentence 
     computed at the rates and in the same manner as if this 
     paragraph had not been enacted on the taxable excess reduced 
     by the adjusted net capital gain (as defined in section 
     1(h)(4)), or
       ``(ii) the sum of--

       ``(I) the amount determined under such first sentence 
     computed at the rates and in the same manner as if this 
     paragraph had not been enacted on the taxable excess reduced 
     by the sum of the adjusted net capital gain (as so defined) 
     and the section 1250 gain (as defined in section 1(h)(7)), 
     plus
       ``(II) 26 percent of the lesser of the section 1250 gain 
     (as so defined) or the taxable excess reduced by the adjusted 
     net capital gain (as so defined),

       ``(B) a tax of 10 percent of so much of the taxpayer's 
     adjusted net capital gain (or, if less, taxable excess) as 
     does not exceed the amount on which a tax is determined under 
     section 1(h)(1)(B), plus
       ``(C) a tax of 20 percent of the taxpayer's adjusted net 
     capital gain (or, if less, taxable excess) in excess of the 
     amount on which tax is determined under subparagraph (B).''.
       (2) Conforming amendment.--Clause (ii) of section 
     55(b)(1)(A) is amended by striking ``clause (i)'' and 
     inserting ``this subsection''.
       (c) Other Conforming Amendments.--
       (1) Subsection (d) of section 291 is amended by inserting 
     at the end the following new sentence: ``Any capital gain 
     dividend treated as having been paid out of such difference 
     to a shareholder which is not a corporation retains its 
     characters as section 1250 gain for purposes of applying 
     section 1(h) to such shareholder.''.
       (2) Paragraph (1) of section 1445(e) is amended by striking 
     ``28 percent'' and inserting ``20 percent''.
       (3) The second sentence of section 7518(g)(6)(A), and the 
     second sentence of section 607(h)(6)(A) of the Merchant 
     Marine Act, 1936, are each amended by striking ``28 percent'' 
     and inserting ``20 percent''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     ending after May 6, 1997.
       (2) Withholding.--The amendment made by subsection (c)(2) 
     shall apply only to amounts paid after the date of the 
     enactment of this Act.
       (3) Application of estimated tax rules.--Clause (i) of 
     section 6654(d)(1)(C) of the Internal Revenue Code of 1986 
     shall be applied by substituting ``109 percent'' for ``110 
     percent'' where the preceding taxable year referred to in 
     such clause is a taxable year beginning in calendar year 
     1996.
       (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.

     SEC. 312. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER DECEMBER 
                   31, 2000, FOR PURPOSES OF DETERMINING GAIN.

       (a) In General.--Part II of subchapter O of chapter 1 
     (relating to basis rules of general application) is amended 
     by inserting after section 1021 the following new section:

     ``SEC. 1022. INDEXING OF CERTAIN ASSETS ACQUIRED AFTER 
                   DECEMBER 31, 2000, FOR PURPOSES OF DETERMINING 
                   GAIN.

       ``(a) General Rule.--
       ``(1) Indexed basis substituted for adjusted basis.--Solely 
     for purposes of determining gain on the sale or other 
     disposition by a taxpayer (other than a corporation) of an 
     indexed asset which has been held for more than 3 years, the 
     indexed basis of the asset shall be substituted for its 
     adjusted basis.
       ``(2) Exception for depreciation, etc.--The deductions for 
     depreciation, depletion, and amortization shall be determined 
     without regard to the application of paragraph (1) to the 
     taxpayer or any other person.
       ``(3) Exception for principal residences.--Paragraph (1) 
     shall not apply to any disposition of the principal residence 
     (within the meaning of section 121) of the taxpayer .
       ``(b) Indexed Asset.--
       ``(1) In general.--For purposes of this section, the term 
     `indexed asset' means--
       ``(A) common stock in a C corporation (other than a foreign 
     corporation), and
       ``(B) tangible property,
     which is a capital asset or property used in the trade or 
     business (as defined in section 1231(b)).
       ``(2) Stock in certain foreign corporations included.--For 
     purposes of this section--
       ``(A) In general.--The term `indexed asset' includes common 
     stock in a foreign corporation which is regularly traded on 
     an established securities market.
       ``(B) Exception.--Subparagraph (A) shall not apply to--
       ``(i) stock of a foreign investment company (within the 
     meaning of section 1246(b)),
       ``(ii) stock in a passive foreign investment company (as 
     defined in section 1296),
       ``(iii) stock in a foreign corporation held by a United 
     States person who meets the requirements of section 
     1248(a)(2), and
       ``(iv) stock in a foreign personal holding company (as 
     defined in section 552).
       ``(C) Treatment of american depository receipts.--An 
     American depository receipt for common stock in a foreign 
     corporation shall be treated as common stock in such 
     corporation.
       ``(c) Indexed Basis.--For purposes of this section--
       ``(1) General rule.--The indexed basis for any asset is--
       ``(A) the adjusted basis of the asset, increased by
       ``(B) the applicable inflation adjustment.
       ``(2) Applicable inflation adjustment.--The applicable 
     inflation adjustment for any asset is an amount equal to--
       ``(A) the adjusted basis of the asset, multiplied by
       ``(B) the percentage (if any) by which--
       ``(i) the chain-type price index for GDP for the last 
     calendar quarter ending before the asset is disposed of, 
     exceeds
       ``(ii) the chain-type price index for GDP for the last 
     calendar quarter ending before the asset was acquired by the 
     taxpayer.

     The percentage under subparagraph (B) shall be rounded to the 
     nearest \1/10\ of 1 percentage point.
       ``(3) Chain-type price index for GDP.--The chain-type price 
     index for GDP for any calendar quarter is such index for such 
     quarter (as shown in the last revision thereof released by 
     the Secretary of Commerce before the close of the following 
     calendar quarter).
       ``(d) Suspension of Holding Period Where Diminished Risk of 
     Loss; Treatment of Short Sales.--
       ``(1) In general.--If the taxpayer (or a related person) 
     enters into any transaction which substantially reduces the 
     risk of loss from holding any asset, such asset shall not be 
     treated as an indexed asset for the period of such reduced 
     risk.
       ``(2) Short sales.--
       ``(A) In general.--In the case of a short sale of an 
     indexed asset with a short sale period in excess of 3 years, 
     for purposes of this title, the amount realized shall be an 
     amount equal to the amount realized (determined without 
     regard to this paragraph) increased by the applicable 
     inflation adjustment. In applying subsection (c)(2) for 
     purposes of the preceding sentence, the date on which the 
     property is sold short shall be treated as the date of 
     acquisition and the closing date for the sale shall be 
     treated as the date of disposition.
       ``(B) Short sale period.--For purposes of subparagraph (A), 
     the short sale period begins on the day that the property is 
     sold and ends on the closing date for the sale.
       ``(e) Treatment of Regulated Investment Companies and Real 
     Estate Investment Trusts.--
       ``(1) Adjustments at entity level.--
       ``(A) In general.--Except as otherwise provided in this 
     paragraph, the adjustment under subsection (a) shall be 
     allowed to any qualified investment entity (including for 
     purposes of determining the earnings and profits of such 
     entity).
       ``(B) Exception for corporate shareholders.--Under 
     regulations--
       ``(i) in the case of a distribution by a qualified 
     investment entity (directly or indirectly) to a corporation--

       ``(I) the determination of whether such distribution is a 
     dividend shall be made without regard to this section, and
       ``(II) the amount treated as gain by reason of the receipt 
     of any capital gain dividend shall be increased by the 
     percentage by which the entity's net capital gain for the 
     taxable year (determined without regard to this section) 
     exceeds the entity's net capital gain for such year 
     determined with regard to this section, and

       ``(ii) there shall be other appropriate adjustments 
     (including deemed distributions) so as to ensure that the 
     benefits of this section are not allowed (directly or 
     indirectly) to corporate shareholders of qualified investment 
     entities.

     For purposes of the preceding sentence, any amount includible 
     in gross income under section 852(b)(3)(D) shall be treated 
     as a capital gain dividend and an S corporation shall not be 
     treated as a corporation.

[[Page H4716]]

       ``(C) Exception for qualification purposes.--This section 
     shall not apply for purposes of sections 851(b) and 856(c).
       ``(D) Exception for certain taxes imposed at entity 
     level.--
       ``(i) Tax on failure to distribute entire gain.--If any 
     amount is subject to tax under section 852(b)(3)(A) for any 
     taxable year, the amount on which tax is imposed under such 
     section shall be increased by the percentage determined under 
     subparagraph (B)(i)(II). A similar rule shall apply in the 
     case of any amount subject to tax under paragraph (2) or (3) 
     of section 857(b) to the extent attributable to the excess of 
     the net capital gain over the deduction for dividends paid 
     determined with reference to capital gain dividends only. The 
     first sentence of this clause shall not apply to so much of 
     the amount subject to tax under section 852(b)(3)(A) as is 
     designated by the company under section 852(b)(3)(D).
       ``(ii) Other taxes.--This section shall not apply for 
     purposes of determining the amount of any tax imposed by 
     paragraph (4), (5), or (6) of section 857(b).
       ``(2) Adjustments to interests held in entity.--
       ``(A) Regulated investment companies.--Stock in a regulated 
     investment company (within the meaning of section 851) shall 
     be an indexed asset for any calendar quarter in the same 
     ratio as--
       ``(i) the average of the fair market values of the indexed 
     assets held by such company at the close of each month during 
     such quarter, bears to
       ``(ii) the average of the fair market values of all assets 
     held by such company at the close of each such month.
       ``(B) Real estate investment trusts.--Stock in a real 
     estate investment trust (within the meaning of section 856) 
     shall be an indexed asset for any calendar quarter in the 
     same ratio as--
       ``(i) the fair market value of the indexed assets held by 
     such trust at the close of such quarter, bears to
       ``(ii) the fair market value of all assets held by such 
     trust at the close of such quarter.
       ``(C) Ratio of 80 percent or more.--If the ratio for any 
     calendar quarter determined under subparagraph (A) or (B) 
     would (but for this subparagraph) be 80 percent or more, such 
     ratio for such quarter shall be 100 percent.
       ``(D) Ratio of 20 percent or less.--If the ratio for any 
     calendar quarter determined under subparagraph (A) or (B) 
     would (but for this subparagraph) be 20 percent or less, such 
     ratio for such quarter shall be zero.
       ``(E) Look-thru of partnerships.--For purposes of this 
     paragraph, a qualified investment entity which holds a 
     partnership interest shall be treated (in lieu of holding a 
     partnership interest) as holding its proportionate share of 
     the assets held by the partnership.
       ``(3) Treatment of return of capital distributions.--Except 
     as otherwise provided by the Secretary, a distribution with 
     respect to stock in a qualified investment entity which is 
     not a dividend and which results in a reduction in the 
     adjusted basis of such stock shall be treated as allocable to 
     stock acquired by the taxpayer in the order in which such 
     stock was acquired.
       ``(4) Qualified investment entity.--For purposes of this 
     subsection, the term `qualified investment entity' means--
       ``(A) a regulated investment company (within the meaning of 
     section 851), and
       ``(B) a real estate investment trust (within the meaning of 
     section 856).
       ``(f) Other Pass-Thru Entities.--
       ``(1) Partnerships.--
       ``(A) In general.--In the case of a partnership, the 
     adjustment made under subsection (a) at the partnership level 
     shall be passed through to the partners.
       ``(B) Special rule in the case of section 754 elections.--
     In the case of a transfer of an interest in a partnership 
     with respect to which the election provided in section 754 is 
     in effect--
       ``(i) the adjustment under section 743(b)(1) shall, with 
     respect to the transferor partner, be treated as a sale of 
     the partnership assets for purposes of applying this section, 
     and
       ``(ii) with respect to the transferee partner, the 
     partnership's holding period for purposes of this section in 
     such assets shall be treated as beginning on the date of such 
     adjustment.
       ``(2) S corporations.--In the case of an S corporation, the 
     adjustment made under subsection (a) at the corporate level 
     shall be passed through to the shareholders. This section 
     shall not apply for purposes of determining the amount of any 
     tax imposed by section 1374 or 1375.
       ``(3) Common trust funds.--In the case of a common trust 
     fund, the adjustment made under subsection (a) at the trust 
     level shall be passed through to the participants.
       ``(4) Indexing adjustment disregarded in determining loss 
     on sale of interest in entity.--Notwithstanding the preceding 
     provisions of this subsection, for purposes of determining 
     the amount of any loss on a sale or exchange of an interest 
     in a partnership, S corporation, or common trust fund, the 
     adjustment made under subsection (a) shall not be taken into 
     account in determining the adjusted basis of such interest.
       ``(g) Dispositions Between Related Persons.--
       ``(1) In general.--This section shall not apply to any sale 
     or other disposition of property between related persons 
     except to the extent that the basis of such property in the 
     hands of the transferee is a substituted basis.
       ``(2) Related persons defined.--For purposes of this 
     section, the term `related persons' means--
       ``(A) persons bearing a relationship set forth in section 
     267(b), and
       ``(B) persons treated as single employer under subsection 
     (b) or (c) of section 414.
       ``(h) Transfers To Increase Indexing Adjustment.--If any 
     person transfers cash, debt, or any other property to another 
     person and the principal purpose of such transfer is to 
     secure or increase an adjustment under subsection (a), the 
     Secretary may disallow part or all of such adjustment or 
     increase.
       ``(i) Special Rules.--For purposes of this section--
       ``(1) Treatment of improvements, etc.--If there is an 
     addition to the adjusted basis of any tangible property or of 
     any stock in a corporation during the taxable year by reason 
     of an improvement to such property or a contribution to 
     capital of such corporation--
       ``(A) such addition shall never be taken into account under 
     subsection (c)(1)(A) if the aggregate amount thereof during 
     the taxable year with respect to such property or stock is 
     less than $1,000, and
       ``(B) such addition shall be treated as a separate asset 
     acquired at the close of such taxable year if the aggregate 
     amount thereof during the taxable year with respect to such 
     property or stock is $1,000 or more.

     A rule similar to the rule of the preceding sentence shall 
     apply to any other portion of an asset to the extent that 
     separate treatment of such portion is appropriate to carry 
     out the purposes of this section.
       ``(2) Assets which are not indexed assets throughout 
     holding period.--The applicable inflation adjustment shall be 
     appropriately reduced for periods during which the asset was 
     not an indexed asset.
       ``(3) Treatment of certain distributions.--A distribution 
     with respect to stock in a corporation which is not a 
     dividend shall be treated as a disposition.
       ``(4) Acquisition date where there has been prior 
     application of subsection (a)(1) with respect to the 
     taxpayer.--If there has been a prior application of 
     subsection (a)(1) to an asset while such asset was held by 
     the taxpayer, the date of acquisition of such asset by the 
     taxpayer shall be treated as not earlier than the date of the 
     most recent such prior application.
       ``(5) Collapsible corporations.--The application of section 
     341(a) (relating to collapsible corporations) shall be 
     determined without regard to this section.
       ``(j) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Clerical Amendment.--The table of sections for part II 
     of subchapter O of chapter 1 is amended by inserting after 
     the item relating to section 1021 the following new item:

``Sec. 1022. Indexing of certain assets acquired after December 31, 
              2000, for purposes of determining gain.''.

       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to the disposition of any property the holding period 
     of which begins after December 31, 2000.
       (2) Certain transactions between related persons.--The 
     amendments made by this section shall not apply to the 
     disposition of any property acquired after December 31, 2000, 
     from a related person (as defined in section 1022(g)(2) of 
     the Internal Revenue Code of 1986, as added by this section) 
     if--
       (A) such property was so acquired for a price less than the 
     property's fair market value, and
       (B) the amendments made by this section did not apply to 
     such property in the hands of such related person.
       (d) Election To Recognize Gain on Assets Held on January 1, 
     2001.--For purposes of the Internal Revenue Code of 1986--
       (1) In general.--A taxpayer other than a corporation may 
     elect to treat--
       (A) any readily tradable stock (which is an indexed asset) 
     held by such taxpayer on January 1, 2001, and not sold before 
     the next business day after such date, as having been sold on 
     such next business day for an amount equal to its closing 
     market price on such next business day (and as having been 
     reacquired on such next business day for an amount equal to 
     such closing market price), and
       (B) any other indexed asset held by the taxpayer on January 
     1, 2001, as having been sold on such date for an amount equal 
     to its fair market value on such date (and as having been 
     reacquired on such date for an amount equal to such fair 
     market value).
       (2) Treatment of gain or loss.--
       (A) Any gain resulting from an election under paragraph (1) 
     shall be treated as received or accrued on the date the asset 
     is treated as sold under paragraph (1) and shall be 
     recognized notwithstanding any provision of the Internal 
     Revenue Code of 1986.
       (B) Any loss resulting from an election under paragraph (1) 
     shall not be allowed for any taxable year.
       (3) Election.--An election under paragraph (1) shall be 
     made in such manner as the Secretary of the Treasury or his 
     delegate may prescribe and shall specify the assets for

[[Page H4717]]

     which such election is made. Such an election, once made with 
     respect to any asset, shall be irrevocable.
       (4) Readily tradable stock.--For purposes of this 
     subsection, the term ``readily tradable stock'' means any 
     stock which, as of January 1, 2001, is readily tradable on an 
     established securities market or otherwise.

     SEC. 313. 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 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 or his spouse to which 
     subsection (a) applied.
       ``(B) Premarriage 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 by reason of a 
     sale or exchange by such individual's spouse before their 
     marriage--
       ``(i) subparagraph (A) shall be applied without regard to 
     the sale or exchange by such individual's 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-may 7, 1997, 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, to the extent provided in 
     regulations, 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 the property, subsection (a) shall, 
     subject to the provisions of subsection (b), apply if either 
     spouse meets the ownership and use requirements of subsection 
     (a) with respect to such property.
       ``(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) Property of divorced spouse.--For purposes of this 
     section, in the case of an individual holding property 
     transferred to such individual incident to divorce (within 
     the meaning of section 1041(c))--
       ``(A) the period such individual owns such property shall 
     include the period the former spouse owned the property, and
       ``(B) the dollar limitation applicable under paragraph (1) 
     shall not be less than the amount such limitation would have 
     been had the sale or exchange occurred on the date the 
     divorce became final.
       ``(4) 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.
       ``(5) 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 as holding and use by the taxpayer of the 
     property sold or exchanged.
       ``(6) 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 May 6, 1997, in 
     respect of such property.
       ``(7) 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.
       ``(8) 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.
       ``(9) Sales of life estates and remainder interests.--For 
     purposes of this section--
       ``(A) In general.--This section shall not fail to apply to 
     the sale or exchange of an interest in a principal residence 
     by reason of such interest being a life estate or a remainder 
     interest in such residence, but this section shall apply only 
     to one such interest in such residence which is sold or 
     exchanged separately.
       ``(B) Exception for sales to related parties.--Subparagraph 
     (A) shall not apply to any sale to, or exchange with, any 
     person who bears a relationship to the taxpayer which is 
     described in section 267(b) or 707(b).
       ``(e) Denial of Exclusion for Expatriates.--This section 
     shall not apply to any sale or exchange by an individual if 
     the treatment provided by section 877(a)(1) applies to such 
     individual.
       ``(f) 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.
       ``(g) 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(h)(4), 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 Taxpayer Relief Act of 1997)'' after ``1034(e)''.

[[Page H4718]]

       (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 
     Taxpayer Relief 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 Taxpayer Relief 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 Taxpayer Reief Act of 1997)'' after ``1034''.
       (10) Paragraph (7) of section 1250(d) is amended to read as 
     follows:
       ``(7) Disposition of principal residence.--Subsection (a) 
     shall not apply to a disposition of property to the extent 
     used by the taxpayer as his principal residence (within the 
     meaning of section 121, relating to gain on sale of principal 
     residence).''.
       (11) Subsection (c) of section 6012 is amended by striking 
     ``(relating to one-time exclusion of gain from sale of 
     principal residence by individual who has attained age 55)'' 
     and inserting ``(relating to gain from sale of principal 
     residence)''.
       (12) Paragraph (2) of section 6212(c) is amended by 
     striking subparagraph (C) and by redesignating the succeeding 
     subparagraphs accordingly.
       (13) Section 6504 is amended by striking paragraph (4) and 
     by redesignating the succeeding paragraphs accordingly.
       (14) 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.''.

       (15) The table of sections for part III of subchapter O of 
     chapter 1 of such Code 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 after May 6, 1997.
       (2) Sales before date of enactment.--At the election of the 
     taxpayer, the amendments made by this section shall not apply 
     to any sale or exchange before the date of the enactment of 
     this Act.
       (3) Binding contracts.--At the election of the taxpayer, 
     the amendments made by this section shall not apply to a sale 
     or exchange after the date of the enactment of this Act, if--
       (A) such sale or exchange is pursuant to a contract which 
     was binding on such date, or
       (B) 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 or with 
     respect to the acquisition of which by the taxpayer a binding 
     contract was in effect on such date.

     This paragraph shall not apply to any sale or exchange by an 
     individual if the treatment provided by section 877(a)(1) of 
     the Internal Revenue Code of 1986 applies to such individual.

                    PART II--CORPORATE CAPITAL GAINS

     SEC. 321. REDUCTION OF ALTERNATIVE CAPITAL GAIN TAX FOR 
                   CORPORATIONS.

       (a) In General.--Section 1201 is amended to read as 
     follows:

     ``SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

       ``(a) General Rule.--If for any taxable year a corporation 
     has 8-year gain, then, in lieu of the tax imposed by sections 
     11, 511, and 831 (a) and (b) (whichever is applicable), there 
     is hereby imposed a tax (if such tax is less than the tax 
     imposed by such sections) which shall consist of the sum of--
       ``(1) a tax computed on the taxable income reduced by the 
     amount of the 8-year gain, at the rates and in the manner as 
     if this subsection had not been enacted, plus
       ``(2) a tax of the applicable percentage of the amount of 
     the 8-year gain (or, if less, taxable income).
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a)--
       ``(1) In general.--The term `applicable percentage' means--
       ``(A) 32 percent for the portion of any taxable year within 
     1998,
       ``(B) 31 percent for the portion of any taxable year within 
     1999, and
       ``(C) 30 percent for the portion of any taxable year after 
     1999.
       ``(2) Fiscal year taxpayers.--
       ``(A) Taxable years beginning in 1997.--In applying this 
     section to taxable years beginning in 1997, 8-year gain shall 
     not exceed the 8-year gain determined by taking into account 
     only gains and losses properly taken into account for the 
     portion of the taxable year after December 31, 1997.
       ``(B) Taxable years beginning in 1998 or 1999.--In the case 
     of a taxable year beginning in 1998 or 1999 which includes 
     portions of 2 calendar years, the applicable percentage shall 
     be applied separately to such portions by taking into 
     account--
       ``(i) in the case of the first such portion, the lesser 
     of--

       ``(I) the 8-year gain determined by taking into account 
     only gains and losses properly taken into account for such 
     portion, or
       ``(II) the 8-year gain determined for the entire taxable 
     year, and

       ``(ii) in the case of the second such portion, the 8-year 
     gain (and the taxable income) determined for the entire 
     taxable year reduced by the amount on which tax is determined 
     under subsection (a)(2) for the first such portion determined 
     under clause (i).
       ``(C) Special rule for pass-thru entities.--Section 
     1(h)(8)(C) shall apply for purposes of this paragraph.
       ``(c) 8-Year Gain.--For purposes of this section, the term 
     `8-year gain' means the lesser of--
       ``(1) the amount of long-term capital gain which would be 
     computed for the taxable year if only gain from the sale or 
     exchange of property held by the taxpayer for more than 8 
     years were taken into account, or
       ``(2) net capital gain.

     The determination under the preceding sentence shall be made 
     without regard to collectibles gain (as defined in section 
     1(h)(5)) or section 1250 gain (as defined in section 
     1(h)(7)).
       ``(d) Cross References.--

  ``For computation of the alternative tax--
  ``(1) in the case of life insurance companies, see section 801(a)(2),
  ``(2) in the case of regulated investment companies and their 
shareholders, see section 852(b)(3)(A) and (D), and
  ``(3) in the case of real estate investment trusts, see section 
857(b)(3)(A).''.

       (b) Technical Amendments.--
       (1) Subsection (d) of section 291 is amended by striking 
     ``subsection (a)(1) to such shareholder'' and inserting 
     ``subsection (a)(1) and section 1201 to such shareholder''.
       (2) Clause (iii) of section 852(b)(3)(D) is amended by 
     striking ``65 percent'' and inserting ``the applicable 
     percentage'' and by inserting at the end the following new 
     sentence: ``For purposes of the preceding sentence, the term 
     `applicable percentage' means the percentage equal to the 
     excess of 100 percent over the percentage applicable under 
     section 1201(a).''.
       (3)(A) Subparagraph (B) of section 852(b)(3) is amended to 
     read as follows:
       ``(B) Treatment of capital gain dividends by 
     shareholders.--
       ``(i) In general.--Except as provided in clause (ii), a 
     capital gain dividend shall be treated by the shareholders as 
     gain from the sale or exchange of a capital asset held for 
     more than 1 year.
       ``(ii) Coordination with 8-year holding period for 
     corporate net capital gain.--The portion of any capital gain 
     dividend designated by the company as allocable to gain from 
     the sale or exchange of property held by the company for more 
     than 8 years shall be treated as gain from the sale or 
     exchange of a capital asset held for more than 8 years. Rules 
     similar to the rules of subparagraph (C) shall apply to any 
     designation under the preceding sentence.''.
       (B) Clause (i) of section 851(b)(3)(D) is amended by adding 
     at the end thereof the following new sentence: ``Rules 
     similar to the rules of subparagraph (B) shall apply in 
     determining character of the amount to be so included by any 
     such shareholder which is a corporation.''.
       (4) Subparagraph (B) of section 857(b)(3) is amended to 
     read as follows:
       ``(B) Treatment of capital gain dividends by 
     shareholders.--
       ``(i) In general.--Except as provided in clause (ii), a 
     capital gain dividend shall be treated by the shareholders or 
     holders of beneficial interests as gain from the sale or 
     exchange of a capital asset held for more than 1 year.
       ``(ii) Coordination with 8-year holding period for 
     corporate net capital gain.--The portion of any capital gain 
     dividend designated by the company as allocable to gain from 
     the sale or exchange of property held by the company for more 
     than 8 years shall be treated as gain from the sale or 
     exchange of a capital asset held for more than 8 years. Rules 
     similar to the rules of subparagraph (C) shall apply to any 
     designation under the preceding sentence.''.
       (5) Subsection (c) of section 584 is amended--
       (A) by inserting ``but not more than 8 years'' after ``1 
     year'' each place it appears in paragraph (2),
       (B) by striking ``and'' at the end of paragraph (2), and
       (C) by redesignating paragraph (3) as paragraph (4) and 
     inserting after paragraph (2) the following new paragraph:

[[Page H4719]]

       ``(3) as part of its gains and losses from sales or 
     exchanges of capital assets held for more than 8 years, its 
     proportionate share of the gains and losses of the common 
     trust fund from sales or exchanges of capital assets held for 
     more than 8 years, and''.
       (6) Subparagraph (E) of section 904(b)(3) is amended by 
     adding at the end the following new clause:
       ``(iv) Regulations.--The Secretary shall prescribe 
     regulations that adjust the limitation under subsection (a) 
     to reflect the rate differential for 8-year gain (as defined 
     in section 1201(c)) between the highest rate of tax specified 
     in section 11(b) and the alternate rate of tax under section 
     1201(a) and the limitation on the deduction for capital 
     losses under section 1211.''.
       (c) Effective Dates.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 1997.
                TITLE IV--ALTERNATIVE MINIMUM TAX REFORM

     SEC. 401. ADJUSTMENT OF EXEMPTION AMOUNTS FOR TAXPAYERS OTHER 
                   THAN CORPORATIONS.

       (a) In General.--Subsection (d) of section 55 is amended by 
     adding at the end the following new paragraph:
       ``(4) Adjustment of exemption amounts for taxpayers other 
     than corporations.--
       ``(A) Taxable years beginning before january 1, 2008.--In 
     the case of any taxable year beginning in a calendar year 
     after 1998 and before 2008--
       ``(i) In general.--The dollar amount applicable under 
     paragraph (1)(A) for any odd-numbered calendar year--

       ``(I) shall be $1,000 greater than the dollar amount 
     applicable under paragraph (1)(A) for the prior odd-numbered 
     calendar year, and
       ``(II) shall apply to taxable years beginning in such odd-
     numbered calendar year and the succeeding calendar year.

       ``(B) Taxable years beginning after december 31, 2007.--In 
     the case of any taxable year beginning in a calendar year 
     after 2007, the dollar amount applicable under paragraph 
     (1)(A) for taxable years beginning in 2007 shall be increased 
     by an amount equal to the product of--
       ``(i) such dollar amount, and
       ``(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 2006' 
     for `calendar year 1992' in subparagraph (B) thereof.

     If any increase determined under the preceding sentence is 
     not a multiple of $100, such increase shall be rounded to the 
     next lowest multiple of $100.
       ``(C) Other amounts.--
       ``(i) The dollar amount applicable under paragraph (1)(B) 
     for any taxable year shall be an amount equal to 75 percent 
     of the dollar amount applicable under paragraph (1)(A) for 
     such year.
       ``(ii) The dollar amount applicable under paragraph (1)(C) 
     for any taxable year shall be an amount equal to 50 percent 
     of the dollar amount applicable under paragraph (1)(A) for 
     such year.''.
       (b) Conforming Amendment.--The last sentence of section 
     55(d)(3) is amended by striking ``$165,000 or (ii) $22,500'' 
     and inserting ``the minimum amount of such income (as so 
     determined) for which the exemption amount under paragraph 
     (1)(C) is zero, or (ii) such exemption amount (determined 
     without regard to this paragraph)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 402. EXEMPTION FROM ALTERNATIVE MINIMUM TAX FOR SMALL 
                   CORPORATIONS.

       (a) In General.--Section 55 (relating to alternative 
     minimum tax imposed) is amended by adding at the end the 
     following new subsection:
       ``(e) Exemption for Small Corporations.--
       ``(1) In general.--The tentative minimum tax of a 
     corporation shall be zero for any taxable year if--
       ``(A) such corporation met the $5,000,000 gross receipts 
     test of section 448(c) for any prior taxable year beginning 
     after December 31, 1996, and
       ``(B) such corporation would meet such test for the taxable 
     year and all prior taxable years beginning after December 31, 
     1997, if such test were applied by substituting `$7,500,000' 
     for `$5,000,000'
       ``(2) Prospective application of minimum tax if small 
     corporation ceases to be small.--In the case of a corporation 
     whose tentative minimum tax is zero for any prior taxable 
     year by reason of paragraph (1), the application of this part 
     for taxable years beginning with the first taxable year such 
     corporation ceases to be described in paragraph (1) shall be 
     determined without regard to transactions entered into or 
     other items arising in taxable years prior to such first 
     taxable year.
       ``(3) Limitation on use of credit for prior year minimum 
     tax liability.--In the case of a taxpayer whose tentative 
     minimum tax for any taxable year is zero by reason of 
     paragraph (1), the amount described in paragraph (2) of 
     section 53(b) shall not be less than the greater of--
       ``(A) the tentative minimum tax for the taxable year, or
       ``(B) 25 percent of so much of the regular tax liability 
     (reduced by the credit allowed by section 27) as exceeds 
     $25,000.

     Rules similar to the rules of section 38(c)(3)(B) shall apply 
     for purposes of the preceding sentence.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     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.

     SEC. 404. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT 
                   SALES.

       (a) In General.--The last sentence of paragraph (6) of 
     section 56(a) (relating to treatment of installment sales in 
     computing alternative minimum taxable income) is amended to 
     read as follows: ``This paragraph shall not apply to any 
     disposition--
       ``(A) in the case of a taxpayer using the cash receipts and 
     disbursements method of accounting, described in section 
     453(l)(2)(A) (relating to farm property), or
       ``(B) with respect to which an election is in effect under 
     section 453(l)(2)(B) (relating to timeshares and residential 
     lots).''.
       (b) Effective Dates.--
       (1) In general.--The amendment made by this section shall 
     apply to dispositions in taxable years beginning after 
     December 31, 1987.
       (2) Special rule for 1987.--In the case of taxable years 
     beginning in 1987, the last sentence of section 56(a)(6) of 
     the Internal Revenue Code of 1986 (as in effect for such 
     taxable years) shall be applied by inserting ``or in the case 
     of a taxpayer using the cash receipts and disbursements 
     method of accounting, any disposition described in section 
     453C(e)(1)(B)(ii)'' after ``section 453C(e)(4)''.
     TITLE V--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS
               Subtitle A--Estate and Gift Tax Provisions

     SEC. 501. COST-OF-LIVING ADJUSTMENTS RELATING TO ESTATE AND 
                   GIFT TAX PROVISIONS.

       (a) Increase in Unified Estate and Gift Tax Credit.--
       (1) Estate tax credit.--
       (A) In general.--Subsection (a) of section 2010 (relating 
     to unified credit against estate tax) is amended by striking 
     ``$192,800'' and inserting ``the applicable credit amount''.
       (B) Applicable credit amount.--Section 2010 is amended by 
     redesignating subsection (c) as subsection (d) and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Applicable Credit Amount.--For purposes of this 
     section--
       ``(1) In general.--For purposes of this section, the 
     applicable credit amount is the amount of the tentative tax 
     which would be determined under the rate schedule set forth 
     in section 2001(c) if the amount with respect to which such 
     tentative tax is to be computed were the applicable exclusion 
     amount determined in accordance with the following table:

``In the case of estates of decedentThe applicable exclusion amount is:
    1998......................................................$650,000 
    1999......................................................$750,000 
    2000......................................................$765,000 
    2001 through 2004.........................................$775,000 
    2005......................................................$800,000 
    2006......................................................$825,000 
    2007 or thereafter......................................$1,000,000.
       ``(2) Cost-of-living adjustment.--In the case of any 
     decedent dying, and gift made, in a calendar year after 2007, 
     the $1,000,000 amount set forth in paragraph (1) shall be 
     increased by an amount equal to--
       ``(A) $1,000,000, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 2006' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     next lowest multiple of $10,000.''.
       (C) Estate tax returns.--Paragraph (1) of section 6018(a) 
     is amended by striking ``$600,000'' and inserting ``the 
     applicable exclusion amount in effect under section 2010(c) 
     for the calendar year which includes the date of death''.
       (D) Phaseout of graduated rates and unified credit.--
     Paragraph (2) of section 2001(c) is amended by striking 
     ``$21,040,000'' and inserting ``the amount at which the 
     average tax rate under this section is 55 percent''.
       (E) Estates of nonresidents not citizens.--Subparagraph (A) 
     of section 2102(c)(3) is amended by striking ``$192,800'' and 
     inserting ``the applicable credit amount in effect under 
     section 2010(c) for the calendar year which includes the date 
     of death''.

[[Page H4720]]

       (2) Unified gift tax credit.--Paragraph (1) of section 
     2505(a) is amended by striking ``$192,800'' and inserting 
     ``the applicable credit amount in effect under section 
     2010(c) for such calendar year''.
       (b) Alternate Valuation of Certain Farm, Etc., Real 
     Property.--Subsection (a) of section 2032A is amended by 
     adding at the end the following new paragraph:
       ``(3) Inflation adjustment.--In the case of estates of 
     decedents dying in a calendar year after 1998, the $750,000 
     amount contained in paragraph (2) shall be increased by an 
     amount equal to--
       ``(A) $750,000, multiplied by
       ``(B) 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.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     next lowest multiple of $10,000.''.
       (c) Annual Gift Tax Exclusion.--Subsection (b) of section 
     2503 is amended--
       (1) by striking the subsection heading and inserting the 
     following:
       ``(b) Exclusions From Gifts.--
       ``(1) In general.--'',
       (2) by moving the text 2 ems to the right, and
       (3) by adding at the end the following new paragraph:
       ``(2) Inflation adjustment.--In the case of gifts made in a 
     calendar year after 1998, the $10,000 amount contained in 
     paragraph (1) shall be increased by an amount equal to--
       ``(A) $10,000, multiplied by
       ``(B) 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.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $1,000, such amount shall be rounded to the 
     next lowest multiple of $1,000.''.
       (d) Exemption From Generation-Skipping Tax.--Section 2631 
     (relating to GST exemption) is amended by adding at the end 
     the following new subsection:
       ``(c) Inflation Adjustment.--In the case of an individual 
     who dies in any calendar year after 1998, the $1,000,000 
     amount contained in subsection (a) shall be increased by an 
     amount equal to--
       ``(1) $1,000,000, multiplied by
       ``(2) 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.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     next lowest multiple of $10,000.''.
       (e) Amount Subject to Reduced Rate Where Extension of Time 
     for Payment of Estate Tax on Closely Held Business.--
     Subsection (j) of section 6601 is amended by redesignating 
     paragraph (3) as paragraph (4) and by inserting after 
     paragraph (2) the following new paragraph:
       ``(3) Inflation adjustment.--In the case of estates of 
     decedents dying in a calendar year after 1998, the $1,000,000 
     amount contained in paragraph (2)(A) shall be increased by an 
     amount equal to--
       ``(A) $1,000,000, multiplied by
       ``(B) 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.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $10,000, such amount shall be rounded to the 
     next lowest multiple of $10,000.''.
       (f) Effective date.--The amendments made by this section 
     shall apply to the estates of decedents dying, and gifts 
     made, after December 31, 1997.

     SEC. 502. 20-YEAR INSTALLMENT PAYMENT WHERE ESTATE CONSISTS 
                   LARGELY OF INTEREST IN CLOSELY HELD BUSINESS.

       (a) In General.--Section 6166(a) (relating to extension of 
     time for payment of estate tax where estate consists largely 
     of interest in closely held business) is amended by striking 
     ``10'' in paragraph (1) and the heading thereof and inserting 
     ``20''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     1997.

     SEC. 503. NO INTEREST ON CERTAIN PORTION OF ESTATE TAX 
                   EXTENDED UNDER SECTION 6166, REDUCED INTEREST 
                   ON REMAINING PORTION, AND NO DEDUCTION FOR SUCH 
                   REDUCED INTEREST.

       (a) No Interest and Reduced Interest.--
       (1) In general.--Paragraphs (1) and (2) of section 6601(j) 
     (relating to 4-percent rate on certain portion of estate tax 
     extended under section 6166), as amended by section 501(e), 
     are amended to read as follows:
       ``(1) In general.--If the time for payment of an amount of 
     tax imposed by chapter 11 is extended as provided in section 
     6166, then in lieu of the annual rate provided by subsection 
     (a)--
       ``(A) no interest shall be paid on the no-interest portion 
     of such amount, and
       ``(B) interest on so much of such amount as exceeds such 
     no-interest portion shall be paid at a rate equal to 45 
     percent of the annual rate provided by subsection (a).
     For purposes of this subsection, the amount of any deficiency 
     which is prorated to installments payable under section 6166 
     shall be treated as an amount of tax payable in installments 
     under such section.
       ``(2) No-interest portion.--For purposes of this section, 
     the term `no-interest portion' means the lesser of--
       ``(A)(i) the amount of the tentative tax which would be 
     determined under the rate schedule set forth in section 
     2001(c) if the amount with respect to which such tentative 
     tax is to be computed were the sum of $1,000,000 and the 
     applicable exclusion amount in effect under section 2010(c), 
     reduced by
       ``(ii) the applicable credit amount in effect under section 
     2010(c), or
       ``(B) the amount of the tax imposed by chapter 11 which is 
     extended as provided in section 6166.''.
       (2) Conforming amendments.--
       (A) Section 6601(j), as amended by section 501, is 
     amended--
       (i) by striking ``4-percent'' each place it appears in 
     paragraph (3) and inserting ``no-interest'', and
       (ii) by striking ``4-Percent Rate on Certain Portion of'' 
     in the heading and inserting ``Rate on''.
       (B) Section 6166(b)(7)(A)(iii) is amended to read as 
     follows:
       ``(iii) for purposes of applying section 6601(j) (relating 
     to rate on estate tax extended under section 6166), the no-
     interest portion shall be zero.''.
       (C) Section 6166(b)(8)(A)(iii) is amended to read as 
     follows:
       ``(iii) No-interest portion not to apply.--For purposes of 
     applying section 6601(j) (relating to rate on estate tax 
     extended under section 6166), the no-interest portion shall 
     be zero.''.
       (b) Disallowance of Interest Deduction.--
       (1) Estate tax.--Paragraph (1) of section 2053(c) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Section 6166 interest.--No deduction shall be allowed 
     under this section for any interest payable under section 
     6601 on any unpaid portion of the tax imposed by section 2001 
     for the period during which an extension of time for payment 
     of such tax is in effect under section 6166.''.
       (2) Income tax.--Subparagraph (E) of section 163(h)(2) is 
     amended by striking ``or 6166''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     1997.

     SEC. 504. EXTENSION OF TREATMENT OF CERTAIN RENTS UNDER 
                   SECTION 2032A TO LINEAL DESCENDANTS.

       (a) General Rule.--Paragraph (7) of section 2032A(c) 
     (relating to special rules for tax treatment of dispositions 
     and failures to use for qualified use) is amended by adding 
     at the end the following new subparagraph:
       ``(E) Certain rents treated as qualified use.--For purposes 
     of this subsection, a surviving spouse or lineal descendant 
     of the decedent shall not be treated as failing to use 
     qualified real property in a qualified use solely because 
     such spouse or descendant rents such property to a member of 
     the family of such spouse or descendant on a net cash basis. 
     For purposes of the preceding sentence, a legally adopted 
     child of an individual shall be treated as the child of such 
     individual by blood.''.
       (b) Conforming Amendment.--Section 2032A(b)(5)(A) is 
     amended by striking the last sentence.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to leases entered into after 
     December 31, 1976.

     SEC. 505. CLARIFICATION OF JUDICIAL REVIEW OF ELIGIBILITY FOR 
                   EXTENSION OF TIME FOR PAYMENT OF ESTATE TAX.

       (a) In General.--Part IV of subchapter C of chapter 76 of 
     the Internal Revenue Code of 1986 (relating to declaratory 
     judgments) is amended by adding at the end the following new 
     section:

     ``SEC. 7479. DECLARATORY JUDGMENTS RELATING TO ELIGIBILITY OF 
                   ESTATE WITH RESPECT TO INSTALLMENT PAYMENTS 
                   UNDER SECTION 6166.

       ``(a) Creation of remedy.--In a case of actual controversy 
     involving a determination by the Secretary of (or a failure 
     by the Secretary to make a determination with respect to)--
       ``(1) whether an election may be made under section 6166 
     (relating to extension of time for payment of estate tax 
     where estate consists largely of interest in closely held 
     business) with respect to an estate, or
       ``(2) whether the extension of time for payment of tax 
     provided in section 6166(a) has ceased to apply with respect 
     to an estate,

     upon the filing of an appropriate pleading, the Tax Court may 
     make a declaration with respect to whether such election may 
     be made, whether such extension has ceased to apply, or the 
     amount of such installment payments. Any such declaration 
     shall have the force and effect of a decision of the Tax 
     Court and shall be reviewable as such.
       ``(b) Limitations.--
       ``(1) Petitioner.--A pleading may be filed under this 
     section, with respect to any estate, only--
       ``(A) by the executor of such estate, or
       ``(B) by any person who has assumed an obligation to make 
     payments under section 6166 with respect to such estate (but 
     only if each other such person is joined as a party).
       ``(2) Exhaustion of administrative remedies.--The court 
     shall not issue a declaratory judgment or decree under this 
     section

[[Page H4721]]

     in any proceeding unless it determines that the petitioner 
     has exhausted all available administrative remedies within 
     the Internal Revenue Service. A petitioner shall be deemed to 
     have exhausted its administrative remedies with respect to a 
     failure of the Secretary to make a determination at the 
     expiration of 180 days after the date on which the request 
     for such determination was made if the petitioner has taken, 
     in a timely manner, all reasonable steps to secure such 
     determination.
       ``(3) Time for bringing action.--If the Secretary sends by 
     certified or registered mail notice of his determination as 
     described in subsection (a) to the petitioner, no proceeding 
     may be initiated under this section unless the pleading is 
     filed before the 91st day after the date of such mailing.''.
       (b) Clerical Amendment.--The table of sections for part IV 
     of subchapter C of chapter 76 of such Code is amended by 
     adding at the end the following new item:

``Sec. 7479. Declaratory judgments relating to eligibility of estate 
              with respect to installment payments under section 
              6166.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to the estates of decedents dying after the date 
     of the enactment of this Act.

     SEC. 506. GIFTS MAY NOT BE REVALUED FOR ESTATE TAX PURPOSES 
                   AFTER EXPIRATION OF STATUTE OF LIMITATIONS.

       (a) In General.--Section 2001 (relating to imposition and 
     rate of estate tax) is amended by adding at the end the 
     following new subsection:
       ``(f) Valuation of Gifts.--If--
       ``(1) the time has expired within which a tax may be 
     assessed under chapter 12 (or under corresponding provisions 
     of prior laws) on the transfer of property by gift made 
     during a preceding calendar period (as defined in section 
     2502(b)), and
       ``(2) the value of such gift is shown on the return for 
     such preceding calendar period or is disclosed in such 
     return, or in a statement attached to the return, in a manner 
     adequate to apprise the Secretary of the nature of such gift,

     the value of such gift shall, for purposes of computing the 
     tax under this chapter, be the value of such gift as finally 
     determined for purposes of chapter 12.''.
       (b) Modification of Application of Statute of 
     Limitations.--Paragraph (9) of section 6501(c) is amended to 
     read as follows:
       ``(9) Gift tax on certain gifts not shown on return.--If 
     any gift of property the value of which (or any increase in 
     taxable gifts required under section 2701(d) which) is 
     required to be shown on a return of tax imposed by chapter 12 
     (without regard to section 2503(b)), and is not shown on such 
     return, any tax imposed by chapter 12 on such gift may be 
     assessed, or a proceeding in court for the collection of such 
     tax may be begun without assessment, at any time. The 
     preceding sentence shall not apply to any item which is 
     disclosed in such return, or in a statement attached to the 
     return, in a manner adequate to apprise the Secretary of the 
     nature of such item. The value of any item which is so 
     disclosed may not be redetermined by the Secretary after the 
     expiration of the period under subsection (a).''.
       (c) Declaratory Judgment Procedure for Determining Value of 
     Gift.--
       (1) In general.--Part IV of subchapter C of chapter 76 is 
     amended by inserting after section 7476 the following new 
     section:

     ``SEC. 7477. DECLARATORY JUDGMENTS RELATING TO VALUE OF 
                   CERTAIN GIFTS.

       ``(a) Creation of Remedy.--In a case of an actual 
     controversy involving a determination by the Secretary of the 
     value of any gift shown on the return of tax imposed by 
     chapter 12 or disclosed on such return or in any statement 
     attached to such return, upon the filing of an appropriate 
     pleading, the Tax Court may make a declaration of the value 
     of such gift. Any such declaration shall have the force and 
     effect of a decision of the Tax Court and shall be reviewable 
     as such.
       ``(b) Limitations.--
       ``(1) Petitioner.--A pleading may be filed under this 
     section only by the donor.
       ``(2) Exhaustion of administrative remedies.--The court 
     shall not issue a declaratory judgment or decree under this 
     section in any proceeding unless it determines that the 
     petitioner has exhausted all available administrative 
     remedies within the Internal Revenue Service.
       ``(3) Time for bringing action.--If the Secretary sends by 
     certified or registered mail notice of his determination as 
     described in subsection (a) to the petitioner, no proceeding 
     may be initiated under this section unless the pleading is 
     filed before the 91st day after the date of such mailing.''.
       (2) Clerical amendment.--The table of sections for such 
     part IV is amended by inserting after the item relating to 
     section 7476 the following new item:

``Sec. 7477. Declaratory judgments relating to value of certain 
              gifts.''.

       (d) Conforming Amendment.--Subsection (c) of section 2504 
     is amended by striking ``, and if a tax under this chapter or 
     under corresponding provisions of prior laws has been 
     assessed or paid for such preceding calendar period''.
       (e) Effective Dates.--
       (1) In general.--The amendments made by subsections (a) and 
     (c) shall apply to gifts made after the date of the enactment 
     of this Act.
       (2) Subsection (b)--The amendment made by subsection (b) 
     shall apply to gifts made in calendar years ending after the 
     date of the enactment of this Act.

     SEC. 507. TERMINATION OF THROWBACK RULES FOR DOMESTIC TRUSTS.

       (a) Accumulation Distributions.--
       (1) In general.--Section 665 is amended by adding at the 
     end the following new subsection:
       ``(f) Special Rule For United States Trusts.--For purposes 
     of this subpart, in the case of a trust other than a foreign 
     trust, any distribution in any taxable year beginning after 
     the date of the enactment of this subsection shall be 
     computed without regard to any undistributed net income.''.
       (2) Conforming amendment.--Subsection (b) of section 665 is 
     amended by inserting ``except as provided in subsection 
     (f),'' after ``subpart,''.
       (b) Property Transferred to Trusts.--Subsection (e) of 
     section 644 is amended by striking ``or'' at the end of 
     paragraph (3), by striking the period at the end of paragraph 
     (4) and inserting ``, or '', and by adding at the end the 
     following new paragraph:
       ``(5) in the case of a trust other than a foreign trust, 
     any sale or exchange of property after the date of the 
     enactment of this paragraph.''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to distributions 
     in taxable years beginning after the date of the enactment of 
     this Act.
       (2) Transferred property.--The amendments made by 
     subsection (b) shall apply to sales or exchanges after the 
     date of the enactment of this Act.

     SEC. 508. UNIFIED CREDIT OF DECEDENT INCREASED BY UNIFIED 
                   CREDIT OF SPOUSE USED ON SPLIT GIFT INCLUDED IN 
                   DECEDENT'S GROSS ESTATE.

       (a) In General.--Section 2010 (relating to unified credit 
     against estate tax) is amended by adding at the end the 
     following new subsection:
       ``(d) Treatment of Unified Credit Used By Spouse on Split-
     Gift Included in Decedent's Gross Estate.--If--
       ``(1) the decedent was the donor of any gift one-half of 
     which was considered under section 2513 as made by the 
     decedent's spouse, and
       ``(2) the amount of such gift is includible in the gross 
     estate of the decedent by reason of section 2035, 2036, 2037, 
     or 2038,

     the amount of the credit allowable by subsection (a) to the 
     estate of the decedent shall be increased by the amount of 
     the unified credit allowed against the tax imposed by section 
     2501 on the amount of such gift considered under section 2513 
     as made by such spouse.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to gifts made after the date of the enactment of 
     this Act.

     SEC. 509. REFORMATION OF DEFECTIVE BEQUESTS, ETC., TO SPOUSE 
                   OF DECEDENT.

       (a) In General.--Subsection (b) of section 2056 (relating 
     to bequests, etc., to surviving spouse) is amended by adding 
     at the end the following new paragraph:
       ``(11) Reformations permitted.--
       ``(A) In general.--In the case of any interest in property 
     with respect to which a deduction would be allowable under 
     subsection (a) but for a provision of this subsection, if--
       ``(i) the surviving spouse is entitled to all of the income 
     from the property for life,
       ``(ii) no person other than such spouse is entitled to any 
     distribution of such property during such spouse's life, and
       ``(iii) there is a change of a governing instrument (by 
     reformation, amendment, construction, or otherwise) as of the 
     applicable date which results in the satisfaction of the 
     requirements of such provision as of the date of the 
     decedent's death,

     the determination of whether such deduction is allowable 
     shall be made as of the applicable date.
       ``(B) Special rule where timely commencement of 
     reformation.--Clauses (i) and (ii) of subparagraph (A) shall 
     not apply to any interest if, not later than the date 
     described in subparagraph (C)(i), a judicial proceeding is 
     commenced to change such interest into an interest which 
     satisfies the requirements of the provision by reason of 
     which (but for this paragraph) a deduction would not be 
     allowable under subsection (a) for such interest.
       ``(C) Applicable date.--For purposes of subparagraph (A), 
     the term `applicable date' means--
       ``(i) the last date (including extensions) for filing the 
     return of tax imposed by this chapter, or
       ``(ii) if a judicial proceeding is commenced to comply with 
     such provision, the time when the changes pursuant to such 
     proceeding are made.
       ``(D) Special rule.--If the change referred to in 
     subparagraph (A)(iii) is to qualify the passage of the 
     interest under paragraph (7), subparagraph (A) shall apply 
     only if the election under paragraph (7)(B) is made.
       ``(E) Statute of limitations.--If a judicial proceeding 
     described in subparagraph (C)(ii) is commenced with respect 
     to any interest, the period for assessing any deficiency of 
     tax attributable to such interest shall not expire before the 
     date 1 year after the date on

[[Page H4722]]

     which the Secretary is notified that such provision has been 
     complied with or that such proceeding has been terminated.''.
       (b) Comparable Rule for Gift Tax.--Section 2523 (relating 
     to gift to spouse) is amended by adding at the end the 
     following new subsection:
       ``(j) Reformations permitted.--Rules similar to the rules 
     of section 2056(b)(11) shall apply for purposes of this 
     section.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying, and gifts made, 
     after the date of the enactment of this Act.
             Subtitle B--Generation-Skipping Tax Provisions

     SEC. 511. SEVERING OF TRUSTS HOLDING PROPERTY HAVING AN 
                   INCLUSION RATIO OF GREATER THAN ZERO.

       (a) In General.--Subsection (a) of section 2642 (relating 
     to inclusion ratio) is amended by adding at the end the 
     following new paragraph:
       ``(3) Severing of trusts holding property having an 
     inclusion ratio of greater than zero.--
       ``(A) In general.--If a trust holding property having an 
     inclusion ratio of greater than zero is severed in a 
     qualified severance, at the election of the trustee of such 
     trust, the trusts resulting from such severance shall be 
     treated as separate trusts for purposes of this chapter and 1 
     such trust shall have an inclusion ratio of 1 and the other 
     such trust shall have an inclusion ratio of zero.
       ``(B) Qualified severance.--For purposes of subparagraph 
     (A), the term `qualified severance' means the creation of 2 
     trusts from a single trust if each property held by the 
     single trust was divided between the 2 created trusts such 
     that one trust received an interest in each such property 
     equal to the applicable fraction of the single trust. Such 
     term includes any other severance permitted under regulations 
     prescribed by the Secretary.
       ``(C) Election.--The election under this paragraph shall be 
     made at the time prescribed by the Secretary. Such an 
     election, once made, shall be irrevocable.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to severances after the date of the enactment of 
     this Act.

     SEC. 512. EXPANSION OF EXCEPTION FROM GENERATION-SKIPPING 
                   TRANSFER TAX FOR TRANSFERS TO INDIVIDUALS WITH 
                   DECEASED PARENTS.

       (a) In General.--Section 2651 (relating to generation 
     assignment) is amended by redesignating subsection (e) as 
     subsection (f), and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Special Rule for Persons With a Deceased Parent.--
       ``(1) In general.--For purposes of determining whether any 
     transfer is a generation-skipping transfer, if--
       ``(A) an individual is a descendant of a parent of the 
     transferor (or the transferor's spouse or former spouse), and
       ``(B) such individual's parent who is a lineal descendant 
     of the parent of the transferor (or the transferor's spouse 
     or former spouse) is dead at the time the transfer (from 
     which an interest of such individual is established or 
     derived) is subject to a tax imposed by chapter 11 or 12 upon 
     the transferor (and if there shall be more than 1 such time, 
     then at the earliest such time),
     such individual shall be treated as if such individual were a 
     member of the generation which is 1 generation below the 
     lower of the transferor's generation or the generation 
     assignment of the youngest living ancestor of such individual 
     who is also a descendant of the parent of the transferor (or 
     the transferor's spouse or former spouse), and the generation 
     assignment of any descendant of such individual shall be 
     adjusted accordingly.
       ``(2) Limited application of subsection to collateral 
     heirs.--This subsection shall not apply with respect to a 
     transfer to any individual who is not a lineal descendant of 
     the transferor (or the transferor's spouse or former spouse) 
     if, at the time of the transfer, such transferor has any 
     living lineal descendant.''.
       (b) Conforming Amendments.--
       (1) Section 2612(c) (defining direct skip) is amended by 
     striking paragraph (2) and by redesignating paragraph (3) as 
     paragraph (2).
       (2) Section 2612(c)(2) (as so redesignated) is amended by 
     striking ``section 2651(e)(2)'' and inserting ``section 
     2651(f)(2)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to terminations, distributions, and transfers 
     occurring after December 31, 1997.
                          TITLE VI--EXTENSIONS

     SEC. 601. RESEARCH TAX CREDIT.

       (a) In General.--Paragraph (1) of section 41(h) (relating 
     to termination) is amended--
       (1) by striking ``May 31, 1997'' and inserting ``December 
     31, 1998'', and
       (2) by striking in the last sentence ``during the first 11 
     months of such taxable year.'' and inserting ``during the 30-
     month period beginning with the first month of such year. The 
     30 months referred to in the preceding sentence shall be 
     reduced by the number of full months after June 1996 (and 
     before the first month of such first taxable year) during 
     which the taxpayer paid or incurred any amount which is taken 
     into account in determining the credit under this section.''.
       (b) Technical Amendments.--
       (1) Subparagraph (B) of section 41(c)(4) is amended to read 
     as follows:
       ``(B) Election.--An election under this paragraph shall 
     apply to the taxable year for which made and all succeeding 
     taxable years unless revoked with the consent of the 
     Secretary.''.
       (2) Paragraph (1) of section 45C(b) is amended by striking 
     ``May 31, 1997'' and inserting ``December 31, 1998''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after May 31, 1997.

     SEC. 602. CONTRIBUTIONS OF STOCK TO PRIVATE FOUNDATIONS.

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

     SEC. 603. WORK OPPORTUNITY TAX CREDIT.

       (a) Extension.--
       (1) In general.--Subparagraph (B) of section 51(c)(4) 
     (relating to termination) is amended by striking ``September 
     30, 1997'' and inserting ``September 30, 1998''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to individuals who begin work for the employer 
     after September 30, 1997.
       (b) Work Opportunity Credit Allowed Against 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 work opportunity credit.--
       ``(A) In general.--In the case of the work opportunity 
     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) subparagraph (A) shall not apply, 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 work 
     opportunity credit).

       ``(B) Work opportunity credit.--For purposes of this 
     subsection, the term `work opportunity credit' means the 
     credit allowable under subsection (a) by reason of section 
     51(a).''.
       (2) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) is amended by inserting ``or the work 
     opportunity credit'' after ``employment credit''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after December 31, 
     1997.
       (c) 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.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to individuals who begin work for the employer 
     after September 30, 1997.
       (d) Modification of Eligibility Requirement Based on Period 
     on Welfare.--
       (1) In general.--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.''.
       (2) Conforming amendment.--Subparagraph (A) of section 
     51(d)(3) is amended to read as follows:
       ``(A) In general.--The term `qualified veteran' means any 
     veteran who is certified by the designated local agency as 
     being a member of a family receiving assistance under a food 
     stamp program under the Food Stamp Act of 1977 for at least a 
     3-month period ending during the 12-month period ending on 
     the hiring date.''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to individuals who begin work for the employer 
     after September 30, 1997.

     SEC. 604. ORPHAN DRUG TAX CREDIT.

       (a) In General.--Section 45C (relating to clinical testing 
     expenses for certain drugs for rare diseases or conditions) 
     is amended by striking subsection (e).
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to amounts paid or incurred after May 31, 1997.

     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

[[Page H4723]]

     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.
  TITLE VII--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA

     SEC. 701. 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--District of Columbia Enterprise Zone

``Sec. 1400.  Establishment of DC Zone.
``Sec. 1400A. Tax-exempt economic development bonds.
``Sec. 1400B. Credit for equity investments in and loans to District of 
              Columbia businesses.
``Sec. 1400C. Zero percent capital gains rate.
``Sec. 1400D. Credit to provide equivalent of 10 percent rate bracket 
              in lieu of 15 percent bracket.

     ``SEC. 1400. ESTABLISHMENT OF DC ZONE.

       ``(a) In General.--The applicable DC area is hereby 
     designated as the District of Columbia Enterprise Zone. For 
     purposes of this title (except as otherwise provided in this 
     subchapter), the District of Columbia Enterprise Zone shall 
     be treated as an empowerment zone designated under subchapter 
     U.
       ``(b) Applicable DC Area.--For purposes of subsection (a), 
     the term `applicable DC area' means the area consisting of--
       ``(1) the census tracts located in the District of Columbia 
     which are part of an enterprise community designated under 
     subchapter U before the date of the enactment of this 
     subchapter, and
       ``(2) all other census tracts--
       ``(A) which are located in the District of Columbia, and
       ``(B) for which the poverty rate is not less than 35 
     percent.
       ``(c) District of Columbia Enterprise Zone.--For purposes 
     of this subchapter, the terms `District of Columbia 
     Enterprise Zone' and `DC Zone' mean the District of Columbia 
     Enterprise Zone designated by subsection (a).
       ``(d) Special Rule for Application of Employment Credit.--
     In the case of the DC Zone, section 1396 (relating to 
     empowerment zone employment credit) shall be applied by 
     substituting ``20'' for ``15'' in the table contained in 
     section 1396(b). The preceding sentence shall apply only with 
     respect to qualified zone employees, as defined in section 
     1396(d), determined by treating no area other than the DC 
     Zone as an empowerment zone or enterprise community.
       ``(e) Time For Which Designation Applicable.--
       ``(1) In general.--The designation made by subsection (a) 
     shall apply for the period beginning on January 1, 1998, and 
     ending on December 31, 2002.
       ``(2) Coordination with dc enterprise community designated 
     under subchapter u.--The designation as an enterprise 
     community, under subchapter U, of the census tracts referred 
     to in subsection (b)(1) shall terminate on December 31, 2002.

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

       ``(a) In General.--In the case of the District of Columbia 
     Enterprise Zone--
       ``(1) subsection (a) of section 1394 (relating to tax-
     exempt facility bonds for empowerment zones and enterprise 
     communities) applies only with respect to bonds issued by the 
     Economic Development Corporation, and
       ``(2) subparagraph (A) of section 1394(c)(1) (relating to 
     limitation on amount of bonds) shall be applied by 
     substituting `$15,000,000' for `$3,000,000'.
       ``(b) Economic Development Corporation.--For purposes of 
     this section, the term `Economic Development Corporation' 
     means an entity which is created by Federal law in 1997 as 
     part of the District of Columbia government.
       ``(c) Period of Applicability.--This section shall apply to 
     bonds issued during the period beginning on January 1, 1998, 
     and ending on December 31, 2002.

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

       ``(a) General Rule.--For purposes of section 38, the DC 
     Zone 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.
       ``(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) solely 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).
     A rule similar to the rule of paragraph (3)(B) shall apply 
     for purposes of this paragraph.
       ``(5) Recapture of credit upon certain 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 DC Zone 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 $75,000,000.
       ``(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

[[Page H4724]]

     job opportunities for low and moderate income residents of 
     the DC Zone, and
       ``(B) whether such business is within the DC Zone.
       ``(e) Economic Development Corporation.--For purposes of 
     this section, the term `Economic Development Corporation' has 
     the meaning given such term by section 1400A(b).
       ``(f) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section.
       ``(g) 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. 1400C. ZERO PERCENT CAPITAL GAINS RATE.

         ``(a) Exclusion.--Gross income shall not include 
     qualified capital gain from the sale or exchange of any DC 
     Zone asset held for more than 5 years.
       ``(b) DC Zone Asset.--For purposes of this section--
       ``(1) In general.--The term `DC Zone asset' means--
       ``(A) any DC Zone business stock,
       ``(B) any DC Zone partnership interest, and
       ``(C) any DC Zone business property.
       ``(2) DC zone business stock.--
       ``(A) In general.--The term `DC Zone business stock' means 
     any stock in a domestic corporation which is originally 
     issued after December 31, 1997, if--
       ``(i) such stock is acquired by the taxpayer, before 
     January 1, 2003, at its original issue (directly or through 
     an underwriter) solely in exchange for cash,
       ``(ii) as of the time such stock was issued, such 
     corporation was a DC Zone business (or, in the case of a new 
     corporation, such corporation was being organized for 
     purposes of being a DC Zone business), and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such stock, such corporation qualified as a DC 
     Zone business.
       ``(B) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this paragraph.
       ``(3) DC zone partnership interest.--The term `DC Zone 
     partnership interest' means any capital or profits interest 
     in a domestic partnership which is originally issued after 
     December 31, 1997, if--
       ``(A) such interest is acquired by the taxpayer, before 
     January 1, 2003, from the partnership solely in exchange for 
     cash,
       ``(B) as of the time such interest was acquired, such 
     partnership was a DC Zone business (or, in the case of a new 
     partnership, such partnership was being organized for 
     purposes of being a DC Zone business), and
       ``(C) during substantially all of the taxpayer's holding 
     period for such interest, such partnership qualified as a DC 
     Zone business.
     A rule similar to the rule of paragraph (2)(B) shall apply 
     for purposes of this paragraph.
       ``(4) DC zone business property.--
       ``(A) In general.--The term `DC Zone business property' 
     means tangible property if--
       ``(i) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)) after December 31, 
     1997, and before January 1, 2003,
       ``(ii) the original use of such property in the DC Zone 
     commences with the taxpayer, and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such property, substantially all of the use of 
     such property was in a DC Zone business of the taxpayer.
       ``(B) Special rule for buildings which are substantially 
     improved.--
       ``(i) In general.--The requirements of clauses (i) and (ii) 
     of subparagraph (A) shall be treated as met with respect to--

       ``(I) property which is substantially improved by the 
     taxpayer before January 1, 2003, and
       ``(II) any land on which such property is located.

       ``(ii) Substantial improvement.--For purposes of clause 
     (i), property shall be treated as substantially improved by 
     the taxpayer only if, during any 24-month period beginning 
     after December 31, 1997, additions to basis with respect to 
     such property in the hands of the taxpayer exceed the greater 
     of--

       ``(I) an amount equal to the adjusted basis of such 
     property at the beginning of such 24-month period in the 
     hands of the taxpayer, or
       ``(II) $5,000.

       ``(6) Treatment of subsequent purchasers, etc.--The term 
     `DC Zone asset' includes any property which would be a DC 
     Zone asset but for paragraph (2)(A)(i), (3)(A), or (4)(A)(ii) 
     in the hands of the taxpayer if such property was a DC Zone 
     asset in the hands of a prior holder.
       ``(7) 5-year safe harbor.--If any property ceases to be a 
     DC Zone asset by reason of paragraph (2)(A)(iii), (3)(C), or 
     (4)(A)(iii) after the 5-year period beginning on the date the 
     taxpayer acquired such property, such property shall continue 
     to be treated as meeting the requirements of such paragraph; 
     except that the amount of gain to which subsection (a) 
     applies on any sale or exchange of such property shall not 
     exceed the amount which would be qualified capital gain had 
     such property been sold on the date of such cessation.
       ``(c) DC Zone Business.--For purposes of this section, the 
     term `DC Zone business' means any entity which is an 
     enterprise zone business (as defined in section 1397B), 
     determined by treating no area other than the DC Zone as an 
     empowerment zone or enterprise community.
       ``(d) Other Definitions and Special Rules.--For purposes of 
     this section--
       ``(1) Qualified capital gain.--Except as otherwise provided 
     in this subsection, the term `qualified capital gain' means 
     any gain recognized on the sale or exchange of--
       ``(A) a capital asset, or
       ``(B) property used in the trade or business (as defined in 
     section 1231(b)).
       ``(2) Gain before 1998 or after 2007 not qualified.--The 
     term `qualified capital gain' shall not include any gain 
     attributable to periods before January 1, 1998, or after 
     December 31, 2007.
       ``(3) Certain gain on real property not qualified.--The 
     term `qualified capital gain' shall not include any gain 
     which would be treated as ordinary income under section 1250 
     if section 1250 applied to all depreciation rather than the 
     additional depreciation.
       ``(4) Intangibles and land not integral part of dc zone 
     business.--The term `qualified capital gain' shall not 
     include any gain which is attributable to real property, or 
     an intangible asset, which is not an integral part of a DC 
     Zone business.
       ``(5) Related party transactions.--The term `qualified 
     capital gain' shall not include any gain attributable, 
     directly or indirectly, in whole or in part, to a transaction 
     with a related person. For purposes of this paragraph, 
     persons are related to each other if such persons are 
     described in section 267(b) or 707(b)(1).
       ``(e) Certain Other Rules To Apply.--Rules similar to the 
     rules of subsections (g), (h), (i)(2), and (j) of section 
     1202 shall apply for purposes of this section.
       ``(f) Sales and Exchanges of Interests in Partnerships and 
     S Corporations Which Are DC Zone Businesses.--In the case of 
     the sale or exchange of an interest in a partnership, or of 
     stock in an S corporation, which was a DC Zone business 
     during substantially all of the period the taxpayer held such 
     interest or stock, the amount of qualified capital gain shall 
     be determined without regard to--
       ``(1) any gain which is attributable to real property, or 
     an intangible asset, which is not an integral part of a DC 
     Zone business, and
       ``(2) any gain attributable to periods before January 1, 
     1998, or after December 31, 2007.

     ``SEC. 1400D. CREDIT TO PROVIDE EQUIVALENT OF 10 PERCENT RATE 
                   BRACKET IN LIEU OF 15 PERCENT BRACKET.

       ``(a) In General.--In the case of a DC Zone individual, 
     there shall be allowed as a credit against the tax imposed by 
     this chapter for the taxable year an amount equal to 5 
     percent of so much of the taxpayer's taxable income for the 
     year as does not exceed the highest amount of such income 
     which is subject to the 15 percent rate under section 1.
       ``(b) DC Zone Individual.--For purposes of this section, 
     the term `DC Zone individual' means an individual who has a 
     principal place of abode in the District of Columbia 
     Enterprise Zone for not less than 183 days of the taxable 
     year.
       ``(c) Credit Not To Apply to Estate or Trust.--This section 
     shall not apply to an estate or trust.
       ``(d) Coordination With Other Credits.--For purposes of 
     this chapter, the credit under this section shall be treated 
     as a credit under subpart A of part IV of subchapter A.
       ``(e) Termination.--This section shall not apply to any 
     taxable year beginning after December 31, 2007.''.
       (b) Credits Made Part of General Business Credit.--
       (1) 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 DC Zone investment credit determined under 
     section 1400B(a).''.
       (2) Subsection (d) of section 39 is amended by adding at 
     the end the following new paragraph:
       ``(8) No carryback of dc zone credits before effective 
     date.--No portion of the unused business credit for any 
     taxable year which is attributable to the credit under 
     section 1400B, or to the credits under subchapter U by reason 
     of section 1400, may be carried back to a taxable year ending 
     before the date of the enactment of sections 1400B and 
     1400.''.
       (3) 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 DC Zone investment credit determined under 
     section 1400B(a).''.
       (c) Clerical Amendment.--The table of subchapters for 
     chapter 1 is amended by adding at the end the following new 
     item:

``Subchapter W. District of Columbia Enterprise Zone.''.

       (d) Effective Date.--This section shall take effect on the 
     date of the enactment of this Act.

     SEC. 702. INCENTIVES CONDITIONED ON OTHER DC REFORM.

       The amendments made by section 701 shall not take effect 
     unless an entity known as the Economic Development 
     Corporation is created by Federal law in 1997 as part of the 
     District of Columbia government.
                 TITLE VIII--WELFARE-TO-WORK INCENTIVES

     SEC. 801. INCENTIVES FOR EMPLOYING LONG-TERM FAMILY 
                   ASSISTANCE RECIPIENTS.

       (a) In General.--Subpart F of part IV of subchapter A of 
     chapter 1 is amended by inserting after section 51 the 
     following new section:

[[Page H4725]]

     ``SEC. 51A. TEMPORARY INCENTIVES FOR EMPLOYING LONG-TERM 
                   FAMILY ASSISTANCE RECIPIENTS.

       ``(a) Determination of Amount.--For purposes of section 38, 
     the amount of the welfare-to-work credit determined under 
     this section for the taxable year shall be equal to--
       ``(1) 35 percent of the qualified first-year wages for such 
     year, and
       ``(2) 50 percent of the qualified second-year wages for 
     such year.
       ``(b) Qualified Wages Defined.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified wages' means the 
     wages paid or incurred by the employer during the taxable 
     year to individuals who are long-term family assistance 
     recipients.
       ``(2) Qualified first-year wages.--The term `qualified 
     first-year wages' means, with respect to any individual, 
     qualified wages attributable to service rendered during the 
     1-year period beginning with the day the individual begins 
     work for the employer.
       ``(3) Qualified second-year wages.--The term `qualified 
     second-year wages' means, with respect to any individual, 
     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 paragraph (2).
       ``(4) Only first $10,000 of wages per year taken into 
     account.--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.
       ``(5) Wages.--
       ``(A) In general.--The term `wages' has the meaning given 
     such term by section 51(c), without regard to paragraph (4) 
     thereof.
       ``(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 whom subparagraph (A) or (B) 
     of section 51(h)(1) applies, rules similar to the rules of 
     such subparagraphs shall apply except that--
       ``(i) such subparagraph (A) shall be applied by 
     substituting `$10,000' for `$6,000', and
       ``(ii) such subparagraph (B) shall be applied by 
     substituting `$833.33' for `$500'.
       ``(c) Long-Term Family Assistance Recipients.--For purposes 
     of this section--
       ``(1) In general.--The term `long-term family assistance 
     recipient' means any individual who is certified by the 
     designated local agency (as defined in section 51(d)(10))--
       ``(A) as being a member of a family receiving assistance 
     under a IV-A program (as defined in section 51(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 18 months beginning after the date of the 
     enactment of this section, 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 section 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.
       ``(2) Hiring date.--The term `hiring date' has the meaning 
     given such term by section 51(d).
       ``(d) Certain Rules To Apply.--
       ``(1) In general.--Rules similar to the rules of section 
     52, and subsections (d)(11), (f), (g), (i) (as in effect on 
     the day before the date of the enactment of the Taxpayer 
     Reief Act of 1997), (j), and (k) of section 51, shall apply 
     for purposes of this section.
       ``(2) Credit to be part of general business credit, etc.--
     References to section 51 in section 38(b), 280C(a), and 
     1396(c)(3) shall be treated as including references to this 
     section.
       ``(e) Coordination With Work Opportunity Credit.--If a 
     credit is allowed under this section to an employer with 
     respect to an individual for any taxable year, then for 
     purposes of applying section 51 to such employer, such 
     individual shall not be treated as a member of a targeted 
     group for such taxable year.
       ``(f) Termination.--This section shall not apply to 
     individuals who begin work for the employer after April 30, 
     1999.''.
       (b) Clerical Amendment.--The table of sections for subpart 
     F of part IV of subchapter A of chapter 1 is amended by 
     inserting after the item relating to section 51 the following 
     new item:

``Sec. 51A. Temporary incentives for employing long-term family 
              assistance recipients.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after December 31, 1997.
                   TITLE IX--MISCELLANEOUS PROVISIONS
            Subtitle A--Provisions Relating to Excise Taxes

     SEC. 901. REPEAL OF TAX ON DIESEL FUEL USED IN RECREATIONAL 
                   BOATS.

       (a) In General.--Subparagraph (B) of section 6421(e)(2) 
     (defining off-highway business use) is amended by striking 
     clauses (iii) and (iv).
       (b) Conforming Amendments.--
       (1) Subparagraph (A) of section 4041(a)(1) is amended--
       (A) by striking ``, a diesel-powered train, or a diesel-
     powered boat'' each place it appears and inserting ``or a 
     diesel-powered train'', and
       (B) by striking ``vehicle, train, or boat'' and inserting 
     ``vehicle or train''.
       (2) Paragraph (1) of section 4041(a) is amended by striking 
     subparagraph (D).
       (3) Paragraph (2) of section 9503(f) is amended by striking 
     subparagraph (C) and by redesignating subparagraphs (D) and 
     (E) as subparagraphs (C) and (D), respectively.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1998.

     SEC. 902. CONTINUED APPLICATION OF TAX ON IMPORTED RECYCLED 
                   HALON-1211.

       (a) In General.--Paragraph (1) of section 4682(d) is 
     amended by striking ``recycled halon'' and inserting 
     ``recycled Halon-1301 or recycled Halon-2402''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 903. UNIFORM RATE OF TAX ON VACCINES.

       (a) In General.--Subsection (b) of section 4131 is amended 
     to read as follows:
       ``(b) Amount of Tax.--
       ``(1) In general.--The amount of the tax imposed by 
     subsection (a) shall be 84 cents per dose of any taxable 
     vaccine.
       ``(2) Combinations of vaccines.--If any taxable vaccine is 
     described in more than 1 subparagraph of section 4132(a)(1), 
     the amount of the tax imposed by subsection (a) on such 
     vaccine shall be the sum of the amounts for the vaccines 
     which are so included.''.
       (b) Taxable Vaccines.--Paragraph (1) of section 4132(a) is 
     amended to read as follows:
       ``(1) Taxable vaccine.--The term `taxable vaccine' means 
     any of the following vaccines which are manufactured or 
     produced in the United States or entered into the United 
     States for consumption, use, or warehousing:
       ``(A) Any vaccine containing diphtheria toxoid.
       ``(B) Any vaccine containing tetanus toxoid.
       ``(C) Any vaccine containing pertussis bacteria, extracted 
     or partial cell bacteria, or specific pertussis antigens.
       ``(D) Any vaccine against measles.
       ``(E) Any vaccine against mumps.
       ``(F) Any vaccine against rubella.
       ``(G) Any vaccine containing polio virus.
       ``(H) Any HIB vaccine.
       ``(I) Any vaccine against hepatitis B.
       ``(J) Any vaccine against chicken pox.''.
       (c) Conforming Amendment.--Subsection (a) of section 4132 
     is amended by striking paragraphs (2), (3), and (4) and by 
     redesignating paragraphs (5) through (8) as paragraphs (2) 
     through (5), respectively.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 1997.

     SEC. 904. OPERATORS OF MULTIPLE GASOLINE RETAIL OUTLETS 
                   TREATED AS WHOLESALE DISTRIBUTOR FOR REFUND 
                   PURPOSES.

       (a) In General.--Subparagraph (B) of section 6416(a)(4) 
     (defining whole distributor) is amended by adding at the end 
     the following new sentence: ``Such term includes any person 
     who makes retail sales of gasoline at 10 or more retail motor 
     fuel outlets.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 905. EXEMPTION OF ELECTRIC AND OTHER CLEAN-FUEL MOTOR 
                   VEHICLES FROM LUXURY AUTOMOBILE CLASSIFICATION.

       (a) In General.--Subsection (a) of section 4001 (relating 
     to imposition of tax) is amended to read as follows:
       ``(a) Imposition of Tax.--
       ``(1) In general.--There is hereby imposed on the 1st 
     retail sale of any passenger vehicle a tax equal to 10 
     percent of the price for which so sold to the extent such 
     price exceeds the applicable amount.
       ``(2) Applicable amount.--
       ``(A) In general.--Except as provided in subparagraphs (B) 
     and (C), the applicable amount is $30,000.
       ``(B) Qualified clean-fuel vehicle property.--In the case 
     of a passenger vehicle which is propelled by a fuel which is 
     not a clean-burning fuel to which is installed qualified 
     clean-fuel vehicle property (as defined in section 
     179A(c)(1)(A)) for purposes of permitting such vehicle to be 
     propelled by a clean-burning fuel, the applicable amount is 
     equal to the sum of--
       ``(i) $30,000, plus
       ``(ii) the increase in the price for which the passenger 
     vehicle was sold (within the meaning of section 4002) due to 
     the installation of such property.
       ``(C) Purpose built passenger vehicle.--

[[Page H4726]]

       ``(i) In general.--In the case of a purpose built passenger 
     vehicle, the applicable amount is equal to 150 percent of 
     $30,000.
       ``(ii) Purpose built passenger vehicle.--For purposes of 
     clause (i), the term `purpose built passenger vehicle' means 
     a passenger vehicle produced by an original equipment 
     manufacturer and designed so that the vehicle may be 
     propelled primarily by electricity.''.
       (b) Conforming Amendments.--
       (1) Subsection (e) of section 4001 (relating to inflation 
     adjustment) is amended to read as follows:
       ``(e) Inflation Adjustment.--
       ``(1) In general.--The $30,000 amount in subparagraphs (A), 
     (B)(i), and (C)(i) of subsection (a)(2) shall be increased by 
     an amount equal to--
       ``(A) $30,000, multiplied by
       ``(B) the cost-of-living adjustment under section 1(f)(3) 
     for the calendar year in which the vehicle is sold, 
     determined by substituting `calendar year 1990' for `calendar 
     year 1992' in subparagraph (B) thereof.
       ``(2) Rounding.--If any amount as adjusted under paragraph 
     (1) is not a multiple of $2,000, such amount shall be rounded 
     to the next lowest multiple of $2,000.''.
       (2) Subsection (f) of section 4001 (relating to phasedown) 
     is amended by striking ``subsection (a)'' and inserting 
     ``subsection (a)(1)''.
       (3) Subparagraph (B) of section 4003(a)(2) is amended to 
     read as follows:
       ``(B) the appropriate applicable amount as determined under 
     section 4001(a)(2).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales and installations occurring on or after 
     the date of the enactment of this Act.
    Subtitle B--Provisions Relating to Pensions and Fringe Benefits

     SEC. 911. SECTION 401(K) PLANS FOR CERTAIN IRRIGATION AND 
                   DRAINAGE ENTITIES.

       (a) In General.--Subparagraph (B) of section 401(k)(7) 
     (relating to rural cooperative plan) is amended--
       (1) by striking ``and'' at the end of clause (iii), by 
     redesignating clause (iv) as clause (v), and by inserting 
     after clause (iii) the following new clause:
       ``(iv) any organization which--

       ``(I) is a mutual irrigation or ditch company described in 
     section 501(c)(12) (without regard to the 85 percent 
     requirement thereof), or
       ``(II) is a district organized under the laws of a State as 
     a municipal corporation for the purpose of irrigation, water 
     conservation, or drainage, and'', and

       (2) in clause (v), as so redesignated, by striking ``or 
     (iii)'' and inserting ``, (iii), or (iv)''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to years beginning after December 31, 1997.

     SEC. 912. EXTENSION OF MORATORIUM ON APPLICATION OF CERTAIN 
                   NONDISCRIMINATION RULES TO STATE AND LOCAL 
                   GOVERNMENTS.

       (a) General Nondiscrimination and Participation Rules.--
       (1) Nondiscrimination requirements.--Section 401(a)(5) 
     (relating to qualified pension, profit-sharing, and stock 
     bonus plans) is amended by adding at the end the following:
       ``(G) Governmental plans.--Paragraphs (3) and (4) shall not 
     apply to a governmental plan (within the meaning of section 
     414(d)).''.
       (2) Additional participation requirements.--Section 
     401(a)(26)(H) (relating to additional participation 
     requirements) is amended to read as follows:
       ``(H) Exception for governmental plans.--This paragraph 
     shall not apply to a governmental plan (within the meaning of 
     section 414(d)).''.
       (3) Minimum participation standards.--Section 410(c)(2) 
     (relating to application of participation standards to 
     certain plans) is amended to read as follows:
       ``(2) A plan described in paragraph (1) shall be treated as 
     meeting the requirements of this section for purposes of 
     section 401(a), except that in the case of a plan described 
     in subparagraph (B), (C), or (D) of paragraph (1), this 
     paragraph shall only apply if such plan meets the 
     requirements of section 401(a)(3) (as in effect on September 
     1, 1974).''.
       (b) Participation Standards for Qualified Cash or Deferred 
     Arrangements.--Section 401(k)(3) (relating to application of 
     participation and discrimination standards) is amended by 
     adding at the end the following:
       ``(G)(i) The requirements of subparagraph (A)(i) and (C) 
     shall not apply to a governmental plan (within the meaning of 
     section 414(d)).
       ``(ii) The requirements of subsection (m)(2) (without 
     regard to subsection (a)(4)) shall apply to any matching 
     contribution of a governmental plan (as so defined).''.
       (c) Nondiscrimination Rules for Section 403(b) Plans.--
     Section 403(b)(12) (relating to nondiscrimination 
     requirements) is amended by adding at the end the following:
       ``(C) Governmental plans.--For purposes of paragraph 
     (1)(D), the requirements of subparagraph (A)(i) shall not 
     apply to a governmental plan (within the meaning of section 
     414(d)).''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section apply 
     to taxable years beginning on or after the date of enactment 
     of this Act.
       (2) Treatment for years beginning before date of 
     enactment.--A governmental plan (within the meaning of 
     section 414(d) of the Internal Revenue Code of 1986) shall be 
     treated as satisfying the requirements of sections 401(a)(3), 
     401(a)(4), 401(a)(26), 401(k), 401(m), 403 (b)(1)(D) and 
     (b)(12), and 410 of such Code for all taxable years beginning 
     before the date of enactment of this Act.

     SEC. 913. TREATMENT OF CERTAIN DISABILITY BENEFITS RECEIVED 
                   BY FORMER POLICE OFFICERS OR FIREFIGHTERS.

       (a) General Rule.--For purposes of determining whether any 
     amount to which this section applies is excludable from gross 
     income under section 104(a)(1) of the Internal Revenue Code 
     of 1986, the following conditions shall be treated as 
     personal injuries or sickness in the course of employment:
       (1) Heart disease.
       (2) Hypertension.
       (b) Amounts To Which Section Applies.--This section shall 
     apply to any amount--
       (1) which is payable--
       (A) to an individual (or to the survivors of an individual) 
     who was a full-time employee of any police department or fire 
     department which is organized and operated by a State, by any 
     political subdivision thereof, or by any agency or 
     instrumentality of a State or political subdivision thereof, 
     and
       (B) under a State law (as amended on May 19, 1992) which 
     irrebuttably presumed that heart disease and hypertension are 
     work-related illnesses but only for employees separating from 
     service before July 1, 1992; and
       (2) which was received in calendar year 1989, 1990, or 
     1991.
       (c) Waiver of Statute of Limitations.--If, on the date of 
     the enactment of this Act (or at any time within the 1-year 
     period beginning on such date of enactment) credit or refund 
     of any overpayment of tax resulting from the provisions of 
     this section is barred by any law or rule of law, credit or 
     refund of such overpayment shall, nevertheless, be allowed or 
     made if claim therefore is filed before the date 1 year after 
     such date of enactment.

     SEC. 914. PORTABILITY OF PERMISSIVE SERVICE CREDIT UNDER 
                   GOVERNMENTAL PENSION PLANS.

       (a) In General.--Section 415(b)(2) (relating to the 
     limitation for defined benefit plans) is amended by adding at 
     the end the following new subparagraph:
       ``(J) Purchase of permissive service credit.--
       ``(i) Benefits treated as derived from employer 
     contributions.--For purposes of this section, the term 
     `annual benefit' shall include the accrued benefit derived 
     from contributions to a governmental plan (within the meaning 
     of section 414(d)) to purchase permissive service credit.
       ``(ii) Definition of permissive service credit.--For 
     purposes of this subparagraph, the term `permissive service 
     credit' means credit--

       ``(I) for a period of service recognized by a governmental 
     plan for purposes of calculating an employee's accrued 
     benefit under such plan,
       ``(II) which such employee has not received (or has 
     forfeited), and
       ``(III) which such employee may receive only by making a 
     contribution, as determined under the governmental plan, 
     which does not exceed the amount (actuarially determined 
     under the terms of such governmental plan) necessary to fund 
     the accrued benefit attributable to such period of service.

       ``(iii) No effect on employer `pick-up' contributions.--
     Nothing in this subparagraph shall be construed as preventing 
     the application of section 414(h) to contributions to 
     purchase permissive service credit.''.
       (b) Conforming Amendment.--Section 415(c)(2) is amended by 
     adding at the end the following new sentence: ``The term 
     `annual addition' shall not include contributions to purchase 
     permissive service credit (within the meaning of subsection 
     (b)(2)(J)).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1997.

     SEC. 915. GRATUITOUS TRANSFERS FOR THE BENEFIT OF EMPLOYEES.

       (a) In General.--Subparagraph (C) of section 664(d)(1) and 
     subparagraph (C) of section 664(d)(2) are each amended by 
     striking the period at the end thereof and inserting ``or, to 
     the extent the remainder interest is in qualified employer 
     securities (as defined in paragraph (3)(C)), is to be 
     transferred to an employee stock ownership plan (as defined 
     in section 4975(e)(7)) in a qualified gratuitous transfer (as 
     defined by subsection (g)).''.
       (b) Qualified Gratuitous Transfer Defined.--Section 664 is 
     amended by adding at the end the following new subsection:
       ``(g) Qualified Gratuitous Transfer of Qualified Employer 
     Securities.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified gratuitous transfer' means a transfer of qualified 
     employer securities to an employee stock ownership plan (as 
     defined in section 4975(e)(7)) but only to the extent that--
       ``(A) the securities transferred previously passed from a 
     decedent dying before January 1, 1999, to a trust described 
     in paragraph (1) or (2) of subsection (d),
       ``(B) no deduction under section 404 is allowable with 
     respect to such transfer,
       ``(C) such plan contains the provisions required by 
     paragraph (3),
       ``(D) such plan treats such securities as being 
     attributable to employer contributions but without regard to 
     the limitations otherwise applicable to such contributions 
     under section 404, and

[[Page H4727]]

       ``(E) the employer whose employees are covered by the plan 
     described in this paragraph files with the Secretary a 
     verified written statement consenting to the application of 
     sections 4978 and 4979A with respect to such employer.
       ``(2) Exception.--The term `qualified gratuitous transfer' 
     shall not include a transfer of qualified employer securities 
     to an employee stock ownership plan unless--
       ``(A) such plan was in existence on August 1, 1996,
       ``(B) at the time of the transfer, the decedent and members 
     of the decedent's family (within the meaning of section 
     267(c)(4)) own (directly or through the application of 
     section 318(a)) no more than 10 percent of the value of the 
     stock of the corporation referred to in paragraph (4), and
       ``(C) immediately after the transfer, such plan owns (after 
     the application of section 318(a)(4)) at least 60 percent of 
     the value of the outstanding stock of the corporation.
       ``(3) Plan requirements.--A plan contains the provisions 
     required by this paragraph if such plan provides that--
       ``(A) the qualified employer securities so transferred are 
     allocated to plan participants in a manner consistent with 
     section 401(a)(4),
       ``(B) plan participants are entitled to direct the plan as 
     to the manner in which such securities which are entitled to 
     vote and are allocated to the account of such participant are 
     to be voted,
       ``(C) an independent trustee votes the securities so 
     transferred which are not allocated to plan participants,
       ``(D) each participant who is entitled to a distribution 
     from the plan has the rights described in subparagraphs (A) 
     and (B) of section 409(h)(1),
       ``(E) such securities are held in a suspense account under 
     the plan to be allocated each year, up to the limitations 
     under section 415(c), after first allocating all other annual 
     additions for the limitation year, up to the limitations 
     under sections 415 (c) and (e), and
       ``(F) on termination of the plan, all securities so 
     transferred which are not allocated to plan participants as 
     of such termination are to be transferred to, or for the use 
     of, an organization described in section 170(c).
     For purposes of the preceding sentence, the term `independent 
     trustee' means any trustee who is not a member of the family 
     (within the meaning of section 267(c)(4)) of the decedent or 
     a 5-percent shareholder. A plan shall not fail to be treated 
     as meeting the requirements of section 401(a) by reason of 
     meeting the requirements of this subsection.
       ``(4) Qualified employer securities.--For purposes of this 
     section, the term `qualified employer securities' means 
     employer securities (as defined in section 409(l)) which are 
     issued by a domestic corporation--
       ``(A) which has no outstanding stock which is readily 
     tradable on an established securities market, and
       ``(B) which has only 1 class of stock.
       ``(5) Treatment of securities allocated by employee stock 
     ownership plan to persons related to decedent or 5-percent 
     shareholders.--
       ``(A) In general.--If any portion of the assets of the plan 
     attributable to securities acquired by the plan in a 
     qualified gratuitous transfer are allocated to the account 
     of--
       ``(i) any person who is related to the decedent (within the 
     meaning of section 267(b)), or
       ``(ii) any person who, at the time of such allocation or at 
     any time during the 1-year period ending on the date of the 
     acquisition of qualified employer securities by the plan, is 
     a 5-percent shareholder of the employer maintaining the plan,

     the plan shall be treated as having distributed (at the time 
     of such allocation) to such person or shareholder the amount 
     so allocated.
       ``(B) 5-percent shareholder.--For purposes of subparagraph 
     (A), the term `5-percent shareholder' means any person who 
     owns (directly or through the application of section 318(a)) 
     more than 5 percent of the outstanding stock of the 
     corporation which issued such qualified employer securities 
     or of any corporation which is a member of the same 
     controlled group of corporations (within the meaning of 
     section 409(l)(4)) as such corporation. For purposes of the 
     preceding sentence, section 318(a) shall be applied without 
     regard to the exception in paragraph (2)(B)(i) thereof.
       ``(C) Cross reference.--

  ``For excise tax on allocations described in subparagraph (A), see 
section 4979A.

       ``(6) Tax on failure to transfer unallocated securities to 
     charity on termination of plan.--If the requirements of 
     paragraph (3)(F) are not met with respect to any securities, 
     there is hereby imposed a tax on the employer maintaining the 
     plan in an amount equal to the sum of--
       ``(A) the amount of the increase in the tax which would be 
     imposed by chapter 11 if such securities were not transferred 
     as described in paragraph (1), and
       ``(B) interest on such amount at the underpayment rate 
     under section 6621 (and compounded daily) from the due date 
     for filing the return of the tax imposed by chapter 11.''.
       (c) Conforming Amendments.--
       (1) Section 401(a)(1) is amended by inserting ``or by a 
     charitable remainder trust pursuant to a qualified gratuitous 
     transfer (as defined in section 664(g)(1)),'' after ``stock 
     bonus plans),''.
       (2) Section 404(a)(9) is amended by inserting after 
     subparagraph (B) the following new subparagraph:
       ``(C) A qualified gratuitous transfer (as defined in 
     section 664(g)(1)) shall have no effect on the amount or 
     amounts otherwise deductible under paragraph (3) or (7) or 
     under this paragraph.''.
       (3) Section 415(c)(6) is amended by adding at the end 
     thereof the following new sentence:
     ``The amount of any qualified gratuitous transfer (as defined 
     in section 664(g)(1)) allocated to a participant for any 
     limitation year shall not exceed the limitations imposed by 
     this section, but such amount shall not be taken into account 
     in determining whether any other amount exceeds the 
     limitations imposed by this section.''.
       (4) Section 415(e) is amended--
       (A) by redesignating paragraph (6) as paragraph (7), and
       (B) by inserting after paragraph (5) the following new 
     paragraph:
       ``(6) Special rule for qualified gratuitous transfers.--Any 
     qualified gratuitous transfer of qualified employer 
     securities (as defined by section 664(g)) shall not be taken 
     into account in calculating, and shall not be subject to, the 
     limitations provided in this subsection.''.
       (5) Subparagraph (B) of section 664(d)(1) and subparagraph 
     (B) of section 664(d)(2) are each amended by inserting ``and 
     other than qualified gratuitous transfers described in 
     subparagraph (C)'' after ``subparagraph (A)''.
       (6) Paragraph (4) of section 674(b) is amended by inserting 
     before the period ``or to an employee stock ownership plan 
     (as defined in section 4975(e)(7)) in a qualified gratuitous 
     transfer (as defined in section 664(g)(1))''.
       (7) Section 2055(a) is amended--
       (i) by striking ``or'' at the end of paragraph (3),
       (ii) by striking the period at the end of paragraph (4) and 
     inserting ``; or'', and
       (iii) by inserting after paragraph (4) the following new 
     paragraph:
       ``(5) to an employee stock ownership plan if such transfer 
     qualifies as a qualified gratuitous transfer of qualified 
     employer securities within the meaning of section 664(g).''.
       (8) Paragraph (8) of section 2056(b) is amended to read as 
     follows:
       ``(8) Special rule for charitable remainder trusts.--
       ``(A) In general.--If the surviving spouse of the decedent 
     is the only beneficiary of a qualified charitable remainder 
     trust who is not a charitable beneficiary nor an ESOP 
     beneficiary, paragraph (1) shall not apply to any interest in 
     such trust which passes or has passed from the decedent to 
     such surviving spouse.
       ``(B) Definitions.--For purposes of subparagraph (A)--
       ``(i) Charitable beneficiary.--The term `charitable 
     beneficiary' means any beneficiary which is an organization 
     described in section 170(c).
       ``(ii) ESOP beneficiary.--The term `ESOP beneficiary' means 
     any beneficiary which is an employee stock ownership plan (as 
     defined in section 4975(e)(7)) that holds a remainder 
     interest in qualified employer securities (as defined in 
     section 664(g)(4)) to be transferred to such plan in a 
     qualified gratuitous transfer (as defined in section 
     664(g)(1)).
       ``(iii) Qualified charitable remainder trust.--The term 
     `qualified charitable remainder trust' means a charitable 
     remainder annuity trust or a charitable remainder unitrust 
     (described in section 664).''.
       (9) Section 4947(b) is amended by inserting after paragraph 
     (3) the following new paragraph:
       ``(4) Section 507.--The provisions of section 507(a) shall 
     not apply to a trust which is described in subsection (a)(2) 
     by reason of a distribution of qualified employer securities 
     (as defined in section 664(g)(4)) to an employee stock 
     ownership plan (as defined in section 4975(e)(7)) in a 
     qualified gratuitous transfer (as defined by section 
     664(g)).''.
       (10) The last sentence of section 4975(e)(7) is amended by 
     inserting ``and section 664(g)'' after ``section 409(n)''
       (11) Subsection (a) of section 4978 is amended--
       (A) by inserting ``or acquired any qualified employer 
     securities in a qualified gratuitous transfer to which 
     section 664(g) applied'' after ``section 1042 applied'', and
       (B) by inserting before the period at the end of 
     subparagraph (B) ``60 percent of the total value of all 
     employer securities as of such disposition in the case of any 
     qualified employer securities in a qualified gratuitous 
     transfer to which section 664(g) applied)''.
       (12) Paragraph (2) of section 4978(b) is amended--
       (A) by inserting ``or acquired in the qualified gratuitous 
     transfer to which section 664(g) applied'' after ``section 
     1042 applied'', and
       (B) by inserting ``or to which section 664(g) applied'' 
     after ``section 1042 applied'' in subparagraph (C) thereof.
       (13) Subsection (c) of section 4978 is amended by striking 
     ``written statement'' and all that follows and inserting 
     ``written statement described in section 664(g)(1)(E) or in 
     section 1042(b)(3) (as the case may be).''.
       (14) Paragraph (2) of section 4978(e) is amended by 
     striking the period and inserting ``; except that such 
     section shall be applied without regard to subparagraph (B) 
     thereof for purposes of applying this section and section 
     4979A with respect to securities acquired in a qualified 
     gratuitous transfer (as defined in section 664(g)(1)).''.
       (15) Subsection (a) of section 4979A is amended to read as 
     follows:
       ``(a) Imposition of Tax.--If--

[[Page H4728]]

       ``(1) there is a prohibited allocation of qualified 
     securities by any employee stock ownership plan or eligible 
     worker-owned cooperative, or
       ``(2) there is an allocation described in section 
     664(g)(5)(A),

     there is hereby imposed a tax on such allocation equal to 50 
     percent of the amount involved.''.
       (16) Subsection (c) of section 4979A is amended to read as 
     follows:
       ``(c) Liability for Tax.--The tax imposed by this section 
     shall be paid by--
       ``(1) the employer sponsoring such plan, or
       ``(2) the eligible worker-owned cooperative,
     which made the written statement described in section 
     664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may 
     be).''.
       (17) Section 4979A is amended by redesignating subsection 
     (d) as subsection (e) and by inserting after subsection (c) 
     the following new subsection:
       ``(d) Special Statute of Limitations for Tax Attributable 
     to Certain Allocations.--The statutory period for the 
     assessment of any tax imposed by this section on an 
     allocation described in subsection (a)(2) of qualified 
     employer securities shall not expire before the date which is 
     3 years from the later of--
       ``(1) the 1st allocation of such securities in connection 
     with a qualified gratuitous transfer (as defined in section 
     664(g)(1)), or
       ``(2) the date on which the Secretary is notified of the 
     allocation described in subsection (a)(2).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transfers made by trusts to, or for the use 
     of, an employee stock ownership plan after the date of the 
     enactment of this Act.

     SEC. 916. TREATMENT OF CERTAIN TRANSPORTATION ON NON-
                   COMMERCIALLY OPERATED AIRCRAFT AS A FRINGE 
                   BENEFIT EXCLUDABLE FROM GROSS INCOME.

       (a) In General.--Subsection (b) of section 132 (relating to 
     no-additional-cost service defined) is amended to read as 
     follows:
       ``(b) No-Additional-Cost Service Defined.--For purposes of 
     this section, the term `no-additional-cost service' means any 
     service provided by an employer to an employee for use by 
     such employee if--
       ``(1) such service--
       ``(A) is offered for sale to customers in the ordinary 
     course of the line of business of the employer in which the 
     employee is performing services, or
       ``(B) consists of transportation on an aircraft, if--
       ``(i) transportation on such aircraft is not offered for 
     sale to customers,
       ``(ii) such transportation for use by such employee is 
     provided on a flight made in the ordinary course of the trade 
     or business of an employer which owns or leases such aircraft 
     for use in such trade or business, and
       ``(iii) the flight on which the transportation is provided 
     would have been made whether or not such employee was 
     transported on the flight, and
       ``(2) the employer incurs no substantial additional cost 
     (including forgone revenue) in providing such service to the 
     employee (determined without regard to any amount paid by the 
     employee for such service).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to services provided after December 31, 1997.

     SEC. 917. MINIMUM PENSION ACCRUED BENEFIT DISTRIBUTABLE 
                   WITHOUT CONSENT INCREASED TO $5,000.

       (a) In General.--Subparagraph (A) of section 411(a)(11) 
     (relating to restrictions on certain mandatory distributions) 
     is amended by striking ``$3,500'' and inserting ``the 
     applicable limit''.
       (b) Applicable Limit.--Paragraph (11) of section 411(a) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Applicable limit.--
       ``(i) In general.--For purposes of subparagraph (A), the 
     applicable limit is $5,000.
       ``(ii) Inflation adjustment.--In the case of plan years 
     beginning in a calendar year after 1998, the dollar amount 
     contained in clause (i) 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.

     If any amount as adjusted under the preceding sentence is not 
     a multiple of $50, such amount shall be rounded to the next 
     lowest multiple of $50.''.
       (c) Conforming Amendments.--
       (1) Section 411(a)(7)(B), paragraphs (1) and (2) of section 
     417(e), and section 457(e)(9) are each amended by striking 
     ``$3,500'' each place in appears (other than the headings) 
     and inserting ``the applicable limit under section 
     411(a)(11)(D)''.
       (2) The headings for paragraphs (1) and (2) of section 
     417(e) and subparagraph (A) of section 457(e)(9) are each 
     amended by striking ``$3,500'' and inserting ``applicable 
     limit''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after the date of the 
     enactment of this Act.

     SEC. 918. CLARIFICATION OF CERTAIN RULES RELATING TO EMPLOYEE 
                   STOCK OWNERSHIP PLANS OF S CORPORATIONS.

       (a) Certain Cash Distributions Permitted.--
       (1) Paragraph (2) of section 409(h) is amended by adding at 
     the end the following new subparagraph:
       ``(B) Plan maintained by s corporation.--In the case of a 
     plan established and maintained by an S corporation which 
     otherwise meets the requirements of this subsection or 
     section 4975(e)(7), such plan shall not be treated as failing 
     to meet the requirements of this subsection or section 401(a) 
     merely because it does not permit a participant to exercise 
     the right described in paragraph (1)(A) if such plan provides 
     that the participant entitled to a distribution has a right 
     to receive the distribution in cash.''.
       (2) Paragraph (2) of section 409(h) is amended--
       (A) by striking ``a plan which'' in the first sentence and 
     inserting the following:
       ``(A) In general.--A plan which'', and
       (B) by moving the text before subparagraph (B) 2 ems to the 
     right.
       (b) Shareholder-Employees Not Treated as Owner-Employees 
     Under Tax on Prohibited Transactions.--The last sentence of 
     section 4975(d) is amended by striking all that follows 
     ``preceding sentence,'' through ``Revision Act of 1982,''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
              Subtitle C--Revisions Relating to Disasters

     SEC. 921. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED DEADLINES 
                   BY REASON OF PRESIDENTIALLY DECLARED DISASTER.

       (a) In General.--Chapter 77 is amended by inserting after 
     section 7508 the following new section:

     ``SEC. 7508A. AUTHORITY TO POSTPONE CERTAIN TAX-RELATED 
                   DEADLINES BY REASON OF PRESIDENTIALLY DECLARED 
                   DISASTER.

       ``(a) In General.--In the case of a taxpayer determined by 
     the Secretary to be affected by a Presidentially declared 
     disaster (as defined by section 1033(h)(3)), the Secretary 
     may prescribe regulations under which a period of up to 90 
     days may be disregarded in determining, under the internal 
     revenue laws, in respect of any tax liability (including any 
     penalty, additional amount, or addition to the tax) of such 
     taxpayer--
       ``(1) whether any of the acts by the taxpayer described in 
     paragraph (1) of section 7508(a) were performed within the 
     time prescribed therefor, and
       ``(2) the amount of any credit or refund.
       ``(b) Interest on Overpayments and Underpayments.--
     Subsection (a) shall not apply for the purpose of determining 
     interest on any overpayment or underpayment.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     77 is amended by inserting after the item relating to section 
     7508 the following new item:

``Sec. 7508A. Authority to postpone certain tax-related deadlines by 
              reason of presidentially declared disaster.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to any period for performing an act 
     that has not expired before the date of the enactment of this 
     Act.

     SEC. 922. USE OF CERTAIN APPRAISALS TO ESTABLISH AMOUNT OF 
                   DISASTER LOSS.

       (a) In General.--Subsection (i) of section 165 is amended 
     by adding at the end the following new paragraph:
       ``(4) Use of disaster loan appraisals to establish amount 
     of loss.--Nothing in this title shall be construed to 
     prohibit the Secretary from prescribing regulations or other 
     guidance under which an appraisal for the purpose of 
     obtaining a loan of Federal funds or a loan guarantee from 
     the Federal Government as a result of a Presidentially 
     declared disaster (as defined by section 1033(h)(3)) may be 
     used to establish the amount of any loss described in 
     paragraph (1) or (2).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 923. TREATMENT OF LIVESTOCK SOLD ON ACCOUNT OF WEATHER-
                   RELATED CONDITIONS.

       (a) Deferral of Income Inclusion.--Subsection (e) of 
     section 451 (relating to special rules for proceeds from 
     livestock sold on account of drought) is amended--
       (1) by striking ``drought conditions, and that these 
     drought conditions'' in paragraph (1) and inserting 
     ``drought, flood, or other weather-related conditions, and 
     that such conditions''; and
       (2) by inserting ``, Flood, or Other Weather-Related 
     Conditions'' after ``Drought'' in the subsection heading.
       (b) Involuntary Conversions.--Subsection (e) of section 
     1033 (relating to livestock sold on account of drought) is 
     amended--
       (1) by inserting ``, flood, or other weather-related 
     conditions'' before the period at the end thereof; and
       (2) by inserting ``, Flood, or Other Weather-Related 
     Conditions'' after ``Drought'' in the subsection heading.
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales and exchanges after December 31, 1996.

     SEC. 924. MORTGAGE FINANCING FOR RESIDENCES LOCATED IN 
                   DISASTER AREAS.

       Subsection (k) of section 143 (relating to mortgage revenue 
     bonds; qualified mortgage bond and qualified veteran's 
     mortgage bond) is amended by adding at the end the following 
     new paragraph:
       ``(11) Special rules for residences located in disaster 
     areas.--In the case of a

[[Page H4729]]

     residence located in an area determined by the President to 
     warrant assistance from the Federal Government under the 
     Disaster Relief and Emergency Assistance Act (as in effect on 
     the date of the enactment of the Taxpayer Relief Act of 
     1997), this section shall be applied with the following 
     modifications to financing provided with respect to such 
     residence within 1 year after the date of the disaster 
     declaration:
       ``(A) Subsection (d) (relating to 3-year requirement) shall 
     not apply.
       ``(B) Subsections (e) and (f) (relating to purchase price 
     requirement and income requirement) shall be applied as if 
     such residence were a targeted area residence.
     The preceding sentence shall apply only with respect to bonds 
     issued after December 31, 1996, and before January 1, 
     2000.''.
          Subtitle D--Provisions Relating to Employment Taxes

     SEC. 931. CLARIFICATION OF EMPLOYMENT TAX STATUS OF 
                   INDIVIDUALS DISTRIBUTING BAKERY PRODUCTS.

       (a) Internal Revenue Code.--Subparagraph (A) of section 
     3121(d)(3) is amended by striking ``bakery products,''.
       (b) Social Security Act.--Subparagraph (A) of section 
     210(j)(3) of the Social Security Act is amended by striking 
     ``bakery products,''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to services performed after December 31, 1997.

     SEC. 932. CLARIFICATION OF STANDARD TO BE USED IN DETERMINING 
                   EMPLOYMENT TAX STATUS OF SECURITIES BROKERS.

       (a) In General.--In determining for purposes of the 
     Internal Revenue Code of 1986 whether a registered 
     representative of a securities broker-dealer is an employee 
     (as defined in section 3121(d) of the Internal Revenue Code 
     of 1986), no weight shall be given to instructions from the 
     service recipient which are imposed only in compliance with 
     investor protection standards imposed by the Federal 
     Government, any State government, or a governing body 
     pursuant to a delegation by a Federal or State agency.
       (b) Effective Date.--Subsection (a) shall apply to services 
     performed after December 31, 1997.

     SEC. 933. CLARIFICATION OF EXEMPTION FROM SELF-EMPLOYMENT TAX 
                   FOR CERTAIN TERMINATION PAYMENTS RECEIVED BY 
                   FORMER INSURANCE SALESMEN.

       (a) Internal Revenue Code.--Section 1402 (relating to 
     definitions) is amended by adding at the end the following 
     new subsection:
       ``(k) Codification of Treatment of Certain Termination 
     Payments Received by Former Insurance Salesmen.--Nothing in 
     subsection (a) shall be construed as including in the net 
     earnings from self-employment of an individual any amount 
     received during the taxable year from an insurance company on 
     account of services performed by such individual as an 
     insurance salesman for such company if--
       ``(1) such amount is received after termination of such 
     individual's agreement to perform such services for such 
     company,
       ``(2) such individual performs no services for such company 
     after such termination and before the close of such taxable 
     year,
       ``(3) such individual enters into a covenant not to compete 
     against such company which applies to at least the 1-year 
     period beginning on the date of such termination, and
       ``(4) the amount of such payment--
       ``(A) depends solely on policies sold by such individual 
     during the last year of such agreement and the extent to 
     which such policies remain in force for some period after 
     such termination, and
       ``(B) does not depend to any extent on length of service or 
     overall earnings from services performed for such company.''.
       (b) Social Security Act.--Section 211 of the Social 
     Security Act is amended by adding at the end the following 
     new subsection:

``Codification of Treatment of Certain Termination Payments Received by 
                       Former Insurance Salesmen

       ``(j) Nothing in subsection (a) shall be construed as 
     including in the net earnings from self-employment of an 
     individual any amount received during the taxable year from 
     an insurance company on account of services performed by such 
     individual as an insurance salesman for such company if--
       ``(1) such amount is received after termination of such 
     individual's agreement to perform such services for such 
     company,
       ``(2) such individual performs no services for such company 
     after such termination and before the close of such taxable 
     year,
       ``(3) such individual enters into a covenant not to compete 
     against such company which applies to at least the 1-year 
     period beginning on the date of such termination, and
       ``(4) the amount of such payment--
       ``(A) depends solely on policies sold by such individual 
     during the last year of such agreement and the extent to 
     which such policies remain in force for some period after 
     such termination, and
       ``(B) does not depend to any extent on length of service or 
     overall earnings from services performed for such company.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments after December 31, 1997.

     SEC. 934. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS ARE 
                   NOT EMPLOYEES.

       (a) In General.--Chapter 25 (general provisions relating to 
     employment taxes) is amended by adding after section 3510 the 
     following new section:

     ``SEC. 3511. STANDARDS FOR DETERMINING WHETHER INDIVIDUALS 
                   ARE NOT EMPLOYEES.

       ``(a) General Rule.--For purposes of this title, and 
     notwithstanding any provision of this title to the contrary, 
     if the requirements of subsections (b), (c), and (d) are met 
     with respect to any service performed by any individual, then 
     with respect to such service--
       ``(1) the service provider shall not be treated as an 
     employee,
       ``(2) the service recipient shall not be treated as an 
     employer, and
       ``(3) the payor shall not be treated as an employer.
       ``(b) Service Provider Requirements With Regard to Service 
     Recipient.--For the purposes of subsection (a), the 
     requirements of this subsection are met if the service 
     provider, in connection with performing the service--
       ``(1) has a significant investment in assets and/or 
     training,
       ``(2) incurs significant unreimbursed expenses,
       ``(3) agrees to perform the service for a particular amount 
     of time or to complete a specific result and is liable for 
     damages for early termination without cause,
       ``(4) is paid primarily on a commissioned basis, or
       ``(5) purchases products for resale.
       ``(c) Additional Service Provider Requirements With Regard 
     to Others.--For the purposes of subsection (a), the 
     requirements of this subsection are met if--
       ``(1) the service provider--
       ``(A) has a principal place of business,
       ``(B) does not primarily provide the service in the service 
     recipient's place of business, or
       ``(C) pays a fair market rent for use of the service 
     recipient's place of business; or
       ``(2) the service provider--
       ``(A) is not required to perform service exclusively for 
     the service recipient, and
       ``(B) in the year involved, or in the preceding or 
     subsequent year--
       ``(i) has performed a significant amount of service for 
     other persons,
       ``(ii) has offered to perform service for other persons 
     through--

       ``(I) advertising,
       ``(II) individual written or oral solicitations,
       ``(III) listing with registries, agencies, brokers, and 
     other persons in the business of providing referrals to other 
     service recipients, or
       ``(IV) other similar activities, or

       ``(iii) provides service under a business name which is 
     registered with (or for which a license has been obtained 
     from) a State, a political subdivision of a State, or any 
     agency or instrumentality of 1 or more States or political 
     subdivisions.
       ``(d) Written Document Requirements.--For purposes of 
     subsection (a), the requirements of this subsection are met 
     if the services performed by the individual are performed 
     pursuant to a written contract between such individual and 
     the person for whom the services are performed, or the payor, 
     and such contract provides that the individual will not be 
     treated as an employee with respect to such services for 
     purposes of this subtitle or subtitle A.
       ``(e) Special Rules.--For purposes of this section--
       ``(1) If for any taxable year any service recipient or 
     payor fails to meet the applicable reporting requirements of 
     sections 6041(a), 6041A(a), or 6051 with respect to a service 
     provider, then, unless such failure is due to reasonable 
     cause and not willful neglect, this section shall not apply 
     in determining whether such service provider shall not be 
     treated as an employee of such service recipient or payor for 
     such year.
       ``(2) If the service provider is performing services 
     through an entity owned in whole or in part by such service 
     provider, then the references to `service provider' in 
     subsections (b) through (d) may include such entity, provided 
     that the written contract referred to in paragraph (1) of 
     subsection (d) may be with either the service provider or 
     such entity and need not be with both.
       ``(f) Definitions.--For the purposes of this section--
       ``(1) Service provider.--The term `service provider' means 
     any individual who performs service for another person.
       ``(2) Service recipient.--Except as provided in paragraph 
     (5), the term `service recipient' means the person for whom 
     the service provider performs such service.
       ``(3) Payor.--Except as provided in paragraph (5), the term 
     `payor' means the person who pays the service provider for 
     the performance of such service in the event that the service 
     recipients do not pay the service provider.
       ``(4) In connection with performing the service.--The term 
     `in connection with performing the service' means in 
     connection or related to--
       ``(A) the actual service performed by the service provider 
     for the service recipients or for other persons for whom the 
     service provider has performed similar service, or
       ``(B) the operation of the service provider's trade or 
     business.
       ``(5) Exceptions.--The terms `service recipient' and 
     `payor' do not include any entity which is owned in whole or 
     in part by the service provider.''.
       (b) Clerical Amendment.--The table of sections for chapter 
     25 is amended by adding at the end the following new item:


[[Page H4730]]


``Sec. 3511. Standards for determining whether individuals are not 
              employees.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to services performed after December 31, 1997.
          Subtitle E--Provisions Relating to Small Businesses

     SEC. 941. WAIVER OF PENALTY THROUGH 1998 ON SMALL BUSINESSES 
                   FAILING TO MAKE ELECTRONIC FUND TRANSFERS OF 
                   TAXES.

       No penalty shall be imposed under the Internal Revenue Code 
     of 1986 solely by reason of a failure by a person to use the 
     electronic fund transfer system established under section 
     6302(h) of such Code if--
       (1) such person is a member of a class of taxpayers first 
     required to use such system on or after July 1, 1997, and
       (2) such failure occurs before January 1, 1999.

     SEC. 942. CLARIFICATION OF TREATMENT OF HOME OFFICE USE FOR 
                   ADMINISTRATIVE AND MANAGEMENT ACTIVITIES.

       (a) In General.--Paragraph (1) of section 280A(c) is 
     amended by adding at the end the following new sentence: 
     ``For purposes of subparagraph (A), the term `principal place 
     of business' includes a place of business which is used by 
     the taxpayer for the administrative or management activities 
     of any trade or business of the taxpayer if there is no other 
     fixed location of such trade or business where the taxpayer 
     conducts substantial administrative or management activities 
     of such trade or business.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1997.
                      Subtitle F--Other Provisions

     SEC. 951. USE OF ESTIMATES OF SHRINKAGE FOR INVENTORY 
                   ACCOUNTING.

       (a) In General.--Section 471 (relating to general rule for 
     inventories) is amended by redesignating subsection (b) as 
     subsection (c) and by inserting after subsection (a) the 
     following new subsection:
       ``(b) Estimates of Inventory Shrinkage Permitted.--A method 
     of determining inventories shall not be deemed not to clearly 
     reflect income solely because it utilizes estimates of 
     inventory shrinkage that are confirmed by a physical count 
     only after the last day of the taxable year if--
       ``(1) the taxpayer normally does a physical count of 
     inventories at each location on a regular and consistent 
     basis, and
       ``(2) the taxpayer makes proper adjustments to such 
     inventories and to its estimating methods to the extent such 
     estimates are greater than or less than the actual 
     shrinkage.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (2) Coordination with section 481.--In the case of any 
     taxpayer permitted by this section to change its method of 
     accounting to a permissible method 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 period for taking into account the adjustments 
     under section 481 by reason of such change shall be 4 years.

     SEC. 952. ASSIGNMENT OF WORKMEN'S COMPENSATION LIABILITY 
                   ELIGIBLE FOR EXCLUSION RELATING TO PERSONAL 
                   INJURY LIABILITY ASSIGNMENTS.

       (a) In General.--Subsection (c) of section 130 (relating to 
     certain personal injury liability assignments) is amended--
       (1) by inserting ``, or as compensation under any workmen's 
     compensation act,'' after ``(whether by suit or agreement)'' 
     in the material preceding paragraph (1),
       (2) by inserting ``or the workmen's compensation claim,'' 
     after ``agreement,'' in paragraph (1), and
       (3) by striking ``section 104(a)(2)'' in paragraph (2)(D) 
     and inserting ``paragraph (1) or (2) of section 104(a)''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to claims under workmen's compensation acts filed 
     after the date of the enactment of this Act.

     SEC. 953. TAX-EXEMPT STATUS FOR CERTAIN STATE WORKER'S 
                   COMPENSATION ACT COMPANIES.

       (a) In General.--Section 501(c)(27) (relating to membership 
     organizations under workmen's compensation acts) is amended 
     by adding at the end the following:
       ``(B) Any organization (including a mutual insurance 
     company) if--
       ``(i) such organization is created by State law and is 
     organized and operated under State law exclusively to--
       ``(I) provide workmen's compensation insurance which is 
     required by State law or with respect to which State law 
     provides significant disincentives if such insurance is not 
     purchased by an employer, and
       ``(II) provide related coverage which is incidental to 
     workmen's compensation insurance,
       ``(ii) such organization must provide workmen's 
     compensation insurance to any employer in the State (for 
     employees in the State or temporarily assigned out-of-State) 
     which seeks such insurance and meets other reasonable 
     requirements relating thereto,
       ``(iii)(I) the State makes a financial commitment with 
     respect to such organization either by extending the full 
     faith and credit of the State to debt of such organization or 
     by providing the initial operating capital of such 
     organization and (II) in the case of periods after the date 
     of enactment of this subparagraph, the assets of such 
     organization revert to the State upon dissolution, and
       ``(iv) the majority of the board of directors or oversight 
     body of such organization are appointed by the chief 
     executive officer or other executive branch official of the 
     State, by the State legislature, or by both.''.
       (b) Conforming Amendments.--Section 501(c)(27) of such Code 
     is amended by inserting ``(A)'' after ``(27)'', by 
     redesignating subparagraphs (A), (B), and (C) as clauses (i), 
     (ii), and (iii), respectively, and by redesignating clauses 
     (i) and (ii) of subparagraphs (B) and (C) (before 
     redesignation) as subclauses (I) and (II), respectively.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 954. ELECTION TO CONTINUE EXCEPTION FROM TREATMENT OF 
                   PUBLICLY TRADED PARTNERSHIPS AS CORPORATIONS.

       (a) In General.--Section 7704 is amended by adding at the 
     end thereof the following new subsection:
       ``(g) Exception for Existing Publicly Traded 
     Partnerships.--
       ``(1) In general.--Subsection (a) shall not apply to an 
     existing publicly traded partnership which elects the 
     application of this subsection and consents to the 
     application of the tax imposed by paragraph (3).
       ``(2) Existing publicly traded partnership.--For purposes 
     of this section, the term `existing publicly traded 
     partnership' means any publicly traded partnership to which 
     subsection (a) does not apply as of the date of the enactment 
     of this paragraph (other than by reason of subsection 
     (c)(1)).
       ``(3) Additional tax on electing publicly traded 
     partnerships.--
       ``(A) Imposition of tax.--There is hereby imposed for each 
     taxable year on the income of every electing publicly traded 
     partnership a tax equal to 15 percent of the gross income for 
     such taxable year from the active conduct of trades and 
     businesses by the partnership.
       ``(B) Electing publicly traded partnership.--For purposes 
     of this paragraph, the term `electing publicly traded 
     partnership' means any partnership for which the consent 
     under paragraph (1) is in effect.
       ``(C) Adjustments in the case of tiered partnerships.--For 
     purposes of this paragraph, if the income of the partnership 
     includes its distributive share of income from another 
     partnership for any taxable year, the gross income referred 
     to in subparagraph (A) shall include the gross income of such 
     other partnership from the active conduct of trades and 
     businesses of such other partnership (in lieu of such 
     distributive share). A similar rule shall apply in the case 
     of lower-tiered partnerships.
       ``(D) Treatment of tax.--For purposes of this title, the 
     tax imposed by this paragraph shall be treated as imposed by 
     chapter 1 other than for purposes of determining the amount 
     of any credit allowable under chapter 1.
       ``(4) Election.--An election and consent under this 
     subsection shall apply to the taxable year for which made and 
     all subsequent taxable years unless revoked by the 
     partnership. Such revocation may be made without the consent 
     of the Secretary, but, once so revoked, may not be 
     reinstated.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 955. EXCLUSION FROM UNRELATED BUSINESS TAXABLE INCOME 
                   FOR CERTAIN SPONSORSHIP PAYMENTS.

       (a) In General.--Section 513 (relating to unrelated trade 
     or business income) is amended by adding at the end the 
     following new subsection:
       ``(i) Treatment of Certain Sponsorship Payments.--
       ``(1) In general.--The term `unrelated trade or business' 
     does not include the activity of soliciting and receiving 
     qualified sponsorship payments.
       ``(2) Qualified sponsorship payments.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified sponsorship payment' 
     means any payment made by any person engaged in a trade or 
     business with respect to which there is no arrangement or 
     expectation that such person will receive any substantial 
     return benefit other than the use or acknowledgement of the 
     name or logo (or product lines) of such person's trade or 
     business in connection with the activities of the 
     organization that receives such payment. Such a use or 
     acknowledgement does not include advertising such person's 
     products or services (including messages containing 
     qualitative or comparative language, price information or 
     other indications of savings or value, an endorsement, or an 
     inducement to purchase, sell, or use such products or 
     services).
       ``(B) Limitations.--
       ``(i) Contingent payments.--The term `qualified sponsorship 
     payment' does not include any payment if the amount of such 
     payment is contingent upon the level of attendance at one or 
     more events, broadcast ratings, or other factors indicating 
     the degree of public exposure to one or more events.
       ``(ii) Acknowledgements or advertising in periodicals.--The 
     term `qualified sponsorship payment' does not include any 
     payment which entitles the payor to an acknowledgement or 
     advertising in regularly scheduled and printed material 
     published by

[[Page H4731]]

     or on behalf of the payee organization that is not related to 
     and primarily distributed in connection with a specific event 
     conducted by the payee organization.
       ``(3) Allocation of portions of single payment.--For 
     purposes of this subsection, to the extent that a portion of 
     a payment would (if made as a separate payment) be a 
     qualified sponsorship payment, such portion of such payment 
     and the other portion of such payment shall be treated as 
     separate payments.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments solicited or received after December 
     31, 1997.

     SEC. 956. ASSOCIATIONS OF HOLDERS OF TIMESHARE INTERESTS TO 
                   BE TAXED LIKE OTHER HOMEOWNERS ASSOCIATIONS.

       (a) Timeshare Associations Included as Homeowner 
     Associations.--
       (1) In general.--Paragraph (1) of section 528(c) (defining 
     homeowners association) is amended--
       (A) by striking ``or a residential real estate management 
     association'' and inserting ``, a residential real estate 
     management association, or a timeshare association'' in the 
     material preceding subparagraph (A),
       (B) by striking ``or'' at the end of clause (i) of 
     subparagraph (B), by striking the period at the end of clause 
     (ii) of subparagraph (B) and inserting ``, or'', and by 
     adding at the end of subparagraph (B) the following new 
     clause:
       ``(iii) owners of timeshare rights to use, or timeshare 
     ownership interests in, association property in the case of a 
     timeshare association,'', and
       (C) by inserting ``and, in the case of a timeshare 
     association, for activities provided to or on behalf of 
     members of the association'' before the comma at the end of 
     subparagraph (C).
       (2) Timeshare association defined.--Subsection (c) of 
     section 528 is amended by redesignating paragraph (4) as 
     paragraph (5) and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) Timeshare association.--The term `timeshare 
     association' means any organization (other than a condominium 
     management association) meeting the requirement of 
     subparagraph (A) of paragraph (1) if any member thereof holds 
     a timeshare right to use, or a timeshare ownership interest 
     in, real property constituting association property.''.
       (b) Exempt Function Income.--Paragraph (3) of section 
     528(d) is amended by striking ``or'' at the end of 
     subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, or'', and by adding at the 
     end the following new subparagraph:
       ``(C) owners of timeshare rights to use, or timeshare 
     ownership interests in, real property in the case of a 
     timeshare association.''.
       (c) Rate of Tax.--Subsection (b) of section 528 (relating 
     to certain homeowners associations) is amended by inserting 
     before the period ``(32 percent of such income in the case of 
     a timeshare association)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 957. ADDITIONAL ADVANCE REFUNDING OF CERTAIN VIRGIN 
                   ISLAND BONDS.

       Subclause (I) of section 149(d)(3)(A)(i) of the Internal 
     Revenue Code of 1986 shall not apply to the second advance 
     refunding of any issue of the Virgin Islands which was first 
     advance refunded before June 9, 1997, if the debt provisions 
     of the refunding bonds are changed to repeal the priority 
     first lien requirement of the refunded bonds.

     SEC. 958. NONRECOGNITION OF GAIN ON SALE OF STOCK TO CERTAIN 
                   FARMERS' COOPERATIVES.

       (a) In General.--Section 1042 (relating to sales of stock 
     to employee stock ownership plans or certain cooperatives) is 
     amended by adding at the end the following new subsection:
       ``(g) Application of Section to Sales of Stock in 
     Agricultural Refiners and Processors to Eligible Farm 
     Cooperatives.--
       ``(1) In general.--This section shall apply to the sale of 
     stock of a qualified refiner or processor to an eligible 
     farmers' cooperative.
       ``(2) Qualified refiner or processor.--For purposes of this 
     subsection, the term `qualified refiner or processor' means a 
     domestic corporation--
       ``(A) substantially all of the activities of which consist 
     of the active conduct of the trade or business of refining or 
     processing agricultural or horticultural products, and
       ``(B) which purchases more than one-half of such products 
     to be refined or processed from--
       ``(i) farmers who make up the eligible farmers' cooperative 
     which is purchasing stock in the corporation in a transaction 
     to which this subsection is to apply, and
       ``(ii) such cooperative.
       ``(3) Eligible farmers' cooperative.--For purposes of this 
     section, the term `eligible farmers' cooperative' means an 
     organization to which part I of subchapter T applies which is 
     engaged in the marketing of agricultural or horticultural 
     products.
       ``(4) Special rules.--In applying this section to a sale to 
     which paragraph (1) applies--
       ``(A) the eligible farmers' cooperative shall be treated in 
     the same manner as a cooperative described in subsection 
     (b)(1)(B),
       ``(B) subsection (b)(2) shall be applied by substituting 
     `100 percent' for `30 percent' each place it appears,
       ``(C) the determination as to whether any stock in the 
     domestic corporation is a qualified security shall be made 
     without regard to whether the stock is an employer security 
     or to subsection (c)(1)(A), and
       ``(D) paragraphs (2)(D) and (7) of subsection (c) shall not 
     apply.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales after December 31, 1997.

     SEC. 959. EXCEPTION FROM REPORTING OF REAL ESTATE 
                   TRANSACTIONS FOR SALES AND EXCHANGES OF CERTAIN 
                   PRINCIPAL RESIDENCES.

       (a) In General.--Subsection (e) of section 6045 (relating 
     to return required in the case of real estate transactions) 
     is amended by adding at the end the following new paragraph:
       ``(5) Exception for sales or exchanges of certain principal 
     residences.--
       ``(A) In general.--Paragraph (1) shall not apply to any 
     sale or exchange of a residence for $250,000 or less if the 
     person referred to in paragraph (2)(A) receives written 
     assurance in a form acceptable to the Secretary from the 
     seller that--
       ``(i) such residence is the principal residence (within the 
     meaning of section 121) of the seller,
       ``(ii) there is no federally subsidized mortgage financing 
     assistance with respect to the mortgage on such residence, 
     and
       ``(iii) the seller meets the requirements of section 121(a) 
     with respect to such sale or exchange.

     If such assurance includes an assurance that the seller is 
     married, the preceding sentence shall be applied by 
     substituting `$500,000' for `$250,000'.
       ``(B) Seller.--For purposes of this paragraph, the term 
     `seller' includes the person relinquishing the residence in 
     an exchange.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to sales and exchanges after the date of the 
     enactment of this Act.

     SEC. 960. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES 
                   FOR INDIVIDUALS SUBJECT TO FEDERAL HOURS OF 
                   SERVICE.

       (a) In General.--Section 274(n) (relating to only 50 
     percent of meal and entertainment expenses allowed as 
     deduction) is amended by adding at the end the following new 
     paragraph:
       ``(3) Special rule for individuals subject to federal hours 
     of service.--
       ``(A) In general.--In the case of any expenses for food or 
     beverages consumed while away from home (within the meaning 
     of section 162(a)(2)) by an individual during, or incident 
     to, the period of duty subject to the hours of service 
     limitations of the Department of Transportation, paragraph 
     (1) shall be applied by substituting `the applicable 
     percentage' for `50 percent'.
       ``(B) Applicable percentage.--For purposes of this 
     paragraph, the term `applicable percentage' means the 
     percentage determined under the following table:

``For taxable years beginning                            The applicable
  in calendar year--                                    percentage is--
  1998 or 1999..................................................55 ....

  2000 or 2001..................................................60 ....

  2002 or 2003..................................................65 ....

  2004 or 2005..................................................70 ....

  2006 or 2007..................................................75 ....

  2008 or thereafter.........................................80.''.....

       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 961. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR SHORT-
                   TERM LEASES.

       (a) In General.--Part III of subchapter B of chapter 1 is 
     amended by inserting after section 109 the following new 
     section:

     ``SEC. 110. QUALIFIED LESSEE CONSTRUCTION ALLOWANCES FOR 
                   SHORT-TERM LEASES.

       ``(a) In General.--Gross income of a lessee does not 
     include any amount received in cash (or treated as a rent 
     reduction) by a lessee from a lessor--
       ``(1) under a short-term lease of retail space, and
       ``(2) for the purpose of such lessee's constructing or 
     improving qualified long-term real property for use in such 
     lessee's trade or business at such retail space,

     but only to the extent that such amount does not exceed the 
     amount expended by the lessee for such construction or 
     improvement.
       ``(b) Consistent Treatment by Lessor.--Qualified long-term 
     real property constructed or improved in connection with any 
     amount excluded from a lessee's income by reason of 
     subsection (a) shall be treated as nonresidential real 
     property by the lessor.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Qualified long-term real property.--The term 
     `qualified long-term real property' means nonresidential real 
     property which is part of, or otherwise present at, the 
     retail space referred to in subsection (a) and which reverts 
     to the lessor at the termination of the lease.
       ``(2) Short-term lease.--The term `short-term lease' means 
     a lease (or other agreement for occupancy or use) of retail 
     space for 15 years or less (as determined under the rules of 
     section 168(i)(3)).
       ``(3) Retail space.--The term `retail space' means real 
     property leased, occupied, or otherwise used by a lessee in 
     its trade or business of selling tangible personal property 
     or services to the general public.

[[Page H4732]]

       ``(d) Information Required To Be Furnished to Secretary.--
     Under regulations, the lessee and lessor described in 
     subsection (a) shall, at such times and in such manner as may 
     be provided in such regulations, furnish to the Secretary--
       ``(1) information concerning the amounts received (or 
     treated as a rent reduction) and expended as described in 
     subsection (a), and
       ``(2) any other information which the Secretary deems 
     necessary to carry out the provisions of this section.''.
       (b) Treatment as Information Return.--Subparagraph (A) of 
     section 6724(d)(1)(A) is amended by striking ``or'' at the 
     end of clause (vii), by adding ``or'' at the end of clause 
     (viii), and by adding at the end the following new clause:
       ``(ix) section 110(d) (relating to qualified lessee 
     construction allowances for short-term leases),''.
       (c) Cross Reference.--Paragraph (8) of section 168(i) 
     (relating to treatment of leasehold improvements) is amended 
     by adding at the end the following new subparagraph:
       ``(C) Cross reference.--

  ``For treatment of qualified long-term real property constructed or 
improved in connection with cash or rent reduction from lessor to 
lessee, see section 110(b).''.

       (d) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 109 the following new item:

``Sec. 110. Qualified lessee construction allowances for short-term 
              leases.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to leases entered into after the date of the 
     enactment of this Act.

     SEC. 962. TAX TREATMENT OF CONSOLIDATIONS OF LIFE INSURANCE 
                   DEPARTMENTS OF MUTUAL SAVINGS BANKS.

       (a) General Rule.--Section 594 (relating to alternative tax 
     for mutual savings banks conducting life insurance business) 
     is amended by adding at the end thereof the following new 
     subsection:
       ``(c) Treatment of Consolidations.--If 2 or more life 
     insurance departments to which subsection (a) applied are 
     consolidated into a single life insurance company pursuant to 
     a requirement of State law--
       ``(1) such consolidation shall be treated as a 
     reorganization described in section 368(a)(1)(E), and
       ``(2) any payments required to be made to policyholders in 
     connection with such consolidation shall be treated as 
     policyholder dividends deductible under section 808 but only 
     if--
       ``(A) such payments are only with respect to policies in 
     effect immediately before such consolidation,
       ``(B) such payments are only with respect to policies which 
     are participating before and after such consolidation,
       ``(C) such payments shall cease with respect to any policy 
     if such policy lapses after such consolidation,
       ``(D) the policyholders before such consolidation had no 
     divisible right to the surplus of any such department and had 
     no right to vote, and
       ``(E) the approval of such policyholders was not required 
     for such consolidation.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on December 31, 1991.

     SEC. 963. OFFSET OF PAST-DUE, LEGALLY ENFORCEABLE STATE TAX 
                   OBLIGATIONS AGAINST OVERPAYMENTS.

       (a) In General.--Section 6402 is amended by redesignating 
     subsections (e) through (i) as subsections (f) through (j), 
     respectively, and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Collection of Past-Due, Legally Enforceable State Tax 
     Obligations.--
       ``(1) In general.--Upon receiving notice from any State 
     that a named person owes a past-due, legally enforceable 
     State tax obligation to such State, the Secretary shall, 
     under such conditions as may be prescribed by the Secretary--
       ``(A) reduce the amount of any overpayment payable to such 
     person by the amount of such State tax obligation;
       ``(B) pay the amount by which such overpayment is reduced 
     under subparagraph (A) to such State and notify such State of 
     such person's name, taxpayer identification number, address, 
     and the amount collected; and
       ``(C) notify the person making such overpayment that the 
     overpayment has been reduced by an amount necessary to 
     satisfy a past-due, legally enforceable State tax obligation.

     If an offset is made pursuant to a joint return, the notice 
     under subparagraph (B) shall include the names, taxpayer 
     identification numbers, and addresses of each person filing 
     such return.
       ``(2) Offset permitted only against residents of state 
     seeking offset.--Paragraph (1) shall apply to an overpayment 
     by any person for a taxable year only if the address shown on 
     the return for such taxable year is an address within the 
     State seeking the offset.
       ``(3) Priorities for offset.--Any overpayment by a person 
     shall be reduced pursuant to this subsection--
       ``(A) after such overpayment is reduced pursuant to--
       ``(i) subsection (a) with respect to any liability for any 
     internal revenue tax on the part of the person who made the 
     overpayment,
       ``(ii) subsection (c) with respect to past-due support, and
       ``(iii) subsection (d) with respect to any past-due, 
     legally enforceable debt owed to a Federal agency, and
       ``(B) before such overpayment is credited to the future 
     liability for any Federal internal revenue tax of such person 
     pursuant to subsection (b).

     If the Secretary receives notice from 1 or more agencies of 
     the State of more than 1 debt subject to paragraph (1) that 
     is owed by such person to such an agency, any overpayment by 
     such person shall be applied against such debts in the order 
     in which such debts accrued.
       ``(4) Notice; consideration of evidence.--No State may take 
     action under this subsection until such State--
       ``(A) notifies the person owing the past-due State tax 
     liability that the State proposes to take action pursuant to 
     this section,
       ``(B) gives such person at least 60 days to present 
     evidence that all or part of such liability is not past-due 
     or not legally enforceable,
       ``(C) considers any evidence presented by such person and 
     determines that an amount of such debt is past-due and 
     legally enforceable, and
       ``(D) satisfies such other conditions as the Secretary may 
     prescribe to ensure that the determination made under 
     subparagraph (C) is valid and that the State has made 
     reasonable efforts to obtain payment of such State tax 
     obligation.
       ``(5) Past-due, legally enforceable state tax obligation.--
     For purposes of this subsection, the term `past-due, legally 
     enforceable State tax obligation' means a debt--
       ``(A)(i) which resulted from--
       ``(I) a judgment rendered by a court of competent 
     jurisdiction which has determined an amount of State tax to 
     be due, or
       ``(II) a determination after an administrative hearing 
     which has determined an amount of State tax to be due, and
       ``(ii) which is no longer subject to judicial review, or
       ``(B) which resulted from a State tax which has been 
     assessed but not collected, the time for redetermination of 
     which has expired, and which has not been delinquent for more 
     than 10 years.

     For purposes of this paragraph, the term `State tax' includes 
     any local tax administered by the chief tax administration 
     agency of the State.
       ``(6) Regulations.--The Secretary shall issue regulations 
     prescribing the time and manner in which States must submit 
     notices of past-due, legally enforceable State tax 
     obligations and the necessary information that must be 
     contained in or accompany such notices. The regulations shall 
     specify the types of State taxes and the minimum amount of 
     debt to which the reduction procedure established by 
     paragraph (1) may be applied. The regulations may require 
     States to pay a fee to reimburse the Secretary for the cost 
     of applying such procedure. Any fee paid to the Secretary 
     pursuant to the preceding sentence shall be used to reimburse 
     appropriations which bore all or part of the cost of applying 
     such procedure.
       ``(7) Erroneous payment to state.--Any State receiving 
     notice from the Secretary that an erroneous payment has been 
     made to such State under paragraph (1) shall pay promptly to 
     the Secretary, in accordance with such regulations as the 
     Secretary may prescribe, an amount equal to the amount of 
     such erroneous payment (without regard to whether any other 
     amounts payable to such State under such paragraph have been 
     paid to such State).''.
       (b) Disclosure of Certain Information to States Requesting 
     Refund Offsets for Past-Due, Legally Enforceable State Tax 
     Obligations.--
       (1) Paragraph (10) of section 6103(l) is amended by 
     striking ``(c) or (d)'' each place it appears and inserting 
     ``(c), (d), or (e)''.
       (2) The paragraph heading for such paragraph (10) is 
     amended by striking ``section 6402(c) or 6402(d)'' and 
     inserting ``subsection (c), (d), or (e) of section 6402''.
       (c) Conforming Amendments.--
       (1) Subsection (a) of section 6402 is amended by striking 
     ``(c) and (d)'' and inserting ``(c), (d), and (e)''.
       (2) Paragraph (2) of section 6402(d) is amended by striking 
     ``and before such overpayment'' and inserting ``and before 
     such overpayment is reduced pursuant to subsection (e) and 
     before such overpayment''.
       (3) Subsection (f) of section 6402, as redesignated by 
     subsection (a), is amended--
       (A) by striking ``(c) or (d)'' and inserting ``(c), (d), or 
     (e)'', and
       (B) by striking ``Federal agency'' and inserting ``Federal 
     agency or State''.
       (4) Subsection (h) of section 6402, as redesignated by 
     subsection (a), is amended by striking ``subsection (c)'' and 
     inserting ``subsection (c) or (e)''.
       (d) Amendments Applied After Technical Corrections to 
     Personal Responsibility and Work Opportunity Reconciliation 
     Act of 1996.--
       (1) Section 110(l) of the Personal Responsibility and Work 
     Opportunity Reconciliation Act of 1996 is amended by striking 
     paragraphs (4), (5), and (7) (and the amendments made by such 
     paragraphs), and the Internal Revenue Code of 1986 shall be 
     applied as if such paragraphs (and amendments) had never been 
     enacted.

[[Page H4733]]

       (2) For purposes of applying the amendments made by this 
     section other than this subsection, the provisions of this 
     subsection shall be treated as having been enacted 
     immediately before the other provisions of this section.
       (e) Effective Date.--The amendments made by this section 
     (other than subsection (d)) shall apply to refunds payable 
     under section 6402 of the Internal Revenue Code of 1986 after 
     December 31, 1998.

     SEC. 964. EXEMPTION OF THE INCREMENTAL COST OF A CLEAN FUEL 
                   VEHICLE FROM THE LIMITS ON DEPRECIATION FOR 
                   VEHICLES.

       (a) In General.--Section 280F(a)(1) (relating to limiting 
     depreciation on luxury automobiles) is amended by adding at 
     the end the following new subparagraph:
       ``(C) Special rule for certain clean-fuel passenger 
     automobiles.--
       ``(i) Modified automobiles.--In the case of a passenger 
     automobile which is propelled by a fuel which is not a clean-
     burning fuel to which is installed qualified clean-fuel 
     vehicle property (as defined in section 179A(c)(1)(A)) for 
     purposes of permitting such vehicle to be propelled by a 
     clean burning fuel (as defined in section 179A(e)(1)), 
     subparagraph (A) shall not apply to the cost of the installed 
     qualified clean burning vehicle property as depreciated 
     pursuant to section 168 by applying the rules under 
     subsections (b)(1), (d)(1), and (e)(3)(B) thereof.
       ``(ii) Purpose built passenger vehicles.--In the case of a 
     purpose built passenger vehicle (as defined in section 
     4001(a)(2)(C)(ii)), each of the annual limitations specified 
     in subparagraph (A) shall be tripled.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to property placed in service on or after the 
     date of enactment of this Act and before January 1, 2005.

     SEC. 965. TAX BENEFITS FOR LAW ENFORCEMENT OFFICERS KILLED IN 
                   THE LINE OF DUTY.

       (a) In General.--Part III of subchapter B of chapter 1 
     (relating to items specifically excluded from gross income) 
     is amended by redesignating section 138 as section 139 and by 
     inserting after section 137 the following new section:

     ``SEC. 138. SURVIVOR BENEFITS ATTRIBUTABLE TO SERVICE BY A 
                   LAW ENFORCEMENT OFFICER WHO IS KILLED IN THE 
                   LINE OF DUTY.

       ``(a) In General.--Gross income shall not include any 
     amount paid as a survivor annuity on account of the death of 
     a law enforcement officer killed in the line of duty--
       ``(1) if such annuity is provided under a governmental plan 
     which meets the requirements of section 401(a) to the spouse 
     (or a former spouse) of the law enforcement officer or to a 
     child of such officer, and
       ``(2) to the extent such annuity is attributable to such 
     officer's service as a law enforcement officer.
       ``(b) Exceptions.--
       ``(1) In general.--Subsection (a) shall not apply with 
     respect to the death of any law enforcement officer if--
       ``(A) the death was caused by the intentional misconduct of 
     the officer or by such officer's intention to bring about 
     such officer's death,
       ``(B) the officer was voluntarily intoxicated (as defined 
     in section 1204 of the Omnibus Crime Control and Safe Streets 
     Act of 1968) at the time of death, or
       ``(C) the officer was performing such officer's duties in a 
     grossly negligent manner at the time of death.
       ``(2) Exception for benefits paid to certain individuals.--
     Subsection (a) shall not apply to any payment to an 
     individual whose actions were a substantial contributing 
     factor to the death of the officer.
       ``(c) Law Enforcement Officer.--For purposes of this 
     section, the term `law enforcement officer' means an 
     individual serving a public agency (as defined in section 
     1204 of the Omnibus Crime Control and Safe Streets Act of 
     1968) in an official capacity, with or without compensation, 
     as a law enforcement officer (as defined in such section).''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 138. Survivor benefits attributable to service by a law 
              enforcement officer who is killed in the line of duty.
``Sec. 139. Cross references to other Acts.''.

       (c) Effective Date.--The amendments made by this subsection 
     shall apply to amounts received in taxable years beginning 
     after December 31, 1996, with respect to individuals dying 
     after such date.

     SEC. 966. TEMPORARY SUSPENSION OF TAXABLE INCOME LIMIT ON 
                   PERCENTAGE DEPLETION FOR MARGINAL PRODUCTION.

       In the case of taxable years beginning after December 31, 
     1997, and before January 1, 2000, paragraph (1) of section 
     613A(d) of the Internal Revenue Code of 1986 shall not apply 
     to so much of the allowance for depletion computed under 
     section 613A(c) of such Code as is attributable to paragraph 
     (6) thereof.
 Subtitle G--Extension of Duty-Free Treatment Under Generalized System 
  of Preferences; Tariff Treatment of Certain Equipment and Repair of 
                                Vessels

     SEC. 971. GENERALIZED SYSTEM OF PREFERENCES.

       (a) Extension of Duty-Free Treatment Under System.--Section 
     505 of the Trade Act of 1974 (19 U.S.C. 2465) is amended by 
     striking ``May 31, 1997'' and inserting ``May 31, 1999''.
       (b) Retroactive Application for Certain Liquidations and 
     Reliquidations.--
       (1) In general.--Notwithstanding section 514 of the Tariff 
     Act of 1930 or any other provision of law and subject to 
     paragraph (2), the entry--
       (A) of any article to which duty-free treatment under title 
     V of the Trade Act of 1974 would have applied if the entry 
     had been made on May 31, 1997, and
       (B) that was made after May 31, 1997, and before the date 
     of the enactment of this Act,

     shall be liquidated or reliquidated as free of duty, and the 
     Secretary of the Treasury shall refund any duty paid with 
     respect to such entry. As used in this subsection, the term 
     ``entry'' includes a withdrawal from warehouse for 
     consumption.
       (2) Requests.--Liquidation or reliquidation may be made 
     under paragraph (1) with respect to an entry only if a 
     request therefor is filed with the Customs Service, within 
     180 days after the date of the enactment of this Act, that 
     contains sufficient information to enable the Customs 
     Service--
       (A) to locate the entry; or
       (B) to reconstruct the entry if it cannot be located.

     SEC. 972. EQUIPMENT AND REPAIR OF VESSELS.

       (a) Tariff Treatment.--Section 466 of the Tariff Act of 
     1930 (19 U.S.C. 1466), is amended by adding at the end the 
     following new subsection:
       ``(i)(1) The duty imposed by subsection (a) shall not apply 
     with respect to activities occurring in a Shipbuilding 
     Agreement Party, with respect to--
       ``(A) self-propelled seagoing vessels of 100 gross tons or 
     more that are used for transportation of goods or persons or 
     for performance of a specialized service (including, but not 
     limited to, ice breakers and dredges), and
       ``(B) tugs of 365 kilowatts or more.

     A vessel shall be considered `self-propelled seagoing' if its 
     permanent propulsion and steering provide it all the 
     characteristics of self-navigability in the high seas.
       ``(2) As used in this subsection--
       ``(A) the term `Shipbuilding Agreement Party' means a state 
     or separate customs territory that is a signatory to the 
     Shipbuilding Agreement; and
       ``(B) the term `Shipbuilding Agreement' means The Agreement 
     Respecting Normal Competitive Conditions in the Commercial 
     Shipbuilding and Repair Industry, resulting from negotiations 
     under the auspices of the Organization for Economic 
     Cooperation and Development, and entered into on December 21, 
     1994.''.
       (b) Applicability.--The amendment made by subsection (a) 
     applies only with respect to activities occurring in a 
     Shipbuilding Agreement Party (as defined in section 466(i) of 
     the Tariff Act of 1930) during the 1-year period beginning on 
     the date of the enactment of this Act.
    Subtitle H--United States-Caribbean Basin Trade Partnership Act

     SEC. 981. SHORT TITLE.

       This subtitle may be cited as the ``United States-Caribbean 
     Basin Trade Partnership Act''.

     SEC. 982. FINDINGS AND POLICY.

       (a) Findings.--The Congress makes the following findings:
       (1) The United States apparel industry is a major component 
     of the United States manufacturing sector of the United 
     States, employing nearly 825,000 people who are located in 
     every State in the country. The United States apparel 
     industry consumes 42 percent of the fabric produced by United 
     States textile mills, which employ more than 650,000 people.
       (2) In 1973 the United States apparel industry supplied 88 
     percent of the garments consumed by Americans, and in 1995 
     that share fell to less than 50 percent.
       (3) Countries in the Western Hemisphere offer the greatest 
     opportunities for increased exports of United States textile 
     and apparel products.
       (4) Given the greater propensity of countries located in 
     the Western Hemisphere to use United States components and to 
     purchase United States products compared to other countries, 
     increased trade and economic activity between the United 
     States and countries in the Western Hemisphere will create 
     new jobs in the United States as a result of expanding export 
     opportunities.
       (5) The Caribbean Basin Economic Recovery Act represents a 
     permanent commitment by the United States to encourage the 
     development of strong democratic governments and revitalized 
     economies in neighboring countries in the Caribbean Basin.
       (6) The economic security of the countries in the Caribbean 
     Basin is potentially threatened by the diversion of 
     investment to Mexico as a result of the North American Free 
     Trade Agreement.
       (7) Offering NAFTA equivalent benefits to Caribbean Basin 
     beneficiary countries, pending their eventual accession to 
     the NAFTA or a free trade agreement comparable to the NAFTA, 
     will promote the growth of free enterprise and economic 
     opportunity in the region, and thereby enhance the national 
     security interests of the United States.
       (b) Policy.--It is the policy of the United States--
       (1) to assure that the domestic textile and apparel 
     industry remains competitive in the global marketplace by 
     encouraging the formation and expansion of ``partnerships'' 
     between the textile and apparel industry of the

[[Page H4734]]

     United States and the textile and apparel industry of various 
     countries located in the Western Hemisphere; and
       (2) to offer to the products of Caribbean Basin partnership 
     countries tariffs and quota treatment equivalent to that 
     accorded to products of NAFTA countries, and to seek the 
     accession of these partnership countries to the NAFTA or a 
     free trade agreement comparable to the NAFTA at the earliest 
     possible date, with the goal of achieving full participation 
     in the NAFTA or in a free trade agreement comparable to the 
     NAFTA by all partnership countries by not later than January 
     1, 2005.

     SEC. 983. DEFINITIONS.

       As used in this Act:
       (1) Partnership country.--The term ``partnership country'' 
     means a beneficiary country as defined in section 
     212(a)(1)(A) of the Caribbean Basin Economic Recovery Act (19 
     U.S.C. 2702(a)(1)(A)).
       (2) NAFTA.--The term ``NAFTA'' means the North American 
     Free Trade Agreement entered into between the United States, 
     Mexico, and Canada on December 17, 1992.
       (3) Trade representative.--The term ``Trade 
     Representative'' means the United States Trade 
     Representative.
       (4) WTO and wto member.--The terms ``WTO'' and ``WTO 
     member'' have the meanings given those terms in section 2 of 
     the Uruguay Round Agreements Act (19 U.S.C. 3501).

     SEC. 984. TEMPORARY PROVISIONS TO PROVIDE NAFTA PARITY TO 
                   PARTNERSHIP COUNTRIES.

       (a) Temporary Provisions.--Section 213(b) of the Caribbean 
     Basin Economic Recovery Act (19 U.S.C. 2703(b)) is amended to 
     read as follows:
       ``(b) Import-Sensitive Articles.--
       ``(1) In general.--Subject to paragraphs (2) through (5), 
     the duty-free treatment provided under this title does not 
     apply to--
       ``(A) textile and apparel articles which are subject to 
     textile agreements;
       ``(B) footwear not designated at the time of the effective 
     date of this title as eligible articles for the purpose of 
     the generalized system of preferences under title V of the 
     Trade Act of 1974;
       ``(C) tuna, prepared or preserved in any manner, in 
     airtight containers;
       ``(D) petroleum, or any product derived from petroleum, 
     provided for in headings 2709 and 2710 of the HTS;
       ``(E) watches and watch parts (including cases, bracelets 
     and straps), of whatever type including, but not limited to, 
     mechanical, quartz digital, or quartz analog, if such watches 
     or watch parts contain any material which is the product of 
     any country with respect to which HTS column 2 rates of duty 
     apply; or
       ``(F) articles to which reduced rates of duty apply under 
     subsection (h).
       ``(2) NAFTA transition period treatment of certain textile 
     and apparel articles.--
       ``(A) Equivalent tariff and quota treatment.--During the 
     transition period--
       ``(i) the tariff treatment accorded at any time to any 
     textile or apparel article that originates in the territory 
     of a partnership country shall be identical to the tariff 
     treatment that is accorded at such time under section 2 of 
     the Annex to an article described in the same 8-digit 
     subheading of the HTS that is an originating good of Mexico 
     and is imported into the United States;
       ``(ii) duty-free treatment under this title shall apply to 
     any textile or apparel article that is imported into the 
     United States from a partnership country and that--

       ``(I) is assembled in a partnership country, from fabrics 
     wholly formed and cut in the United States from yarns formed 
     in the United States, and is entered--

       ``(aa) under subheading 9802.00.80 of the HTS; or
       ``(bb) under chapter 61 or 62 of the HTS if, after such 
     assembly, the article would have qualified for treatment 
     under subheading 9802.00.80 of the HTS, but for the fact the 
     article was subjected to bleaching, dyeing, stone-washing, 
     enzyme-washing, acid-washing, perma-pressing, or similar 
     processes or embroidery; or

       ``(II) is knit-to-shape in a partnership country from yarns 
     wholly formed in the United States;
       ``(III) is made from fabric knit in a partnership country 
     from yarns wholly formed in the United States;
       ``(IV) is cut and assembled in a partnership country from 
     yarns wholly formed in the United States; or
       ``(V) is identified under subparagraph (C) as a handloomed, 
     handmade, or folklore article of such country and is 
     certified as such by the competent authority of such country; 
     and

       ``(iii) no quantitative restriction under any bilateral 
     textile agreement may be applied to the importation into the 
     United States of any textile or apparel article that--

       ``(I) originates in the territory of a partnership country, 
     or
       ``(II) qualifies for duty-free treatment under subclause 
     (I), (II), (III), (IV), or (V) of clause (ii).

       ``(B) NAFTA transition period treatment of nonoriginating 
     textile and apparel articles.--
       ``(i) Preferential tariff treatment.--Subject to clause 
     (ii), the President may place in effect at any time during 
     the transition period with respect to any textile or apparel 
     article that--

       ``(I) is a product of a partnership country, but
       ``(II) does not qualify as a good that originates in the 
     territory of a partnership country,

     tariff treatment that is identical to the in-preference-level 
     tariff treatment accorded at such time under Appendix 6.B of 
     the Annex to an article described in the same 8-digit 
     subheading of the HTS that is a product of Mexico and is 
     imported into the United States. For purposes of this clause, 
     the `in-preference-level tariff treatment' accorded to an 
     article that is a product of Mexico is the rate of duty 
     applied to that article when imported in quantities less than 
     or equal to the quantities specified in Schedule 6.B.1, 
     6.B.2., or 6.B.3. of the Annex for imports of that article 
     from Mexico into the United States.
       ``(ii) Limitations on certain articles.--(I) Tariff 
     treatment under clause (i) may be extended, during any 
     calendar year, to not more than 45,000,000 square meter 
     equivalents of cotton or man-made fiber apparel, to not more 
     than 1,500,000 square meter equivalents of wool apparel, and 
     to not more than 25,000,000 square meter equivalents of goods 
     entered under subheading 9802.00.80 of the HTS.
       ``(II) Except as provided in subclause (III), the amounts 
     set forth in subclause (I) shall be allocated among the 7 
     partnership countries with the largest volume of exports to 
     the United States of textile and apparel goods in calendar 
     year 1996, based upon a pro rata share of the volume of 
     textile and apparel goods of each of those 7 countries that 
     entered the United States under subheading 9802.00.80 of the 
     HTS during the first 12 months of the 14-month period ending 
     on the date of the enactment of the United States-Caribbean 
     Basin Trade Partnership Act.
       ``(III) Five percent of the amounts set forth in subclause 
     (I) shall be allocated among the partnership countries, other 
     than those to which subclause (II) applies, based upon a pro 
     rata share of the exports to the United States of textile and 
     apparel goods of each of those countries during the first 12 
     months of the 14-month period ending on the date of the 
     enactment of the United States-Caribbean Basin Trade 
     Partnership Act.
       ``(iii) Prior consultation.--The President may implement 
     the preferential tariff treatment described in clause (i) 
     only after consultation with representatives of the United 
     States textile and apparel industry and other interested 
     parties regarding--

       ``(I) the specific articles to which such treatment will be 
     extended,
       ``(II) the annual quantities of such articles that may be 
     imported at the preferential duty rates described in clause 
     (i), and
       ``(III) the allocation of such annual quantities among 
     beneficiary countries.

       ``(C) Handloomed, handmade, and folklore articles.--For 
     purposes of subparagraph (A), the Trade Representative shall 
     consult with representatives of the partnership country for 
     the purpose of identifying particular textile and apparel 
     goods that are mutually agreed upon as being handloomed, 
     handmade, or folklore goods of a kind described in section 
     2.3 (a), (b), or (c) or Appendix 3.1.B.11 of the Annex.
       ``(D) Bilateral emergency actions.--(i) The President may 
     take--
       ``(I) bilateral emergency tariff actions of a kind 
     described in section 4 of the Annex with respect to any 
     textile or apparel article imported from a partnership 
     country if the application of tariff treatment under 
     subparagraph (A) to such article results in conditions that 
     would be cause for the taking of such actions under such 
     section 4 with respect to an article described in the same 8-
     digit subheading of the HTS that is imported from Mexico; or
       ``(II) bilateral emergency quantitative restriction actions 
     of a kind described in section 5 of the Annex with respect to 
     imports of any textile or apparel article described in 
     subparagraph (B)(i) (I) and (II) if the importation of such 
     article into the United States results in conditions that 
     would be cause for the taking of such actions under such 
     section 5 with respect to a like article that is a product of 
     Mexico.
       ``(ii) The requirement in paragraph (5) of section 4 of the 
     Annex (relating to providing compensation) shall not be 
     deemed to apply to a bilateral emergency action taken under 
     this subparagraph.
       ``(iii) For purposes of applying bilateral emergency action 
     under this subparagraph--
       ``(I) the term `transition period' in sections 4 and 5 of 
     the Annex shall be deemed to be the period defined in 
     paragraph (5)(D); and
       ``(II) any requirements to consult specified in section 4 
     or 5 of the Annex are deemed to be satisfied if the President 
     requests consultations with the partnership country in 
     question and the country does not agree to consult within the 
     time period specified in such section.
       ``(3) NAFTA transition period treatment of certain other 
     articles originating in beneficiary countries.--
       ``(A) Equivalent tariff treatment.--
       ``(i) In general.--Subject to clause (ii), the tariff 
     treatment accorded at any time during the transition period 
     to any article referred to in any of subparagraphs (B) 
     through (F) of paragraph (1) that originates in the territory 
     of a partnership country shall be identical to the tariff 
     treatment that is accorded at such time under Annex 302.2 of 
     the NAFTA to an article described in the same 8-digit 
     subheading of the HTS that is an originating good of Mexico 
     and is imported into the United States.
       ``(ii) Exception.--Clause (i) does not apply to any article 
     accorded duty-free treatment

[[Page H4735]]

     under U.S. Note 2(b) to subchapter II of chapter 98 of the 
     HTS.
       ``(B) Relationship to subsection (h) duty reductions.--If 
     at any time during the transition period the rate of duty 
     that would (but for action taken under subparagraph (A)(i) in 
     regard to such period) apply with respect to any article 
     under subsection (h) is a rate of duty that is lower than the 
     rate of duty resulting from such action, then such lower rate 
     of duty shall be applied for the purposes of implementing 
     such action.
       ``(4) Customs procedures.--
       ``(A) In general.--
       ``(i) The obligations under chapter 5 of the NAFTA 
     regarding customs procedures, as such obligations apply to 
     the exporting country, shall apply to importations under 
     paragraphs (2) and (3) of articles from partnership 
     countries.
       ``(ii) The Secretary of the Treasury shall prescribe 
     regulations that require, as a condition of entry, that any 
     importer of record that claims preferential treatment under 
     paragraph (2) or (3) must comply with requirements similar in 
     all material respects to the requirements of article 502.1 of 
     the NAFTA. The certificate of origin that otherwise would be 
     required under this subparagraph shall not be required in the 
     case of an article imported under paragraph (2) or (3) if 
     such certificate of origin would not be required under 
     article 503 of the NAFTA for a similar importation from 
     Mexico.
       ``(B) Penalties for engaging in transshipment or other 
     customs fraud.--If an exporter is determined under the laws 
     of the United States to have engaged in illegal transshipment 
     of textile or apparel products from a partnership country, 
     then the President shall deny all benefits under this title 
     to such exporter, and any successors of such exporter, for a 
     period of 2 years.
       ``(C) Study by USTR on Cooperation of Other Countries 
     Concerning Circumvention.--The Trade Representative, in 
     consultation with the United States Commissioner of Customs, 
     shall conduct a study analyzing the extent to which each 
     partnership country--
       ``(i) has cooperated fully with the United States, 
     consistent with its domestic laws and procedures, in 
     instances of circumvention or alleged circumvention of 
     existing quotas on imports of textile and apparel goods, to 
     establish necessary relevant facts in the places of import, 
     export, and, where applicable, transshipment, including 
     investigation of circumvention practices, exchanges of 
     documents, correspondence, reports, and other relevant 
     information, to the extent such information is available;
       ``(ii) has taken appropriate measures, consistent with its 
     domestic laws and procedures, against exporters and importers 
     involved in instances of false declaration concerning fiber 
     content, quantities, description, classification, or origin 
     of textile and apparel goods; and
       ``(iii) has penalized the individuals and entities involved 
     in any such circumvention, consistent with its domestic laws 
     and procedures, and has worked closely to seek the 
     cooperation of any third country to prevent such 
     circumvention from taking place in that third country.

     The Trade Representative shall submit to the Congress, not 
     later than October 1, 1998, a report on the study conducted 
     under this subparagraph.
       ``(5) Definitions.--For purposes of this subsection--
       ``(A) The term `the Annex' means Annex 300-B of the NAFTA.
       ``(B) The term `NAFTA' means the North American Free Trade 
     Agreement entered into between the United States, Mexico, and 
     Canada on December 17, 1992.
       ``(C) The term `partnership country' means a beneficiary 
     country.
       ``(D) The term `textile or apparel article' means any 
     article referred to in paragraph (1)(A) that is a good listed 
     in Appendix 1.1 of the Annex.
       ``(E) The term `transition period' means, with respect to a 
     partnership country, the period that begins on January 1, 
     1998, and ends on the earlier of--
       ``(i) December 31, 1998; or
       ``(ii) the date on which--

       ``(I) the United States first applies the NAFTA to the 
     partnership country upon its accession to the NAFTA, or
       ``(II) there enters into force with respect to the United 
     States and the partnership country a free trade agreement 
     comparable to the NAFTA that makes substantial progress in 
     achieving the negotiating objectives set forth in section 
     108(b)(5) of the North American Free Trade Agreement 
     Implementation Act (19 U.S.C. 3317(b)(5)).

       ``(F) An article shall be deemed as originating in the 
     territory of a partnership country if the article meets the 
     rules of origin for a good set forth in chapter 4 of the 
     NAFTA, and, in the case of an article described in Appendix 
     6.A of the Annex, the requirements stated in such Appendix 
     6.A for such article to be treated as if it were an 
     originating good. In applying such chapter 4 or Appendix 6.A 
     with respect to a partnership country for purposes of this 
     subsection--
       ``(i) no countries other than the United States and 
     partnership countries may be treated as being Parties to the 
     NAFTA,
       ``(ii) references to trade between the United States and 
     Mexico shall be deemed to refer to trade between the United 
     States and partnership countries, and
       ``(iii) references to a Party shall be deemed to refer to 
     the United States or a partnership country, and references to 
     the Parties shall be deemed to refer to any combination of 
     partnership countries or the United States.''.
       (b) Determination Regarding Retention of Designation.--
     Section 212(e)(1) of the Caribbean Basin Economic Recovery 
     Act (19 U.S.C. 2702(e)) is amended--
       (1) by inserting ``(A)'' after ``(1)'';
       (2) by redesignating subparagraphs (A) and (B) as clauses 
     (i) and (ii), respectively;
       (3) by adding at the end the following:
       ``(B)(i) Based on the President's review and analysis 
     described in subsection (f), the President may determine if 
     the preferential treatment under section 213(b)(2) and (3) 
     should be withdrawn, suspended, or limited with respect to 
     any article of a partnership country. Such determination 
     shall be included in the report required by subsection (f).
       ``(ii) Withdrawal, suspension, or limitation of the 
     preferential treatment under section 213(b)(2) and (3) with 
     respect to a partnership country shall be taken only after 
     the requirements of subsection (a)(2) and paragraph (2) of 
     this subsection have been met.''.
       (c) Reporting Requirements.--Section 212(f) of the 
     Caribbean Basin Economic Recovery Act (19 U.S.C. 2702(f)) is 
     amended to read as follows:
       ``(f) Reporting Requirements.--Not later than 1 year after 
     the date of the enactment of the United States-Caribbean 
     Basin Trade Partnership Act and at the close of each 3-year 
     period thereafter, the President shall submit to the Congress 
     a complete report regarding the operation of this title, 
     including--
       ``(1) with respect to subsections (b) and (c) of this 
     section, the results of a general review of beneficiary 
     countries based on the considerations described in such 
     subsections;
       ``(2) with respect to subsection (c)(4), the degree to 
     which a country follows accepted rules of international trade 
     provided for under the General Agreement on Tariffs and Trade 
     and the World Trade Organization;
       ``(3) with respect to subsection (c)(9), the extent to 
     which beneficiary countries are providing or taking steps to 
     provide protection of intellectual property rights comparable 
     to the protection provided to the United States in bilateral 
     intellectual property rights agreements;
       ``(4) with respect to subsection (b)(2) and subsection 
     (c)(5), the extent that beneficiary countries are providing 
     or taking steps to provide protection of investment and 
     investors comparable to the protection provided to the United 
     States in bilateral investment treaties;
       ``(5) with respect to subsection (c)(3), the extent that 
     beneficiary countries are providing the United States with 
     equitable and reasonable market access in the product sectors 
     for which benefits are provided under this title;
       ``(6) with respect to subsection (c)(11), the extent that 
     beneficiary countries are cooperating with the United States 
     in administering the provisions of section 213(b); and
       ``(7) with respect to subsection (c)(8), the extent that 
     beneficiary countries are meeting the internationally 
     recognized worker rights criteria under such subsection.

     In the first report under this subsection, the President 
     shall include a review of the implementation of section 
     213(b), and his analysis of whether the benefits under 
     paragraphs (2) and (3) of such section further the objectives 
     of this title and whether such benefits should be 
     continued.''.
       (d) Conforming Amendment.--Section 213(a)(1) of the 
     Caribbean Basin Economic Recovery Act is amended by inserting 
     ``and except as provided in section 213(b)(2) and (3),'' 
     after ``Tax Reform Act of 1986,''.

     SEC. 985. EFFECT OF NAFTA ON SUGAR IMPORTS FROM BENEFICIARY 
                   COUNTRIES.

       The President shall monitor the effects, if any, that the 
     implementation of the NAFTA has on the access of beneficiary 
     countries under the Caribbean Basin Economic Recovery Act to 
     the United States market for sugars, syrups, and molasses. If 
     the President considers that the implementation of the NAFTA 
     is affecting, or will likely affect, in an adverse manner the 
     access of such countries to the United States market, the 
     President shall promptly--
       (1) take such actions, after consulting with interested 
     parties and with the appropriate committees of the House of 
     Representatives and the Senate, or
       (2) propose to the Congress such legislative actions,

     as may be necessary or appropriate to ameliorate such adverse 
     effect.

     SEC. 986. DUTY-FREE TREATMENT FOR CERTAIN BEVERAGES MADE WITH 
                   CARIBBEAN RUM.

       Section 213(a) of the Caribbean Basin Economic Recovery Act 
     (19 U.S.C. 2703(a)) is amended--
       (1) in paragraph (5), by striking ``chapter'' and inserting 
     ``title''; and
       (2) by adding at the end the following new paragraph:
       ``(6) Notwithstanding paragraph (1), the duty-free 
     treatment provided under this title shall apply to liqueurs 
     and spirituous beverages produced in the territory of Canada 
     from rum if--
       ``(A) such rum is the growth, product, or manufacture of a 
     beneficiary country or of the Virgin Islands of the United 
     States;
       ``(B) such rum is imported directly from a beneficiary 
     country or the Virgin Islands of the United States into the 
     territory of Canada, and such liqueurs and spirituous 
     beverages are imported directly from the territory of Canada 
     into the customs territory of the United States;

[[Page H4736]]

       ``(C) when imported into the customs territory of the 
     United States, such liqueurs and spirituous beverages are 
     classified in subheading 2208.90 or 2208.40 of the HTS; and
       ``(D) such rum accounts for at least 90 percent by volume 
     of the alcoholic content of such liqueurs and spiritous 
     beverages.''.

     SEC. 987. MEETINGS OF TRADE MINISTERS AND USTR.

       (a) Schedule of Meetings.--The President shall take the 
     necessary steps to convene a meeting with the trade ministers 
     of the partnership countries in order to establish a schedule 
     of regular meetings, to commence as soon as is practicable, 
     of the trade ministers and the Trade Representative, for the 
     purpose set forth in subsection (b).
       (b) Purpose.--The purpose of the meetings scheduled under 
     subsection (a) is to reach agreement between the United 
     States and partnership countries on the likely timing and 
     procedures for initiating negotiations for partnership to 
     accede to the NAFTA, or to enter into mutually advantageous 
     free trade agreements with the United States that contain 
     provisions comparable to those in the NAFTA and would make 
     substantial progress in achieving the negotiating objectives 
     set forth in section 108(b)(5) of the North American Free 
     Trade Agreement Implementation Act (19 U.S.C. 3317(b)(5)).

     SEC. 988. REPORT ON ECONOMIC DEVELOPMENT AND MARKET ORIENTED 
                   REFORMS IN THE CARIBBEAN.

       (a) In General.--The Trade Representative shall make an 
     assessment of the economic development efforts and market 
     oriented reforms in each partnership country and the ability 
     of each such country, on the basis of such efforts and 
     reforms, to undertake the obligations of the NAFTA. The Trade 
     Representative shall, not later than July 1, 1998, submit to 
     the President and to the Committee on Finance of the Senate 
     and the Committee on Ways and Means of the House of 
     Representatives a report on that assessment.
       (b) Accession to NAFTA.--
       (1) Ability of countries to implement nafta.--The Trade 
     Representative shall include in the report under subsection 
     (a) a discussion of possible timetables and procedures 
     pursuant to which partnership countries can complete the 
     economic reforms necessary to enable them to negotiate 
     accession to the NAFTA. The Trade Representative shall also 
     include an assessment of the potential phase-in periods that 
     may be necessary for those partnership countries with less 
     developed economies to implement the obligations of the 
     NAFTA.
       (2) Factors in assessing ability to implement nafta.--In 
     assessing the ability of each partnership country to 
     undertake the obligations of the NAFTA, the Trade 
     Representative should consider, among other factors--
       (A) whether the country has joined the WTO;
       (B) the extent to which the country provides equitable 
     access to the markets of that country;
       (C) the degree to which the country uses export subsidies 
     or imposes export performance requirements or local content 
     requirements;
       (D) macroeconomic reforms in the country such as the 
     abolition of price controls on traded goods and fiscal 
     discipline;
       (E) progress the country has made in the protection of 
     intellectual property rights;
       (F) progress the country has made in the elimination of 
     barriers to trade in services;
       (G) whether the country provides national treatment to 
     foreign direct investment;
       (H) the level of tariffs bound by the country under the WTO 
     (if the country is a WTO member);
       (I) the extent to which the country has taken other trade 
     liberalization measures; and
       (J) the extent which the country works to accommodate 
     market access objectives of the United States.
       (c) Parity Review in the Event a New Country Accedes to 
     NAFTA.--If--
       (1) a country or group of countries accedes to the NAFTA, 
     or
       (2) the United States negotiates a comparable free trade 
     agreement with another country or group of countries,

     the Trade Representative shall provide to the committees 
     referred to in subsection (a) a separate report on the 
     economic impact of the new trade relationship on partnership 
     countries. The report shall include any measures the Trade 
     Representative proposes to minimize the potential for the 
     diversion of investment from partnership countries to the new 
     NAFTA member or free trade agreement partner.
                           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,
       ``(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.

[[Page H4737]]

       ``(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 determination 
     of whether a company is an investment company shall be made--
       ``(A) by taking into account all stock and securities held 
     by the company, whether or not readily marketable, and
       ``(B) by treating all of the following as securities:
       ``(i) Money.
       ``(ii) Any financial instrument (as defined in section 
     731(c)(2)(C)).
       ``(iii) Any foreign currency.
       ``(iv) 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)).
       ``(v) 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).
       ``(vi) Any other asset specified in regulations prescribed 
     by the Secretary.''.
       (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 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 nonsalable 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

[[Page H4738]]

     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:
       ``(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 which is treated as a dividend 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

[[Page H4739]]

     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.
       ``(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 paragraph 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,''.

[[Page H4740]]

       (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.
     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,

[[Page H4741]]

       ``(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) Nonqualified 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).
       ``(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 continuous levy 
     shall attach to up to 15 percent of any specified payment due 
     to the taxpayer.
       ``(2) Specified payment.--For the purposes of paragraph 
     (1), the term `specified payment' means--
       ``(A) any Federal payment other than a payment for which 
     eligibility is based on the income or assets (or both) of a 
     payee,

[[Page H4742]]

       ``(B) any payment described in paragraph (4), (7), (9), or 
     (11) of section 6334(a), and
       ``(C) any annuity or pension payment under the Railroad 
     Retirement Act or benefit under the Railroad Unemployment 
     Insurance Act described in subsection (a)(6) of this 
     section.''.
       (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. MODIFICATION OF LEVY EXEMPTION.

       (a) In General.--Section 6334 (relating to property exempt 
     from levy) is amended by redesignating subsection (f) as 
     subsection (g) and by inserting after subsection (e) the 
     following new subsection:
       ``(f) Levy Allowed on Certain Specified Payments.--Any 
     payment described in subparagraph (B) or (C) of section 
     6331(h)(2) shall not be exempt from levy if the Secretary 
     approves the levy thereon under section 6331(h).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to levies issued after the date of the enactment 
     of this Act.

     SEC. 1036. CONFIDENTIALITY AND DISCLOSURE OF RETURNS AND 
                   RETURN INFORMATION.

       (a) In General.--Subsection (k) of section 6103 is amended 
     by adding at the end the following new paragraph:
       ``(8) Levies on certain government payments.--
       ``(A) Disclosure of return information in levies on 
     financial management service.--In serving a notice of levy, 
     or release of such levy, with respect to any applicable 
     government payment, the Secretary may disclose to officers 
     and employees of the Financial Management Service--
       ``(i) return information, including taxpayer identity 
     information,
       ``(ii) the amount of any unpaid liability under this title 
     (including penalties and interest), and
       ``(iii) the type of tax and tax period to which such unpaid 
     liability relates.
       ``(B) Restriction on use of disclosed information.--Return 
     information disclosed under subparagraph (A) may be used by 
     officers and employees of the Financial Management Service 
     only for the purpose of, and to the extent necessary in, 
     transferring levied funds in satisfaction of the levy, 
     maintaining appropriate agency records in regard to such levy 
     or the release thereof, notifying the taxpayer and the agency 
     certifying such payment that the levy has been honored, or in 
     the defense of any litigation ensuing from the honor of such 
     levy.
       ``(C) Applicable government payment.--For purposes of this 
     paragraph, the term `applicable government payment' means--
       ``(i) any Federal payment (other than a payment for which 
     eligibility is based on the income or assets (or both) of a 
     payee) certified to the Financial Management Service for 
     disbursement, and
       ``(ii) any other payment which is certified to the 
     Financial Management Service for disbursement and which the 
     Secretary designates by published notice.''.
       (b) Conforming Amendments.--
       (1) Section 6301(p) is amended--
       (A) in paragraph (3)(A), by striking ``(2), or (6)'' and 
     inserting ``(2), (6), or (8), and
       (B) in paragraph (4), by inserting ``(k)(8),'' after ``(j) 
     (1) or (2),'' each place it appears.
       (2) Section 552a(a)(8)(B) of title 5, United States Code, 
     is amended by striking ``or'' at the end of clause (v), by 
     adding ``or'' at the end of clause (vi), and by adding at the 
     end the following new clause:
       ``(vii) matches performed incident to a levy described in 
     section 6103(k)(8) of the Internal Revenue Code of 1986;''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to levies issued after the date of the enactment 
     of this Act.

     SEC. 1037. 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 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.--
       (1) In general.--Section 4261 (relating to imposition of 
     tax) is amended by striking subsections (a), (b), and (c) and 
     inserting the following new subsections:
       ``(a) In General.--There is hereby imposed on the amount 
     paid for taxable transportation of any person a tax equal to 
     7.5 percent of the amount so paid.
       ``(b) Domestic Segments of Taxable Transportation.--
       ``(1) In general.--There is hereby imposed on the amount 
     paid for each domestic segment of taxable transportation by 
     air a tax in the amount determined in accordance with the 
     following table for the calendar year in which the segment 
     begins:

    In the case of segments
      beginning during:                                     The tax is:
      1997 or 1998................................................$2.00
      1999........................................................$2.25
      2000........................................................$2.50
      2001........................................................$2.75
      2002 or thereafter.........................................$3.00.

       ``(2) Domestic segment.--For purposes of this section, the 
     term `domestic segment' means any segment which is taxable 
     transportation described in section 4262(a)(1).
       ``(3) Changes in segments by reason of rerouting.--If--
       ``(A) a ticket is purchased for transportation between 2 
     locations on specified flights, and

       ``(B) at the initiation of the air carrier after such 
     purchase, there is a change in the route taken which changes 
     the number of domestic segments, but there is no change in 
     the amount charged for such transportation,
     the tax imposed by paragraph (1) shall be determined without 
     regard to such change in route.
       ``(c) Use of International Travel Facilities.--
       ``(1) In general.--There is hereby imposed a tax of $15.50 
     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.

[[Page H4743]]

       ``(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.''.
       (2) Special rules.--Section 4261 is amended by 
     redesignating subsections (e), (f), and (g), as subsections 
     (f), (g), and (h), respectively, and by inserting after 
     subsection (d) the following new subsection:
       ``(e) Special Rules.--
       ``(1) Amounts paid outside the united states.--In the case 
     of amounts paid outside the United States for taxable 
     transportation, the taxes imposed by subsections (a) and (b) 
     shall apply only to segments of such transportation which 
     begin and end in the United States.
       ``(2) Amounts paid for right to award free or reduced rate 
     air transportation.--Any amount paid (and the value of any 
     other benefit provided) to an air carrier (or any related 
     person) for the right to provide mileage awards for (or other 
     reductions in the cost of) any transportation of persons by 
     air shall be treated for purposes of subsection (a) as an 
     amount paid for taxable transportation, and such amount shall 
     be taxable under subsection (a) without regard to any other 
     provision of this subchapter. The Secretary shall prescribe 
     rules which reallocate items of income, deduction, credit, 
     exclusion, or other allowance to the extent necessary to 
     prevent the avoidance of tax imposed by reason of this 
     paragraph.
       ``(3) Inflation adjustment of dollar rates of tax.--
       ``(A) In general.--In the case of taxable events in a 
     calendar year after the last nonindexed year, the dollar 
     amount contained in subsection (b) and the dollar amount 
     contained in subsection (c) 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 such calendar year by substituting the 
     year before the last nonindexed year for `calendar year 1992' 
     in subparagraph (B) thereof.

     If any increase determined under the preceding sentence is 
     not a multiple of 10 cents, such increase shall be rounded to 
     the nearest multiple of 10 cents.
       ``(B) Last nonindexed year.--For purposes of subparagraph 
     (A), the last nonindexed year is--
       ``(i) 2002 in the case of a dollar amount contained in 
     subsection (b), and
       ``(ii) 1998 in the case of a dollar amount contained in 
     subsection (c).
       ``(C) Taxable event.--For purposes of subparagraph (A), in 
     the case of the tax imposed subsection (b), the beginning of 
     the domestic segment shall be treated as the taxable 
     event.''.
       (3) Secondary liability of carrier for unpaid tax.--
     Subsection (c) of section 4263 is amended by striking 
     ``subchapter--'' and all that follows and inserting ``, such 
     tax shall be paid by the carrier providing the initial 
     segment of such transportation which begins or ends in the 
     United States.''.
       (d) Modification of Rules on Airline Fare Advertising.--
     Subsection (b) of section 7275 (relating to advertising) is 
     amended by striking ``shall--'' and all that follows and 
     inserting ``shall--
       ``(1) separately state--
       ``(A) the amount to be paid for such transportation, and
       ``(B) the amount of the taxes imposed by subsections (a), 
     (b), and (c) of section 4261 at a location proximate to (and 
     in a type size not less than half the type size of) the 
     statement of the amount described in subparagraph (A), and
       ``(2) describe such taxes substantially as: `user taxes to 
     pay for airport construction and airway safety and 
     operations'.''.
       (e) Increased Airport and Airway Trust Fund Deposits.--
       (1) Paragraph (1) of section 9502(b) is amended--
       (A) by striking ``(to the extent that the rate of the tax 
     on such gasoline exceeds 4.3 cents per gallon)'' in 
     subparagraph (C), and
       (B) by striking ``to the extent attributable to the Airport 
     and Airway Trust Fund financing rate'' in subparagraph (C).
       (2) Section 9502 is amended by striking subsection (f).
       (f) Effective Dates.--
       (1) Fuel taxes.--The amendments made by subsection (a) 
     shall apply take effect on October 1, 1997.
       (2) Ticket taxes.--
       (A) In general.--Except as otherwise provided in this 
     paragraph, the amendments made by subsections (b) and (c) 
     shall apply to transportation beginning on or after October 
     1, 1997.
       (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.
       (C) Amounts paid for right to award mileage awards.--
       (i) In general.--Paragraph (2) of section 4261(e) of the 
     Internal Revenue Code of 1986 (as added by the amendment made 
     by subsection (c)) shall apply to amounts paid after 
     September 30, 1997.
       (ii) Payments within controlled group.--For purposes of 
     clause (i), any amount paid after June 11, 1997, and before 
     October 1, 1997, by 1 member of a controlled group for a 
     right which is described in such section 4261(e)(2) and is 
     furnished by another member of such group after September 30, 
     1997, shall be treated as paid after September 30, 1997. For 
     purposes of the preceding sentence, all persons treated as a 
     single employer under subsection (a) or (b) of section 52 of 
     such Code shall be treated as members of a controlled group.
       (3) Advertising.--The amendment made by subsection (d) 
     shall take effect on October 1, 1997.
       (4) Increased deposits into airport and airway trust 
     fund.--The amendments made by subsection (e) shall apply with 
     respect to taxes received in the Treasury on and after 
     October 1, 1997.
       (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.

     SEC. 1042. KEROSENE TAXED AS DIESEL FUEL.

       (a) In General.--Subsection (a) of section 4083 (defining 
     taxable fuel) is amended by striking ``and'' at the end of 
     subparagraph (A), by striking the period at the end of 
     subparagraph (B) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(C) kerosene.''.
       (b) Rate of Tax.--Clause (iii) of section 4081(a)(2)(A) is 
     amended by inserting ``or kerosene'' after ``diesel fuel''.
       (c) Exemptions From Tax; Refunds to Vendors.--
       (1) In general.--Section 4082 (relating to exemptions for 
     diesel fuel) is amended by striking ``diesel fuel'' each 
     place it appears in subsections (a) and (c) and inserting 
     ``diesel fuel and kerosene''.
       (2) Certain kerosene exempt from dyeing requirement.--
     Section 4082 is amended by redesignating subsections (c) and 
     (d) as subsections (d) and (e), respectively, and by 
     inserting after subsection (b) the following new subsection:
       ``(c) Exceptions to Dyeing Requirements.--
       ``(1) Aviation-grade kerosene.--Subsection (a)(2) shall not 
     apply to a removal, entry, or sale of aviation-grade kerosene 
     (as determined under regulations prescribed by the Secretary) 
     if the person receiving the kerosene is registered under 
     section 4101 with respect to the tax imposed by section 4091.
       ``(2) Use for non-fuel feedstock purposes.--Subsection 
     (a)(2) shall not apply to kerosene--
       ``(A) received by pipeline or barge for use by the person 
     receiving the kerosene in the manufacture or production of 
     any substance (other than gasoline, diesel fuel, or special 
     fuels referred to in section 4041), or
       ``(B) to the extent provided in regulations, removed or 
     entered--
       ``(i) for such a use by the person removing or entering the 
     kerosene, or
       ``(ii) for resale by such person for such a use by the 
     purchaser,

     but only if the person receiving, removing, or entering the 
     kerosene and such purchaser (if any) are registered under 
     section 4101 with respect to the tax imposed by section 
     4081.''.
       (3) Refunds.--
       (A) Subsection (l) of section 6427 is amended by inserting 
     ``or kerosene'' after ``diesel fuel'' each place it appears 
     in paragraphs (1), (2), and (5) (including the heading for 
     paragraph (5)).
       (B) Paragraph (5) of section 6427(l) is amended by 
     redesignating subparagraph (B) as subparagraph (C) and by 
     inserting after subparagraph (A) the following new 
     subparagraph:
       ``(B) Sales of kerosene not for use in motor fuel.--
     Paragraph (1)(A) shall not apply to kerosene sold by a 
     vendor--
       ``(i) for any use if such sale is from a pump which (as 
     determined under regulations prescribed by the Secretary) is 
     not suitable for use in fueling any diesel-powered highway 
     vehicle or train, or
       ``(ii) to the extent provided by the Secretary, for 
     blending with heating oil to be used during periods of 
     extreme or unseasonable cold.''.
       (C) Subparagraph (C) of section 6427(l)(5), as redesignated 
     by subparagraph (B) of this paragraph, is amended by striking 
     ``subparagraph (A)'' and inserting ``subparagraph (A) or 
     (B)''.
       (D) The heading for subsection (l) of section 6427 is 
     amended by inserting ``, Kerosene,'' after ``Diesel fuel''.
       (d) Conforming Amendments.--
       (1) Paragraph (2) of section 4041(a) is amended by striking 
     ``kerosene, gas oil, or fuel oil'' and inserting ``gas oil, 
     fuel oil''.
       (2) Paragraph (1) of section 4041(c) is amended by striking 
     ``any liquid'' and inserting ``kerosene and any other 
     liquid''.
       (3)(A) The heading for section 4082 is amended by inserting 
     ``AND KEROSENE'' after ``DIESEL FUEL''.
       (B) The table of sections for subpart A of part III of 
     subchapter A of chapter 32 is amended by inserting ``and 
     kerosene'' after ``diesel fuel'' in the item relating to 
     section 4082.

[[Page H4744]]

       (4) Subsection (b) of section 4083 is amended by striking 
     ``gasoline, diesel fuel,'' and inserting ``taxable fuels''.
       (5) Subsection (a) of section 4093 is amended by striking 
     ``any liquid'' and inserting ``kerosene and any other 
     liquid''.
       (6) The material following subparagraph (F) of section 
     6416(b)(2) is amended by inserting ``or kerosene'' after 
     ``diesel fuel''.
       (7) Paragraphs (1) and (3) of section 6427(f), and the 
     heading for section 6427(f), are each amended by inserting 
     ``kerosene,'' after ``diesel fuel,''.
       (8) Paragraph (2) of section 6427(f) is amended by striking 
     ``or diesel fuel'' each place it appears and inserting ``, 
     diesel fuel, or kerosene''.
       (9) Subparagraph (A) of section 6427(i)(3) is amended by 
     striking ``or diesel fuel'' and inserting ``, diesel fuel, or 
     kerosene''.
       (10) The heading for paragraph (4) of section 6427(i) is 
     amended to read as follows:
       ``(4) Special rule for refunds under subsection (l).--''
       (11) Paragraph (1) of section 6715(c) is amended by 
     inserting ``or kerosene'' after ``diesel fuel''.
       (12)(A) The text of section 7232 is amended by striking 
     ``gasoline, lubricating oil, diesel fuel'' and inserting 
     ``any taxable fuel (as defined in section 4083)''.
       (B) The section heading for section 7232 is amended to read 
     as follows:

     ``SEC. 7232. FAILURE TO REGISTER UNDER SECTION 4101, FALSE 
                   REPRESENTATIONS OF REGISTRATION STATUS, ETC.''.

       (C) The table of sections for part II of subchapter A of 
     chapter 75 is amended by striking the item relating to 
     section 7232 and inserting the following:

``Sec. 7232. Failure to register under section 4101, false 
              representations of registration status, etc.''.

       (13) Sections 9503(b)(1)(E) and 9508(b)(2) are each amended 
     by striking ``and diesel fuel'' and inserting ``, diesel 
     fuel, and kerosene''.
       (14) Subparagraph (B) of section 9503(b)(5) is amended by 
     striking ``or diesel fuel'' and inserting ``, diesel fuel, or 
     kerosene''.
       (15) Paragraphs (1)(B) and (2) of section 9503(f) are each 
     amended by inserting ``or kerosene'' after ``diesel fuel'' 
     each place it appears.
       (e) Effective Date.--The amendments made by this section 
     shall take effect on July 1, 1998.
       (f) Floor Stock Taxes.--
       (1) Imposition of tax.--In the case of kerosene which is 
     held on July 1, 1998, by any person, there is hereby imposed 
     a floor stocks tax of 24.3 cents per gallon.
       (2) Liability for tax and method of payment.--
       (A) Liability for tax.--A person holding kerosene on July 
     1, 1998, to which the tax imposed by paragraph (1) applies 
     shall be liable for such tax.
       (B) Method of payment.--The tax imposed by paragraph (1) 
     shall be paid in such manner as the Secretary shall 
     prescribe.
       (C) Time for payment.--The tax imposed by paragraph (1) 
     shall be paid on or before August 31, 1998.
       (3) Definitions.--For purposes of this subsection--
       (A) Held by a person.--Kerosene shall be considered as 
     ``held by a person'' if title thereto has passed to such 
     person (whether or not delivery to the person has been made).
       (B) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury or his delegate.
       (4) Exception for exempt uses.--The tax imposed by 
     paragraph (1) shall not apply to kerosene held by any person 
     exclusively for any use to the extent a credit or refund of 
     the tax imposed by section 4081 of the Internal Revenue Code 
     of 1986 is allowable for such use.
       (5) Exception for fuel held in vehicle tank.--No tax shall 
     be imposed by paragraph (1) on kerosene held in the tank of a 
     motor vehicle or motorboat.
       (6) Exception for certain amounts of fuel.--
       (A) In general.--No tax shall be imposed by paragraph (1) 
     on kerosene held on July 1, 1998, by any person if the 
     aggregate amount of kerosene held by such person on such date 
     does not exceed 2,000 gallons. The preceding sentence shall 
     apply only if such person submits to the Secretary (at the 
     time and in the manner required by the Secretary) such 
     information as the Secretary shall require for purposes of 
     this paragraph.
       (B) Exempt fuel.--For purposes of subparagraph (A), there 
     shall not be taken into account fuel held by any person which 
     is exempt from the tax imposed by paragraph (1) by reason of 
     paragraph (4) or (5).
       (C) Controlled groups.--For purposes of this paragraph--
       (i) Corporations.--

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

       (ii) Nonincorporated persons under common control.--Under 
     regulations prescribed by the Secretary, principles similar 
     to the principles of clause (i) shall apply to a group of 
     persons under common control where 1 or more of such persons 
     is not a corporation.
       (7) Coordination with section 4081.--No tax shall be 
     imposed by paragraph (1) on kerosene to the extent that tax 
     has been (or will be) imposed on such kerosene under section 
     4081 or 4091 of such Code.
       (8) Other laws applicable.--All provisions of law, 
     including penalties, applicable with respect to the taxes 
     imposed by section 4081 of such Code shall, insofar as 
     applicable and not inconsistent with the provisions of this 
     subsection, apply with respect to the floor stock taxes 
     imposed by paragraph (1) to the same extent as if such taxes 
     were imposed by such section 4081.

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

       Paragraph (3) of section 4081(d) is amended by striking 
     ``shall not apply after December 31, 1995'' and inserting 
     ``shall apply after the date of the enactment of the Taxpayer 
     Relief Act of 1997 and before October 1, 2002''.

     SEC. 1044. APPLICATION OF COMMUNICATIONS TAX TO LONG-DISTANCE 
                   PREPAID TELEPHONE CARDS.

       (a) In General.--Subsection (b) of section 4251 is 
     amended--
       (1) by adding at the end the following new paragraph:
       ``(3) Long-distance prepaid telephone cards and similar 
     arrangements.--Any amount paid (and the value of any other 
     benefit provided) to a provider of communications services 
     (or any related person) for the right to award, sell, or 
     otherwise make available telephone service (or reductions in 
     the cost of such service) other than local telephone service 
     through prepaid telephone cards or any similar arrangement 
     shall be treated as an amount paid for communications 
     services. The Secretary shall prescribe rules which 
     reallocate items of income, deduction, credit, exclusion, or 
     other allowance to the extent necessary to prevent the 
     avoidance of tax imposed by reason of this paragraph.'', and
       (2) by inserting ``And Special Rule'' after ``Definitions'' 
     in the heading.
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to amounts paid on or after the date of the enactment 
     of this Act.
       (2) Payments within controlled group.--For purposes of 
     paragraph (1), any amount paid after June 11, 1997, and 
     before the date of the enactment of this Act by 1 member of a 
     controlled group for a right which is described in section 
     4251(b)(3) of the Internal Revenue Code of 1986 (as added by 
     this section) and is furnished by another member of such 
     group shall be treated as paid on the date of the enactment 
     of this Act. For purposes of the preceding sentence, all 
     persons treated as a single employer under subsection (a) or 
     (b) of section 52 of such Code shall be treated as members of 
     a controlled group.
         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

[[Page H4745]]

       ``(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.

     SEC. 1052. LIMITATION ON INCREASE IN BASIS OF PROPERTY 
                   RESULTING FROM SALE BY TAX-EXEMPT ENTITY TO A 
                   RELATED PERSON.

       (a) In General.--Part IV of subchapter O of chapter 1 
     (relating to special rules for gain or loss on disposition of 
     property) is amended by redesignating section 1061 as section 
     1062 and by inserting after section 1060 the following new 
     section:

     ``SEC. 1061. BASIS LIMITATION FOR SALE OR EXCHANGE OF 
                   PROPERTY BY TAX-EXEMPT ENTITY TO RELATED 
                   PERSON.

       ``(a) General Rule.--In the case of a sale or exchange of 
     property directly or indirectly between a tax-exempt entity 
     and a related person, the basis of the related person in the 
     property acquired shall not exceed the adjusted basis of such 
     property (immediately before the exchange) in the hands of 
     the tax-exempt entity, increased by the amount of gain 
     recognized to the tax-exempt entity on the transfer which is 
     subject to tax under section 511.
       ``(b) Definitions.--For purposes of this section--
       ``(1) Tax-exempt entity.--The term `tax-exempt entity' 
     means any entity which is exempt from the tax imposed by this 
     chapter.
       ``(2) Related person.--The term `related person' means any 
     person bearing a relationship to the tax-exempt entity which 
     is described in section 267(b) or 707(b)(1). For purposes of 
     applying section 267(b)(2) under the preceding sentence, such 
     an entity shall be treated as if it were an individual.''.
       (b) Clerical Amendment.--The table of sections for part IV 
     of subchapter O of chapter 1 is amended by striking the last 
     item and inserting the following:

``Sec. 1061. Basis limitation for sale or exchange of property by tax-
              exempt entity to related person.
``Sec. 1062. Cross references.''.

       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to sales and exchanges after June 8, 1997.
       (2) Binding contracts.--The amendments made by this section 
     shall not apply to any sale or exchange pursuant to a written 
     contract which was binding on June 8, 1997, and at all times 
     thereafter before the sale or exchange.

     SEC. 1053. MODIFICATIONS TO EXCEPTION FROM REPORTING, ETC. OF 
                   LOBBYING ACTIVITIES.

       (a) In General.--Paragraph (3) of section 6033(e) (relating 
     to exception where dues generally nondeductible) is amended 
     to read as follows:
       ``(3) Exception where dues generally nondeductible.--
       ``(A) In general.--Paragraph (1)(A) shall not apply to an 
     organization if more than 90 percent of the amount of the 
     aggregate annual dues (or similar payments) paid to such 
     organization are paid--
       ``(i) by individuals or families whose annual dues (or 
     similar amounts) are less than $100, or
       ``(ii) by organizations which are exempt from tax.

     For purposes of the preceding sentence, all organizations 
     sharing a name, charter, historic affiliation, or similar 
     characteristics and coordinating their lobbying activities 
     shall be treated as 1 organization.
       ``(B) Inflation adjustment.--In the case of dues for annual 
     periods beginning in any calendar year after 1998, the dollar 
     amount contained in subparagraph (A)(i) 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.

     If any increase determined under the preceding sentence is 
     not a multiple of $5, such increase shall be rounded to the 
     nearest multiple of $5.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1054. TERMINATION OF CERTAIN EXCEPTIONS FROM RULES 
                   RELATING TO EXEMPT ORGANIZATIONS WHICH PROVIDE 
                   COMMERCIAL-TYPE INSURANCE.

       (a) In General.--Subparagraphs (A) and (B) of section 
     1012(c)(4) of the Tax Reform Act of 1986 shall not apply to 
     any taxable year beginning after December 31, 1997.
       (b) Special Rules.--In the case of an organization to which 
     section 501(m) of the Internal Revenue Code of 1986 applies 
     solely by reason of the amendment made by subsection (a)--
       (1) no adjustment shall be made under section 481 (or any 
     other provision) of such Code on account of a change in its 
     method of accounting for its first taxable year beginning 
     after December 31, 1997, and
       (2) for purposes of determining gain or loss, the adjusted 
     basis of any asset held on the 1st day of such taxable year 
     shall be treated as equal to its fair market value as of such 
     day.
       (c) Reserve Weakening after June 8, 1997.--Any reserve 
     weakening after June 8, 1997, by an organization described in 
     subsection (b) shall be treated as occurring in such 
     organizations 1st taxable year beginning after December 31, 
     1997.
       (d) Regulations.--The Secretary of the Treasury or his 
     delegate may prescribe rules for providing proper adjustments 
     for organizations described in subsection (b) with respect to 
     short taxable years which begin during 1998 by reason of 
     section 843 of the Internal Revenue Code of 1986.
                  Subtitle G--Other Revenue Provisions

     SEC. 1061. 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. 1062. MODIFICATION OF TAXABLE YEARS TO WHICH NET 
                   OPERATING LOSSES MAY BE CARRIED.

       (a) In General.--Subparagraph (A) of section 172(b)(1) 
     (relating to years to which loss may be carried) is amended--
       (1) by striking ``3'' in clause (i) and inserting ``2'', 
     and
       (2) by striking ``15'' in clause (ii) and inserting ``20''.
       (b) Retention of 3-Year Carryback for Casualty Losses of 
     Individuals.--Paragraph (1) of section 172(b) is amended by 
     adding at the end the following new subparagraph:
       ``(F) Casualty losses of individuals.--Subparagraph (A)(i) 
     shall be applied by substituting `3 years' for `2 years' with 
     respect to the portion of the net operating loss of an 
     individual for the taxable year which is attributable to 
     losses of property arising from fire, storm, shipwreck, or 
     other casualty, or from theft.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to net operating losses for taxable years 
     beginning after the date of the enactment of this Act.

[[Page H4746]]

     SEC. 1063. EXPANSION OF DENIAL OF DEDUCTION FOR CERTAIN 
                   AMOUNTS PAID IN CONNECTION WITH INSURANCE.

       (a) Denial of Deduction for Premiums.--Paragraph (1) of 
     section 264(a) is amended to read as follows:
       ``(1) Premiums on any life insurance policy, or endowment 
     or annuity contract, if the taxpayer is directly or 
     indirectly a beneficiary under the policy or contract.''.
       (b) Interest on Policy Loans.--Paragraph (4) of section 
     264(a) is amended by striking ``individual, who'' and all 
     that follows and inserting ``individual.''.
       (c) Pro Rata Allocation of Interest Expense to Policy Cash 
     Values.--Section 264 is amended by adding at the end the 
     following new subsection:
       ``(e) Pro Rata Allocation of Interest Expense to Policy 
     Cash Values.--
       ``(1) In general.--No deduction shall be allowed for that 
     portion of the taxpayer's interest expense which is allocable 
     to unborrowed policy cash values.
       ``(2)  Allocation.--For purposes of paragraph (1), the 
     portion of the taxpayer's interest expense which is allocable 
     to unborrowed policy cash values is an amount which bears the 
     same ratio to such interest expense as--
       ``(A) the taxpayer's average unborrowed policy cash values 
     of life insurance policies, and annuity and endowment 
     contracts, issued after June 8, 1997, bears to
       ``(B) the average adjusted bases (within the meaning of 
     section 1016) for all assets of the taxpayer.
       ``(3) Unborrowed policy cash values.--The term `unborrowed 
     policy cash value' means, with respect to any life insurance 
     policy or annuity or endowment contract, the excess of--
       ``(A) the cash surrender value of such policy or contract 
     determined without regard to any surrender charge, over
       ``(B) the amount of any loan in respect of such policy or 
     contract.
       ``(4) Exception for certain policies and contracts covering 
     officers, directors, and employees.--Paragraph (1) shall not 
     apply to any policy or contract owned by an entity engaged in 
     a trade or business which covers any individual who is an 
     officer, director, or employee of such trade or business at 
     the time first covered by the policy or contract, and such 
     policies and contracts shall not be taken into account under 
     paragraph (2).
       ``(5) Exception for policies and contracts held by natural 
     persons; treatment of partnerships and s corporations.--
       ``(A) Policies and contracts held by natural persons.--
       ``(i) In general.--This subsection shall not apply to any 
     policy or contract held by a natural person.
       ``(ii) Exception where business is beneficiary.--If a trade 
     or business is directly or indirectly the beneficiary under 
     any policy or contract, to the extent of the unborrowed cash 
     value of such policy or contract, such policy or contract 
     shall be treated as held by such trade or business and not by 
     a natural person.
       ``(iii) Special rules.--

       ``(I) Certain trades or businesses not taken into 
     account.--Clause (ii) shall not apply to any trade or 
     business carried on as a sole proprietorship and to any trade 
     or business performing services as an employee.
       ``(II) Limitation on unborrowed cash value.--The amount of 
     the unborrowed cash value of any policy or contract which is 
     taken into account by reason of clause (ii) shall not exceed 
     the benefit to which the trade or business is entitled under 
     the policy or contract.

       ``(iv) Reporting.--The Secretary shall require such 
     reporting from policyholders and issuers as is necessary to 
     carry out clause (ii). Any report required under the 
     preceding sentence shall be treated as a statement referred 
     to in section 6724(d)(1).
       ``(B) Treatment of partnerships and s corporations.--In the 
     case of a partnership or S corporation, this subsection shall 
     be applied at the partnership and corporate levels.
       ``(6) Special rules.--
       ``(A) Coordination with subsection (a) and section 265.--If 
     interest on any indebtedness is disallowed under subsection 
     (a) or section 265--
       ``(i) such disallowed interest shall not be taken into 
     account for purposes of applying this subsection, and
       ``(ii) for purposes of applying paragraph (2)(B), the 
     adjusted bases otherwise taken into account shall be reduced 
     (but not below zero) by the amount of such indebtedness.
       ``(B) Coordination with section 263a.--This subsection 
     shall be applied before the application of section 263A 
     (relating to capitalization of certain expenses where 
     taxpayer produces property).''.
       ``(7) Interest expense.--The term `interest expense' means 
     the aggregate amount allowable to the taxpayer as a deduction 
     for interest (within the meaning of section 265(b)(4)) for 
     the taxable year (determined without regard to this 
     subsection, section 265(b), and section 291).
       ``(8) Aggregation rules.--
       ``(A) In general.--All members of a controlled group 
     (within the meaning of subsection (d)(5)(B)) shall be treated 
     as 1 taxpayer for purposes of this subsection.
       ``(B) Treatment of insurance companies.--This subsection 
     shall not apply to an insurance company, and subparagraph (A) 
     shall be applied without regard to any insurance company.''.
       (b) Treatment of Insurance Companies.--
       (1) Clause (ii) of section 805(a)(4)(C) is amended by 
     inserting ``, or out of the increase for the taxable year in 
     policy cash values (within the meaning of section 
     264(e)(3)(A)) of life insurance policies and annuity and 
     endowment contracts to which section 264(e) applies'' after 
     ``tax-exempt interest''.
       (2) Clause (iii) of section 805(a)(4)(D) is amended by 
     striking ``and'' and inserting ``, the increase for the 
     taxable year in policy cash values (within the meaning of 
     section 264(e)(3)(A)) of life insurance policies and annuity 
     and endowment contracts to which section 264(e) applies, 
     and''.
       (3) Subparagraph (B) of section 807(a)(2) is amended by 
     striking ``interest,'' and inserting ``interest and the 
     amount of the policyholder's share of the increase for the 
     taxable year in policy cash values (within the meaning of 
     section 264(e)(3)(A)) of life insurance policies and annuity 
     and endowment contracts to which section 264(e) applies,''.
       (4) Subparagraph (B) of section 807(b)(1) is amended by 
     striking ``interest,'' and inserting ``interest and the 
     amount of the policyholder's share of the increase for the 
     taxable year in policy cash values (within the meaning of 
     section 264(e)(3)(A)) of life insurance policies and annuity 
     and endowment contracts to which section 264(e) applies,''.
       (5) Paragraph (1) of section 812(d) is amended by striking 
     ``and'' at the end of subparagraph (B), by striking the 
     period at the end of subparagraph (C) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(D) the increase for any taxable year in the policy cash 
     values (within the meaning of section 264(e)(3)(A)) of life 
     insurance policies and annuity and endowment contracts to 
     which section 264(e) applies.''.
       (6) Subparagraph (B) of section 832(b)(5) 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) the increase for the taxable year in policy cash 
     values (within the meaning of section 264(e)(3)(A)) of life 
     insurance policies and annuity and endowment contracts to 
     which section 264(e) applies.''.
       (c) Conforming Amendment.--Subparagraph (A) of section 
     265(b)(4) is amended by inserting ``, section 264,'' before 
     ``and section 291''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to contracts issued after June 8, 1997, in 
     taxable years ending after such date. For purposes of the 
     preceding sentence, any material increase in the death 
     benefit or other material change in the contract shall be 
     treated as a new contract but the addition of covered lives 
     shall be treated as a new contract only with respect to such 
     additional covered lives. For purposes of this subsection, an 
     increase in the death benefit under a policy or contract 
     issued in connection with a lapse described in section 
     501(d)(2) of the Health Insurance Portability and 
     Accountability Act of 1996 shall not be treated as a new 
     contract.

     SEC. 1064. 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)(i) 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, and
       ``(ii) if the basis to be allocated is less than the sum of 
     the adjusted bases of such properties to the partnership, 
     then, to the extent any decrease is required in order to have 
     the adjusted bases of such properties equal the basis to be 
     allocated, in the manner provided in paragraph (3), and
       ``(B) to the extent of any basis not allocated under 
     subparagraph (A), to other distributed properties--
       ``(i) first by assigning to each such other property such 
     other 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.

[[Page H4747]]

     SEC. 1065. 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. 1066. 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. 1067. RESTRICTIONS ON AVAILABILITY OF EARNED INCOME 
                   CREDIT FOR TAXPAYERS WHO IMPROPERLY CLAIMED 
                   CREDIT IN PRIOR YEAR.

       (a) In General.--Section 32 is amended by redesignating 
     subsections (k) and (l) as subsections (l) and (m), 
     respectively, and by inserting after subsection (j) the 
     following new subsection:
       ``(k) Restrictions on Taxpayers Who Improperly Claimed 
     Credit in Prior Year.--
       ``(1) Taxpayers making prior fraudulent or reckless 
     claims.--
       ``(A) In general.--No credit shall be allowed under this 
     section for any taxable year in the disallowance period.
       ``(B) Disallowance period.--For purposes of paragraph (1), 
     the disallowance period is--
       ``(i) the period of 10 taxable years after the most recent 
     taxable year for which there was a final determination that 
     the taxpayer's claim of credit under this section was due to 
     fraud, and
       ``(ii) the period of 2 taxable years after the most recent 
     taxable year for which there was a final determination that 
     the taxpayer's claim of credit under this section was due to 
     reckless or intentional disregard of rules and regulations 
     (but not due to fraud).
       ``(2) Taxpayers making improper prior claims.--In the case 
     of a taxpayer who is denied credit under this section for any 
     taxable year as a result of the deficiency procedures under 
     subchapter B of chapter 63, no credit shall be allowed under 
     this section for any subsequent taxable year unless the 
     taxpayer provides such information as the Secretary may 
     require to demonstrate eligibility for such credit.''.
       (b) Due Diligence Requirement on Income Tax Return 
     Preparers.--Section 6695 is amended by adding at the end the 
     following new subsection:
       ``(g) Failure To Be Diligent in Determining Eligibility for 
     Earned Income Credit.--Any person who is an income tax 
     preparer with respect to any return or claim for refund who 
     fails to comply with due diligence requirements imposed by 
     the Secretary by regulations with respect to determining 
     eligibility for, or the amount of, the credit allowable by 
     section 32 shall pay a penalty of $100 for each such 
     failure.''.
       (c) Extension 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 (H), 
     by striking the period at the end of subparagraph (I) and 
     inserting ``, and'', and by inserting after subparagraph (I) 
     the following new subparagraph:
       ``(J) an omission of information required by section 
     32(k)(2) (relating to taxpayers making improper prior claims 
     of earned income credit).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 1068. 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,
       ``(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. 1069. 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. 1070. 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:

[[Page H4748]]

       ``(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. 1071. 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.
     TITLE XI--SIMPLIFICATION AND OTHER FOREIGN-RELATED PROVISIONS
                     Subtitle A--General Provisions

     SEC. 1101. TREATMENT OF COMPUTER SOFTWARE AS FSC EXPORT 
                   PROPERTY.

       (a) In General.--Subparagraph (B) of section 927(a)(2) 
     (relating to property excluded from eligibility as FSC export 
     property) is amended by inserting ``, and other than computer 
     software (whether or not patented)'' before ``, for 
     commercial or home use''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to gross receipts attributable to periods after 
     December 31, 1997, in taxable years ending after such date.
       (c) Phasein of Treatment.--For purposes of the Internal 
     Revenue Code of 1986--
       (1) 1998.--In the case of gross receipts attributable to 
     calendar year 1998, the amendment made by subsection (a) 
     shall apply to only \1/3\ of such gross receipts.
       (2) 1999.--In the case of gross receipts attributable to 
     calendar year 1999, the amendment made by subsection (a) 
     shall apply to only \2/3\ of such gross receipts.

     SEC. 1102. ADJUSTMENT OF DOLLAR LIMITATION ON SECTION 911 
                   EXCLUSION.

       (a) General Rule.--Paragraph (2) of section 911(b) is 
     amended by--
       (1) by striking ``of $70,000'' in subparagraph (A) and 
     inserting ``equal to the exclusion amount for the calendar 
     year in which such taxable year begins'', and
       (2) by adding at the end the following new subparagraph:
       ``(D) Exclusion amount.--
       ``(i) In general.--The exclusion amount for any calendar 
     year is the exclusion amount determined in accordance with 
     the following table (as adjusted by clause (ii)):

``For calendar year--                         The exclusion amount is--
  1998.....................................................$72,000 ....

  1999..................................................... 74,000 ....

  2000..................................................... 76,000 ....

  2001..................................................... 78,000 ....

  2002 and thereafter...................................... 80,000.....

       ``(ii) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 2007, the $80,000 
     amount in clause (i) shall be increased by an amount equal to 
     the product of--

       ``(I) such dollar amount, and
       ``(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 `2006' for `1992' in 
     subparagraph (B) thereof.

     If any increase determined under the preceding sentence is 
     not a multiple of $100, such increase shall be rounded to the 
     next lowest multiple of $100.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1103. CERTAIN INDIVIDUALS EXEMPT FROM FOREIGN TAX CREDIT 
                   LIMITATION.

       (a) General Rule.--Section 904 (relating to limitations on 
     foreign tax credit) is amended by redesignating subsection 
     (j) as subsection (k) and by inserting after subsection (i) 
     the following new subsection:
       ``(j) Certain Individuals Exempt.--
       ``(1) In general.--In the case of an individual to whom 
     this subsection applies for any taxable year--
       ``(A) the limitation of subsection (a) shall not apply,
       ``(B) no taxes paid or accrued by the individual during 
     such taxable year may be deemed paid or accrued under 
     subsection (c) in any other taxable year, and
       ``(C) no taxes paid or accrued by the individual during any 
     other taxable year may be deemed paid or accrued under 
     subsection (c) in such taxable year.
       ``(2) Individuals to whom subsection applies.--This 
     subsection shall apply to an individual for any taxable year 
     if--
       ``(A) the entire amount of such individual's gross income 
     for the taxable year from sources without the United States 
     consists of qualified passive income,
       ``(B) the amount of the creditable foreign taxes paid or 
     accrued by the individual during the taxable year does not 
     exceed $300 ($600 in the case of a joint return), and
       ``(C) such individual elects to have this subsection apply 
     for the taxable year.
       ``(3) Definitions.--For purposes of this subsection--
       ``(A) Qualified passive income.--The term `qualified 
     passive income' means any item of gross income if--
       ``(i) such item of income is passive income (as defined in 
     subsection (d)(2)(A) without regard to clause (iii) thereof), 
     and
       ``(ii) such item of income is shown on a payee statement 
     furnished to the individual.
       ``(B) Creditable foreign taxes.--The term `creditable 
     foreign taxes' means any taxes for which a credit is 
     allowable under section 901; except that such term shall not 
     include any tax unless such tax is shown on a payee statement 
     furnished to such individual.
       ``(C) Payee statement.--The term `payee statement' has the 
     meaning given to such term by section 6724(d)(2).
       ``(D) Estates and trusts not eligible.--This subsection 
     shall not apply to any estate or trust.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1104. EXCHANGE RATE USED IN TRANSLATING FOREIGN TAXES.

       (a) Accrued Taxes Translated by Using Average Rate for Year 
     to Which Taxes Relate.--
       (1) In general.--Subsection (a) of section 986 (relating to 
     translation of foreign taxes) is amended to read as follows:
       ``(a) Foreign Income Taxes.--
       ``(1) Translation of accrued taxes.--
       ``(A) In general.--For purposes of determining the amount 
     of the foreign tax credit, in the case of a taxpayer who 
     takes foreign income taxes into account when accrued, the 
     amount of any foreign income taxes (and any adjustment 
     thereto) shall be translated into dollars by using the 
     average exchange rate for the taxable year to which such 
     taxes relate.
       ``(B) Exception for certain taxes.--Subparagraph (A) shall 
     not apply to any foreign income taxes--
       ``(i) paid after the date 2 years after the close of the 
     taxable year to which such taxes relate, or
       ``(ii) paid before the beginning of the taxable year to 
     which such taxes relate.
       ``(C) Exception for inflationary currencies.--Subparagraph 
     (A) shall not apply to any foreign income taxes the liability 
     for which is denominated in any inflationary currency (as 
     determined under regulations).
       ``(D) Cross reference.--

  ``For adjustments where tax is not paid within 2 years, see section 
905(c).

       ``(2) Translation of taxes to which paragraph (1) does not 
     apply.--For purposes of determining the amount of the foreign 
     tax credit, in the case of any foreign income taxes to which 
     subparagraph (A) of paragraph (1) does not apply--
       ``(A) such taxes shall be translated into dollars using the 
     exchange rates as of the time such taxes were paid to the 
     foreign country or possession of the United States, and
       ``(B) any adjustment to the amount of such taxes shall be 
     translated into dollars using--
       ``(i) except as provided in clause (ii), the exchange rate 
     as of the time when such adjustment is paid to the foreign 
     country or possession, or
       ``(ii) in the case of any refund or credit of foreign 
     income taxes, using the exchange rate as of the time of the 
     original payment of such foreign income taxes.
       ``(3) Foreign income taxes.--For purposes of this 
     subsection, the term `foreign income taxes' means any income, 
     war profits, or excess profits taxes paid or accrued to any 
     foreign country or to any possession of the United States.''.
       (2) Adjustment when not paid within 2 years after year to 
     which taxes relate.--Subsection (c) of section 905 is amended 
     to read as follows:

[[Page H4749]]

       ``(c) Adjustments to Accrued Taxes.--
       ``(1) In general.--If--
       ``(A) accrued taxes when paid differ from the amounts 
     claimed as credits by the taxpayer,
       ``(B) accrued taxes are not paid before the date 2 years 
     after the close of the taxable year to which such taxes 
     relate, or
       ``(C) any tax paid is refunded in whole or in part,

     the taxpayer shall notify the Secretary, who shall 
     redetermine the amount of the tax for the year or years 
     affected. The Secretary may prescribe adjustments to tax 
     pools under sections 902 and 960 in lieu of the 
     redetermination under the preceding sentence.
       ``(2) Special rule for taxes not paid within 2 years.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     in making the redetermination under paragraph (1), no credit 
     shall be allowed for accrued taxes not paid before the date 
     referred to in subparagraph (B) of paragraph (1).
       ``(B) Taxes subsequently paid.--Any such taxes if 
     subsequently paid shall be taken into account for the taxable 
     year to which such taxes relate (and translated as provided 
     in section 986(a)(2)(A)).
       ``(3) Adjustments.--The amount of tax (if any) due on any 
     redetermination under paragraph (1) shall be paid by the 
     taxpayer on notice and demand by the Secretary, and the 
     amount of tax overpaid (if any) shall be credited or refunded 
     to the taxpayer in accordance with subchapter B of chapter 66 
     (section 6511 et seq.).
       ``(4) Bond requirements.--In the case of any tax accrued 
     but not paid, the Secretary, as a condition precedent to the 
     allowance of the credit provided in this subpart, may require 
     the taxpayer to give a bond, with sureties satisfactory to 
     and approved by the Secretary, in such sum as the Secretary 
     may require, conditioned on the payment by the taxpayer of 
     any amount of tax found due on any such redetermination. Any 
     such bond shall contain such further conditions as the 
     Secretary may require.
       ``(5) Other special rules.--In any redetermination under 
     paragraph (1) by the Secretary of the amount of tax due from 
     the taxpayer for the year or years affected by a refund, the 
     amount of the taxes refunded for which credit has been 
     allowed under this section shall be reduced by the amount of 
     any tax described in section 901 imposed by the foreign 
     country or possession of the United States with respect to 
     such refund; but no credit under this subpart, or deduction 
     under section 164, shall be allowed for any taxable year with 
     respect to any such tax imposed on the refund. No interest 
     shall be assessed or collected on any amount of tax due on 
     any redetermination by the Secretary, resulting from a refund 
     to the taxpayer, for any period before the receipt of such 
     refund, except to the extent interest was paid by the foreign 
     country or possession of the United States on such refund for 
     such period.''.
       (b) Authority To Use Average Rates.--
       (1) In general.--Subsection (a) of section 986 (as amended 
     by subsection (a)) is amended by redesignating paragraph (3) 
     as paragraph (4) and inserting after paragraph (2) the 
     following new paragraph:
       ``(3) Authority to permit use of average rates.--To the 
     extent prescribed in regulations, the average exchange rate 
     for the period (specified in such regulations) during which 
     the taxes or adjustment is paid may be used instead of the 
     exchange rate as of the time of such payment.''.
       (2) Determination of average rates.--Subsection (c) of 
     section 989 is amended by striking ``and'' at the end of 
     paragraph (4), by striking the period at the end of paragraph 
     (5) and inserting ``, and'', and by adding at the end thereof 
     the following new paragraph:
       ``(6) setting forth procedures for determining the average 
     exchange rate for any period.''.
       (3) Conforming amendments.--Subsection (b) of section 989 
     is amended by striking ``weighted'' each place it appears.
       (c) Effective Dates.--
       (1) In general.--The amendments made by subsections (a)(1) 
     and (b) shall apply to taxes paid or accrued in taxable years 
     beginning after December 31, 1997.
       (2) Subsection (a)(2).--The amendment made by subsection 
     (a)(2) shall apply to taxes which relate to taxable years 
     beginning after December 31, 1997.

     SEC. 1105. ELECTION TO USE SIMPLIFIED SECTION 904 LIMITATION 
                   FOR ALTERNATIVE MINIMUM TAX.

       (a) General Rule.--Subsection (a) of section 59 (relating 
     to alternative minimum tax foreign tax credit) is amended by 
     adding at the end thereof the following new paragraph:
       ``(3) Election to use simplified section 904 limitation.--
       ``(A) In general.--In determining the alternative minimum 
     tax foreign tax credit for any taxable year to which an 
     election under this paragraph applies--
       ``(i) subparagraph (B) of paragraph (1) shall not apply, 
     and
       ``(ii) the limitation of section 904 shall be based on the 
     proportion which--

       ``(I) the taxpayer's taxable income (as determined for 
     purposes of the regular tax) from sources without the United 
     States (but not in excess of the taxpayer's entire 
     alternative minimum taxable income), bears to

       ``(II) the taxpayer's entire alternative minimum taxable 
     income for the taxable year.

       ``(B) Election.--
       ``(i) In general.--An election under this paragraph may be 
     made only for the taxpayer's first taxable year which begins 
     after December 31, 1997, and for which the taxpayer claims an 
     alternative minimum tax foreign tax credit.
       ``(ii) Election revocable only with consent.--An election 
     under this paragraph, once made, shall apply to the taxable 
     year for which made and all subsequent taxable years unless 
     revoked with the consent of the Secretary.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1106. TREATMENT OF PERSONAL TRANSACTIONS BY INDIVIDUALS 
                   UNDER FOREIGN CURRENCY RULES.

       (a) General Rule.--Subsection (e) of section 988 (relating 
     to application to individuals) is amended to read as follows:
       ``(e) Application to Individuals.--
       ``(1) In general.--The preceding provisions of this section 
     shall not apply to any section 988 transaction entered into 
     by an individual which is a personal transaction.
       ``(2) Exclusion for certain personal transactions.--If--
       ``(A) nonfunctional currency is disposed of by an 
     individual in any transaction, and
       ``(B) such transaction is a personal transaction,

     no gain shall be recognized for purposes of this subtitle by 
     reason of changes in exchange rates after such currency was 
     acquired by such individual and before such disposition. The 
     preceding sentence shall not apply if the gain which would 
     otherwise be recognized on the transaction exceeds $200.
       ``(3) Personal transactions.--For purposes of this 
     subsection, the term `personal transaction' means any 
     transaction entered into by an individual, except that such 
     term shall not include any transaction to the extent that 
     expenses properly allocable to such transaction meet the 
     requirements of section 162 or 212 (other than that part of 
     section 212 dealing with expenses incurred in connection with 
     taxes).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1107. ALL NONCONTROLLED SECTION 902 CORPORATIONS WHICH 
                   ARE NOT PASSIVE FOREIGN INVESTMENT COMPANIES IN 
                   ONE FOREIGN TAX LIMITATION BASKET.

       (a) In General.--Subparagraph (E) of section 904(d)(2) 
     (relating to noncontrolled section 902 corporations) is 
     amended by adding at the end the following new clause:
       ``(iv) All non-pfic's treated as one.--All noncontrolled 
     section 902 corporations which are not passive foreign 
     investment companies (as defined in section 1297) shall be 
     treated as one noncontrolled section 902 corporation for 
     purposes of paragraph (1). The Secretary may prescribe 
     regulations regarding the treatment of distributions out of 
     earnings and profits for periods prior to the taxpayer's 
     acquisition of such stock.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2001.
        Subtitle B--Treatment of Controlled Foreign Corporations

     SEC. 1111. GAIN ON CERTAIN STOCK SALES BY CONTROLLED FOREIGN 
                   CORPORATIONS TREATED AS DIVIDENDS.

       (a) General Rule.--Section 964 (relating to miscellaneous 
     provisions) is amended by adding at the end thereof the 
     following new subsection:
       ``(e) Gain on Certain Stock Sales by Controlled Foreign 
     Corporations Treated as Dividends.--
       ``(1) In general.--If a controlled foreign corporation 
     sells or exchanges stock in any other foreign corporation, 
     gain recognized on such sale or exchange shall be included in 
     the gross income of such controlled foreign corporation as a 
     dividend to the same extent that it would have been so 
     included under section 1248(a) if such controlled foreign 
     corporation were a United States person. For purposes of 
     determining the amount which would have been so includible, 
     the determination of whether such other foreign corporation 
     was a controlled foreign corporation shall be made without 
     regard to the preceding sentence.
       ``(2) Same country exception not applicable.--Clause (i) of 
     section 954(c)(3)(A) shall not apply to any amount treated as 
     a dividend by reason of paragraph (1).
       ``(3) Clarification of deemed sales.--For purposes of this 
     subsection, a controlled foreign corporation shall be treated 
     as having sold or exchanged any stock if, under any provision 
     of this subtitle, such controlled foreign corporation is 
     treated as having gain from the sale or exchange of such 
     stock.''.
       (b) Amendment of Section 904(d).--Clause (i) of section 
     904(d)(2)(E) is amended by striking ``and except as provided 
     in regulations, the taxpayer was a United States shareholder 
     in such corporation''.
       (c) Effective Dates.--
       (1) The amendment made by subsection (a) shall apply to 
     gain recognized on transactions occurring after the date of 
     the enactment of this Act.
       (2) The amendment made by subsection (b) shall apply to 
     distributions after the date of the enactment of this Act.

     SEC. 1112. MISCELLANEOUS MODIFICATIONS TO SUBPART F.

       (a) Section 1248 Gain Taken Into Account in Determining Pro 
     Rata Share.--
       (1) In general.--Paragraph (2) of section 951(a) (defining 
     pro rata share of subpart F

[[Page H4750]]

     income) is amended by adding at the end thereof the following 
     new sentence: ``For purposes of subparagraph (B), any gain 
     included in the gross income of any person as a dividend 
     under section 1248 shall be treated as a distribution 
     received by such person with respect to the stock 
     involved.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to dispositions after the date of the enactment 
     of this Act.
       (b) Basis Adjustments in Stock Held by Foreign 
     Corporation.--
       (1) In general.--Section 961 (relating to adjustments to 
     basis of stock in controlled foreign corporations and of 
     other property) is amended by adding at the end thereof the 
     following new subsection:
       ``(c) Basis Adjustments in Stock Held by Foreign 
     Corporation.--Under regulations prescribed by the Secretary, 
     if a United States shareholder is treated under section 
     958(a)(2) as owning any stock in a controlled foreign 
     corporation which is actually owned by another controlled 
     foreign corporation, adjustments similar to the adjustments 
     provided by subsections (a) and (b) shall be made to the 
     basis of such stock in the hands of such other controlled 
     foreign corporation, but only for the purposes of determining 
     the amount included under section 951 in the gross income of 
     such United States shareholder (or any other United States 
     shareholder who acquires from any person any portion of the 
     interest of such United States shareholder by reason of which 
     such shareholder was treated as owning such stock, but only 
     to the extent of such portion, and subject to such proof of 
     identity of such interest as the Secretary may prescribe by 
     regulations).''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply for purposes of determining inclusions for 
     taxable years of United States shareholders beginning after 
     December 31, 1997.
       (c) Clarification of Treatment of Branch Tax Exemptions or 
     Reductions.--
       (1) In general.--Subsection (b) of section 952 is amended 
     by adding at the end thereof the following new sentence: 
     ``For purposes of this subsection, any exemption (or 
     reduction) with respect to the tax imposed by section 884 
     shall not be taken into account.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall apply to taxable years beginning after December 31, 
     1986.

     SEC. 1113. INDIRECT FOREIGN TAX CREDIT ALLOWED FOR CERTAIN 
                   LOWER TIER COMPANIES.

       (a) Section 902 Credit.--
       (1) In general.--Subsection (b) of section 902 (relating to 
     deemed taxes increased in case of certain 2nd and 3rd tier 
     foreign corporations) is amended to read as follows:
       ``(b) Deemed Taxes Increased in Case of Certain Lower Tier 
     Corporations.--
       ``(1) In general.--If--
       ``(A) any foreign corporation is a member of a qualified 
     group, and
       ``(B) such foreign corporation owns 10 percent or more of 
     the voting stock of another member of such group from which 
     it receives dividends in any taxable year,

     such foreign corporation shall be deemed to have paid the 
     same proportion of such other member's post-1986 foreign 
     income taxes as would be determined under subsection (a) if 
     such foreign corporation were a domestic corporation.
       ``(2) Qualified group.--For purposes of paragraph (1), the 
     term `qualified group' means--
       ``(A) the foreign corporation described in subsection (a), 
     and
       ``(B) any other foreign corporation if--
       ``(i) the domestic corporation owns at least 5 percent of 
     the voting stock of such other foreign corporation indirectly 
     through a chain of foreign corporations connected through 
     stock ownership of at least 10 percent of their voting stock,
       ``(ii) the foreign corporation described in subsection (a) 
     is the first tier corporation in such chain, and
       ``(iii) such other corporation is not below the sixth tier 
     in such chain.

     The term `qualified group' shall not include any foreign 
     corporation below the third tier in the chain referred to in 
     clause (i) unless such foreign corporation is a controlled 
     foreign corporation (as defined in section 957) and the 
     domestic corporation is a United States shareholder (as 
     defined in section 951(b)) in such foreign corporation. 
     Paragraph (1) shall apply to those taxes paid by a member of 
     the qualified group below the third tier only with respect to 
     periods during which it was a controlled foreign 
     corporation.''.
       (2) Conforming amendments.--
       (A) Subparagraph (B) of section 902(c)(3) is amended by 
     adding ``or'' at the end of clause (i) and by striking 
     clauses (ii) and (iii) and inserting the following new 
     clause:
       ``(ii) the requirements of subsection (b)(2) are met with 
     respect to such foreign corporation.''.
       (B) Subparagraph (B) of section 902(c)(4) is amended by 
     striking ``3rd foreign corporation'' and inserting ``sixth 
     tier foreign corporation''.
       (C) The heading for paragraph (3) of section 902(c) is 
     amended by striking ``where domestic corporation acquires 10 
     percent of foreign corporation'' and inserting ``where 
     foreign corporation first qualifies''.
       (D) Paragraph (3) of section 902(c) is amended by striking 
     ``ownership'' each place it appears.
       (b) Section 960 Credit.--Paragraph (1) of section 960(a) 
     (relating to special rules for foreign tax credits) is 
     amended to read as follows:
       ``(1) Deemed paid credit.--For purposes of subpart A of 
     this part, if there is included under section 951(a) in the 
     gross income of a domestic corporation any amount 
     attributable to earnings and profits of a foreign corporation 
     which is a member of a qualified group (as defined in section 
     902(b)) with respect to the domestic corporation, then, 
     except to the extent provided in regulations, section 902 
     shall be applied as if the amount so included were a dividend 
     paid by such foreign corporation (determined by applying 
     section 902(c) in accordance with section 904(d)(3)(B)).''.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxes of foreign corporations for taxable years of 
     such corporations beginning after the date of enactment of 
     this Act.
       (2) Special rule.--In the case of any chain of foreign 
     corporations described in clauses (i) and (ii) of section 
     902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended 
     by this section), no liquidation, reorganization, or similar 
     transaction in a taxable year beginning after the date of the 
     enactment of this Act shall have the effect of permitting 
     taxes to be taken into account under section 902 of the 
     Internal Revenue Code of 1986 which could not have been taken 
     into account under such section but for such transaction.
     Subtitle C--Treatment of Passive Foreign Investment Companies

     SEC. 1121. UNITED STATES SHAREHOLDERS OF CONTROLLED FOREIGN 
                   CORPORATIONS NOT SUBJECT TO PFIC INCLUSION.

       Section 1296 is amended by adding at the end the following 
     new subsection:
       ``(e) Exception for United States Shareholders of 
     Controlled Foreign Corporations.--
       ``(1) In general.--For purposes of this part, a corporation 
     shall not be treated with respect to a shareholder as a 
     passive foreign investment company during the qualified 
     portion of such shareholder's holding period with respect to 
     stock in such corporation.
       ``(2) Qualified portion.--For purposes of this subsection, 
     the term `qualified portion' means the portion of the 
     shareholder's holding period--
       ``(A) which is after December 31, 1997, and
       ``(B) during which the shareholder is a United States 
     shareholder (as defined in section 951(b)) of the corporation 
     and the corporation is a controlled foreign corporation.
       ``(3) New holding period if qualified portion ends.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     if the qualified portion of a shareholder's holding period 
     with respect to any stock ends after December 31, 1997, 
     solely for purposes of this part, the shareholder's holding 
     period with respect to such stock shall be treated as 
     beginning as of the first day following such period.
       ``(B) Exception.--Subparagraph (A) shall not apply if such 
     stock was, with respect to such shareholder, stock in a 
     passive foreign investment company at any time before the 
     qualified portion of the shareholder's holding period with 
     respect to such stock and no election under section 
     1298(b)(1) is made.''.

     SEC. 1122. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK IN 
                   PASSIVE FOREIGN INVESTMENT COMPANY.

       (a) In General.--Part VI of subchapter P of chapter 1 is 
     amended by redesignating subpart C as subpart D, by 
     redesignating sections 1296 and 1297 as sections 1297 and 
     1298, respectively, and by inserting after subpart B the 
     following new subpart:

      ``Subpart C--Election of Mark to Market For Marketable Stock

``Sec. 1296. Election of mark to market for marketable stock.

     ``SEC. 1296. ELECTION OF MARK TO MARKET FOR MARKETABLE STOCK.

       ``(a) General Rule.--In the case of marketable stock in a 
     passive foreign investment company which is owned (or treated 
     under subsection (g) as owned) by a United States person at 
     the close of any taxable year of such person, at the election 
     of such person--
       ``(1) If the fair market value of such stock as of the 
     close of such taxable year exceeds its adjusted basis, such 
     United States person shall include in gross income for such 
     taxable year an amount equal to the amount of such excess.
       ``(2) If the adjusted basis of such stock exceeds the fair 
     market value of such stock as of the close of such taxable 
     year, such United States person shall be allowed a deduction 
     for such taxable year equal to the lesser of--
       ``(A) the amount of such excess, or
       ``(B) the unreversed inclusions with respect to such stock.
       ``(b) Basis Adjustments.--
       ``(1) In general.--The adjusted basis of stock in a passive 
     foreign investment company--
       ``(A) shall be increased by the amount included in the 
     gross income of the United States person under subsection 
     (a)(1) with respect to such stock, and
       ``(B) shall be decreased by the amount allowed as a 
     deduction to the United States person under subsection (a)(2) 
     with respect to such stock.
       ``(2) Special rule for stock constructively owned.--In the 
     case of stock in a passive foreign investment company which 
     the United States person is treated as owning under 
     subsection (g)--

[[Page H4751]]

       ``(A) the adjustments under paragraph (1) shall apply to 
     such stock in the hands of the person actually holding such 
     stock but only for purposes of determining the subsequent 
     treatment under this chapter of the United States person with 
     respect to such stock, and
       ``(B) similar adjustments shall be made to the adjusted 
     basis of the property by reason of which the United States 
     person is treated as owning such stock.
       ``(c) Character and Source Rules.--
       ``(1) Ordinary treatment.--
       ``(A) Gain.--Any amount included in gross income under 
     subsection (a)(1), and any gain on the sale or other 
     disposition of marketable stock in a passive foreign 
     investment company (with respect to which an election under 
     this section is in effect), shall be treated as ordinary 
     income.
       ``(B) Loss.--Any--
       ``(i) amount allowed as a deduction under subsection 
     (a)(2), and
       ``(ii) loss on the sale or other disposition of marketable 
     stock in a passive foreign investment company (with respect 
     to which an election under this section is in effect) to the 
     extent that the amount of such loss does not exceed the 
     unreversed inclusions with respect to such stock,

     shall be treated as an ordinary loss. The amount so treated 
     shall be treated as a deduction allowable in computing 
     adjusted gross income.
       ``(2) Source.--The source of any amount included in gross 
     income under subsection (a)(1) (or allowed as a deduction 
     under subsection (a)(2)) shall be determined in the same 
     manner as if such amount were gain or loss (as the case may 
     be) from the sale of stock in the passive foreign investment 
     company.
       ``(d) Unreversed Inclusions.--For purposes of this section, 
     the term `unreversed inclusions' means, with respect to any 
     stock in a passive foreign investment company, the excess (if 
     any) of--
       ``(1) the amount included in gross income of the taxpayer 
     under subsection (a)(1) with respect to such stock for prior 
     taxable years, over
       ``(2) the amount allowed as a deduction under subsection 
     (a)(2) with respect to such stock for prior taxable years.

     The amount referred to in paragraph (1) shall include any 
     amount which would have been included in gross income under 
     subsection (a)(1) with respect to such stock for any prior 
     taxable year but for section 1291.
       ``(e) Marketable Stock.--For purposes of this section--
       ``(1) In general.--The term `marketable stock' means--
       ``(A) any stock which is regularly traded on--
       ``(i) a national securities exchange which is registered 
     with the Securities and Exchange Commission or the national 
     market system established pursuant to section 11A of the 
     Securities and Exchange Act of 1934, or
       ``(ii) any exchange or other market which the Secretary 
     determines has rules adequate to carry out the purposes of 
     this part,
       ``(B) to the extent provided in regulations, stock in any 
     foreign corporation which is comparable to a regulated 
     investment company and which offers for sale or has 
     outstanding any stock of which it is the issuer and which is 
     redeemable at its net asset value, and
       ``(C) to the extent provided in regulations, any option on 
     stock described in subparagraph (A) or (B).
       ``(2) Special rule for regulated investment companies.--In 
     the case of any regulated investment company which is 
     offering for sale or has outstanding any stock of which it is 
     the issuer and which is redeemable at its net asset value, 
     all stock in a passive foreign investment company which it 
     owns directly or indirectly shall be treated as marketable 
     stock for purposes of this section. Except as provided in 
     regulations, similar treatment as marketable stock shall 
     apply in the case of any other regulated investment company 
     which publishes net asset valuations at least annually.
       ``(f) Treatment of Controlled Foreign Corporations Which 
     are Shareholders in Passive Foreign Investment Companies.--In 
     the case of a foreign corporation which is a controlled 
     foreign corporation and which owns (or is treated under 
     subsection (g) as owning) stock in a passive foreign 
     investment company--
       ``(1) this section (other than subsection (c)(2)) shall 
     apply to such foreign corporation in the same manner as if 
     such corporation were a United States person, and
       ``(2) for purposes of subpart F of part III of subchapter 
     N--
       ``(A) any amount included in gross income under subsection 
     (a)(1) shall be treated as foreign personal holding company 
     income described in section 954(c)(1)(A), and
       ``(B) any amount allowed as a deduction under subsection 
     (a)(2) shall be treated as a deduction allocable to foreign 
     personal holding company income so described.
       ``(g) Stock Owned Through Certain Foreign Entities.--Except 
     as provided in regulations--
       ``(1) In general.--For purposes of this section, stock 
     owned, directly or indirectly, by or for a foreign 
     partnership or foreign trust or foreign estate shall be 
     considered as being owned proportionately by its partners or 
     beneficiaries. Stock considered to be owned by a person by 
     reason of the application of the preceding sentence shall, 
     for purposes of applying such sentence, be treated as 
     actually owned by such person.
       ``(2) Treatment of certain dispositions.--In any case in 
     which a United States person is treated as owning stock in a 
     passive foreign investment company by reason of paragraph 
     (1)--
       ``(A) any disposition by the United States person or by any 
     other person which results in the United States person being 
     treated as no longer owning such stock, and
       ``(B) any disposition by the person owning such stock,

     shall be treated as a disposition by the United States person 
     of the stock in the passive foreign investment company.
       ``(h) Coordination With Section 851(b).--For purposes of 
     paragraphs (2) and (3) of section 851(b), any amount included 
     in gross income under subsection (a) shall be treated as a 
     dividend.
       ``(i) Stock Acquired From a Decedent.--In the case of stock 
     of a passive foreign investment company which is acquired by 
     bequest, devise, or inheritance (or by the decedent's estate) 
     and with respect to which an election under this section was 
     in effect as of the date of the decedent's death, 
     notwithstanding section 1014, the basis of such stock in the 
     hands of the person so acquiring it shall be the adjusted 
     basis of such stock in the hands of the decedent immediately 
     before his death (or, if lesser, the basis which would have 
     been determined under section 1014 without regard to this 
     subsection).
       ``(j) Coordination With Section 1291 for First Year of 
     Election.--
       ``(1) Taxpayers other than regulated investment 
     companies.--
       ``(A) In general.--If the taxpayer elects the application 
     of this section with respect to any marketable stock in a 
     corporation after the beginning of the taxpayer's holding 
     period in such stock, and if the requirements of subparagraph 
     (B) are not satisfied, section 1291 shall apply to--
       ``(i) any distributions with respect to, or disposition of, 
     such stock in the first taxable year of the taxpayer for 
     which such election is made, and
       ``(ii) any amount which, but for section 1291, would have 
     been included in gross income under subsection (a) with 
     respect to such stock for such taxable year in the same 
     manner as if such amount were gain on the disposition of such 
     stock.
       ``(B) Requirements.--The requirements of this subparagraph 
     are met if, with respect to each of such corporation's 
     taxable years for which such corporation was a passive 
     foreign investment company and which begin after December 31, 
     1986, and included any portion of the taxpayer's holding 
     period in such stock, such corporation was treated as a 
     qualified electing fund under this part with respect to the 
     taxpayer.
       ``(2) Special rules for regulated investment companies.--
       ``(A) In general.--If a regulated investment company elects 
     the application of this section with respect to any 
     marketable stock in a corporation after the beginning of the 
     taxpayer's holding period in such stock, then, with respect 
     to such company's first taxable year for which such company 
     elects the application of this section with respect to such 
     stock--
       ``(i) section 1291 shall not apply to such stock with 
     respect to any distribution or disposition during, or amount 
     included in gross income under this section for, such first 
     taxable year, but
       ``(ii) such regulated investment company's tax under this 
     chapter for such first taxable year shall be increased by the 
     aggregate amount of interest which would have been determined 
     under section 1291(c)(3) if section 1291 were applied without 
     regard to this subparagraph.

     Clause (ii) shall not apply if for the preceding taxable year 
     the company elected to mark to market the stock held by such 
     company as of the last day of such preceding taxable year.
       ``(B) Disallowance of deduction.--No deduction shall be 
     allowed to any regulated investment company for the increase 
     in tax under subparagraph (A)(ii).
       ``(k) Election.--This section shall apply to marketable 
     stock in a passive foreign investment company which is held 
     by a United States person only if such person elects to apply 
     this section with respect to such stock. Such an election 
     shall apply to the taxable year for which made and all 
     subsequent taxable years unless--
       ``(1) such stock ceases to be marketable stock, or
       ``(2) the Secretary consents to the revocation of such 
     election.
       ``(l) Transition Rule for Individuals Becoming Subject to 
     United States Tax.--If any individual becomes a United States 
     person in a taxable year beginning after December 31, 1997, 
     solely for purposes of this section, the adjusted basis 
     (before adjustments under subsection (b)) of any marketable 
     stock in a passive foreign investment company owned by such 
     individual on the first day of such taxable year shall be 
     treated as being the greater of its fair market value on such 
     first day or its adjusted basis on such first day.''.
       (b) Coordination With Interest Charge, Etc.--
       (1) Paragraph (1) of section 1291(d) is amended by adding 
     at the end the following new flush sentence:
     ``Except as provided in section 1296(j), this section also 
     shall not apply if an election under section 1296(k) is in 
     effect for the taxpayer's taxable year.''.

[[Page H4752]]

       (2) The subsection heading for subsection (d) of section 
     1291 is amended by striking ``Subpart B'' and inserting 
     ``Subparts B and C''.
       (3) Subparagraph (A) of section 1291(a)(3) is amended to 
     read as follows:
       ``(A) Holding period.--The taxpayer's holding period shall 
     be determined under section 1223; except that--
       ``(i) for purposes of applying this section to an excess 
     distribution, such holding period shall be treated as ending 
     on the date of such distribution, and
       ``(ii) if section 1296 applied to such stock with respect 
     to the taxpayer for any prior taxable year, such holding 
     period shall be treated as beginning on the first day of the 
     first taxable year beginning after the last taxable year for 
     which section 1296 so applied.''.
       (c) Treatment of Mark-to-Market Gain Under Section 4982.--
       (1) Subsection (e) of section 4982 is amended by adding at 
     the end thereof the following new paragraph:
       ``(6) Treatment of gain recognized under section 1296.--For 
     purposes of determining a regulated investment company's 
     ordinary income--
       ``(A) notwithstanding paragraph (1)(C), section 1296 shall 
     be applied as if such company's taxable year ended on October 
     31, and
       ``(B) any ordinary gain or loss from an actual disposition 
     of stock in a passive foreign investment company during the 
     portion of the calendar year after October 31 shall be taken 
     into account in determining such regulated investment 
     company's ordinary income for the following calendar year.

     In the case of a company making an election under paragraph 
     (4), the preceding sentence shall be applied by substituting 
     the last day of the company's taxable year for October 31.''.
       (2) Subsection (b) of section 852 is amended by adding at 
     the end thereof the following new paragraph:
       ``(10) Special rule for certain losses on stock in passive 
     foreign investment company.--To the extent provided in 
     regulations, the taxable income of a regulated investment 
     company (other than a company to which an election under 
     section 4982(e)(4) applies) shall be computed without regard 
     to any net reduction in the value of any stock of a passive 
     foreign investment company with respect to which an election 
     under section 1296(k) is in effect occurring after October 31 
     of the taxable year, and any such reduction shall be treated 
     as occurring on the first day of the following taxable 
     year.''.
       (3) Subsection (c) of section 852 is amended by inserting 
     after ``October 31 of such year'' the following: ``, without 
     regard to any net reduction in the value of any stock of a 
     passive foreign investment company with respect to which an 
     election under section 1296(k) is in effect occurring after 
     October 31 of such year,''.
       (d) Conforming Amendments.--
       (1) Sections 532(b)(4) and 542(c)(10) are each amended by 
     striking ``section 1296'' and inserting ``section 1297''.
       (2) Subsection (f) of section 551 is amended by striking 
     ``section 1297(b)(5)'' and inserting ``section 1298(b)(5)''.
       (3) Subsections (a)(1) and (d) of section 1293 are each 
     amended by striking ``section 1297(a)'' and inserting 
     ``section 1298(a)''.
       (4) Paragraph (3) of section 1297(b), as redesignated by 
     subsection (a), is hereby repealed.
       (5) The table of sections for subpart D of part VI of 
     subchapter P of chapter 1, as redesignated by subsection (a), 
     is amended to read as follows:

``Sec. 1297. Passive foreign investment company.
``Sec. 1298. Special rules.''.

       (6) The table of subparts for part VI of subchapter P of 
     chapter 1 is amended by striking the last item and inserting 
     the following new items:

``Subpart C. Election of mark to market for marketable stock.
``Subpart D. General provisions.''.

       (e) Clarification of Gain Recognition Election.--The last 
     sentence of section 1298(b)(1), as so redesignated, is 
     amended by inserting ``(determined without regard to the 
     preceding sentence)'' after ``investment company''.

     SEC. 1123. EFFECTIVE DATE.

       The amendments made by this subtitle shall apply to--
       (1) taxable years of United States persons beginning after 
     December 31, 1997, and
       (2) taxable years of foreign corporations ending with or 
     within such taxable years of United States persons.
   Subtitle D--Repeal of Excise Tax on Transfers to Foreign Entities

     SEC. 1131. REPEAL OF EXCISE TAX ON TRANSFERS TO FOREIGN 
                   ENTITIES; RECOGNITION OF GAIN ON CERTAIN 
                   TRANSFERS TO FOREIGN TRUSTS AND ESTATES.

       (a) Repeal of Excise Tax.--Chapter 5 (relating to transfers 
     to avoid income tax) is hereby repealed.
       (b) Recognition of Gain on Certain Transfers to Foreign 
     Trusts and Estates.--Subpart F of part I of subchapter J of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 684. RECOGNITION OF GAIN ON CERTAIN TRANSFERS TO 
                   CERTAIN FOREIGN TRUSTS AND ESTATES.

       ``(a) In general.--In the case of any transfer of property 
     by a United States person to a foreign estate or trust, for 
     purposes of this subtitle, such transfer shall be treated as 
     a sale or exchange for an amount equal to the fair market 
     value of the property transferred, and the transferor shall 
     recognize as gain the excess of--
       ``(1) the fair market value of the property so transferred, 
     over
       ``(2) the adjusted basis (for purposes of determining gain) 
     of such property in the hands of the transferor.
       ``(b) Exception.--Subsection (a) shall not apply to a 
     transfer to a trust by a United States person if such person 
     is treated as the owner of such trust under section 671.''.
       (b) Other Anti-Avoidance Provisions Replacing Repealed 
     Excise Tax.--
       (1) Gain recognition on exchanges involving foreign 
     persons.--Section 1035 is amended by redesignating subsection 
     (c) as subsection (d) and by inserting after subsection (b) 
     the following new subsection:
       ``(c) Exchanges Involving Foreign Persons.--To the extent 
     provided in regulations, subsection (a) shall not apply to 
     any exchange having the effect of transferring property to 
     any person other than a United States person.''.
       (2) Transfers to foreign corporations.--Section 367 is 
     amended by adding at the end the following new subsection:
       ``(f) Other Transfers.--To the extent provided in 
     regulations, if a United States person transfers property to 
     a foreign corporation as paid-in surplus or as a contribution 
     to capital (in a transaction not otherwise described in this 
     section), such foreign corporation shall not, for purposes of 
     determining the extent to which gain shall be recognized on 
     such transfer, be considered to be a corporation.''.
       (3) Certain transfers to partnerships.--Section 721 is 
     amended by adding at the end the following new subsection:
       ``(c) Regulations Relating to Transfers to Foreign 
     Persons.--The Secretary may provide by regulations that 
     subsection (a) shall not apply to gain realized on the 
     transfer of property to a partnership if such gain, when 
     recognized, will be includible in the gross income of a 
     person other than a United States person.''.
       (4) Repeal of u.s. source treatment of deemed royalties.--
     Subparagraph (C) of section 367(d)(2) is amended to read as 
     follows:
       ``(C) Amounts received treated as ordinary income.--For 
     purposes of this chapter, any amount included in gross income 
     by reason of this subsection shall be treated as ordinary 
     income.''.
       (5) Transfers of intangibles to partnerships.--
       (A) Subsection (d) of section 367 is amended by adding at 
     the end the following new paragraph:
       ``(3) Regulations relating to transfers of intangibles to 
     partnerships.--The Secretary may provide by regulations that 
     the rules of paragraph (2) also apply to the transfer of 
     intangible property by a United States person to a 
     partnership in circumstances consistent with the purposes of 
     this subsection.''.
       (B) Section 721 is amended by adding at the end the 
     following new subsection:
       ``(d) Transfers of Intangibles.--

  ``For regulatory authority to treat intangibles transferred to a 
partnership as sold, see section 367(d)(3).''.

       (c) Technical and Conforming Amendments.--
       (1) Subsection (h) of section 814 is amended by striking 
     ``or 1491''.
       (2) Section 1057 (relating to election to treat transfer to 
     foreign trust, etc., as taxable exchange) is hereby repealed.
       (3) Section 6422 is amended by striking paragraph (5) and 
     by redesignating paragraphs (6) through (13) as paragraphs 
     (5) through (12), respectively.
       (4) The table of chapters for subtitle A is amended by 
     striking the item relating to chapter 5.
       (5) The table of sections for part IV of subchapter O of 
     chapter 1 is amended by striking the item relating to section 
     1057.
       (6) The table of sections for subpart F of part I of 
     subchapter J of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 684. Recognition of gain on certain transfers to certain foreign 
              trusts and estates.''.

       (d) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.
                   Subtitle E--Information Reporting

     SEC. 1141. CLARIFICATION OF APPLICATION OF RETURN REQUIREMENT 
                   TO FOREIGN PARTNERSHIPS.

       (a) In General.--Section 6031 (relating to return of 
     partnership income) is amended by adding at the end the 
     following new subsection:
       ``(e) Foreign Partnerships.--
       ``(1) Exception for foreign partnership.--Except as 
     provided in paragraph (2), the preceding provisions of this 
     section shall not apply to a foreign partnership.
       ``(2) Certain foreign partnerships required to file 
     return.--Except as provided in regulations prescribed by the 
     Secretary, this section shall apply to a foreign partnership 
     for any taxable year if for such year, such partnership has--
       ``(A) gross income derived from sources within the United 
     States, or
       ``(B) gross income which is effectively connected with the 
     conduct of a trade or business within the United States.


[[Page H4753]]


     The Secretary may provide simplified filing procedures for 
     foreign partnerships to which this section applies.''.
       (b) Sanction for Failure by Foreign Partnership To Comply 
     With Section 6031 To Include Denial of Deductions.--
     Subsection (f) of section 6231 is amended--
       (1) by striking ``Losses and'' in the heading and inserting 
     ``Deductions, Losses, and'', and
       (2) by striking ``loss or'' each place it appears and 
     inserting ``deduction, loss, or''.
       (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. 1142. CONTROLLED FOREIGN PARTNERSHIPS SUBJECT TO 
                   INFORMATION REPORTING COMPARABLE TO INFORMATION 
                   REPORTING FOR CONTROLLED FOREIGN CORPORATIONS.

       (a) In General.--So much of section 6038 (relating to 
     information with respect to certain foreign corporations) as 
     precedes paragraph (2) of subsection (a) is amended to read 
     as follows:

     ``SEC. 6038. INFORMATION REPORTING WITH RESPECT TO CERTAIN 
                   FOREIGN CORPORATIONS AND PARTNERSHIPS.

       ``(a) Requirement.--
       ``(1) In general.--Every United States person shall 
     furnish, with respect to any foreign business entity which 
     such person controls, such information as the Secretary may 
     prescribe relating to--
       ``(A) the name, the principal place of business, and the 
     nature of business of such entity, and the country under 
     whose laws such entity is incorporated (or organized in the 
     case of a partnership);
       ``(B) in the case of a foreign corporation, its post-1986 
     undistributed earnings (as defined in section 902(c));
       ``(C) a balance sheet for such entity listing assets, 
     liabilities, and capital;
       ``(D) transactions between such entity and--
       ``(i) such person,
       ``(ii) any corporation or partnership which such person 
     controls, and
       ``(iii) any United States person owning, at the time the 
     transaction takes place--

       ``(I) in the case of a foreign corporation, 10 percent or 
     more of the value of any class of stock outstanding of such 
     corporation, and
       ``(II) in the case of a foreign partnership, at least a 10-
     percent interest in such partnership; and

       ``(E)(i) in the case of a foreign corporation, a 
     description of the various classes of stock outstanding, and 
     a list showing the name and address of, and number of shares 
     held by, each United States person who is a shareholder of 
     record owning at any time during the annual accounting period 
     5 percent or more in value of any class of stock outstanding 
     of such foreign corporation, and
       ``(ii) information comparable to the information described 
     in clause (i) in the case of a foreign partnership.

     The Secretary may also require the furnishing of any other 
     information which is similar or related in nature to that 
     specified in the preceding sentence or which the Secretary 
     determines to be appropriate to carry out the provisions of 
     this title.''.
       (b) Definitions.--
       (1) In general.--Subsection (e) of section 6038 (relating 
     to definitions) is amended--
       (A) by redesignating paragraphs (1) and (2) as paragraphs 
     (2) and (4), respectively,
       (B) by inserting before paragraph (2) (as so redesignated) 
     the following new paragraph:
       ``(1) Foreign business entity.--The term `foreign business 
     entity' means a foreign corporation and a foreign 
     partnership.'', and
       (C) by inserting after paragraph (2) (as so redesignated) 
     the following new paragraph:
       ``(3) Partnership-related definitions.--
       ``(A) Control.--A person is in control of a partnership if 
     such person owns directly or indirectly more than a 50 
     percent interest in such partnership.
       ``(B) 50-percent interest.--For purposes of subparagraph 
     (A), a 50-percent interest in a partnership is--
       ``(i) an interest equal to 50 percent of the capital 
     interest, or 50 percent of the profits interest, in such 
     partnership, or
       ``(ii) to the extent provided in regulations, an interest 
     to which 50 percent of the deductions or losses of such 
     partnership are allocated.

     For purposes of the preceding sentence, rules similar to the 
     rules of section 267(c) (other than paragraph (3)) shall 
     apply, except so as to consider a United States person as 
     owning such an interest which is owned by a person which is 
     not a United States person.
       ``(C) 10-percent interest.--A 10-percent interest in a 
     partnership is an interest which would be described in 
     subparagraph (B) if `10 percent' were substituted for `50 
     percent' each place it appears.''.
       (2) Clerical amendment.--The paragraph heading for 
     paragraph (2) of section 6038(e) (as so redesignated) is 
     amended by inserting ``of corporation'' after ``Control''.
       (c) Modification of Sanctions on Partnerships and 
     Corporations for Failure To Furnish Information.--
       (1) In general.--Subsection (b) of section 6038 is 
     amended--
       (A) by striking ``$1,000'' each place it appears and 
     inserting ``$10,000'', and
       (B) by striking ``$24,000'' in paragraph (2) and inserting 
     ``$50,000''.
       (d) Reporting by 10-Percent Partners.--Subsection (a) of 
     section 6038 is amended by adding at the end the following 
     new paragraph:
       ``(5) Information required from 10-percent partner of 
     controlled foreign partnership.--In the case of a foreign 
     partnership which is controlled by United States persons 
     holding at least 10-percent interests (but not by any one 
     United States person), the Secretary may require each United 
     States person who holds a 10-percent interest in such 
     partnership to furnish information relating to such 
     partnership, including information relating to such partner's 
     ownership interests in the partnership and allocations to 
     such partner of partnership items.''.
       (e) Technical Amendments.--
       (1) The following provisions of section 6038 are each 
     amended by striking ``foreign corporation'' each place it 
     appears and inserting ``foreign business entity'':
       (A) Paragraphs (2) and (3) of subsection (a).
       (B) Subsection (b).
       (C) Subsection (c) other than paragraph (1)(B) thereof.
       (D) Subsection (d).
       (E) Subsection (e)(4) (as redesignated by subsection (b)).
       (2) Subparagraph (B) of section 6038(c)(1) is amended by 
     inserting ``in the case of a foreign business entity which is 
     a foreign corporation,'' after ``(B)''.
       (3) Paragraph (8) of section 318(b) is amended by striking 
     ``6038(d)(1)'' and inserting ``6038(d)(2)''.
       (4) Paragraph (4) of section 901(k) is amended by striking 
     ``foreign corporation'' and inserting ``foreign corporation 
     or partnership''.
       (5) The table of sections for subpart A of part III of 
     subchapter A of chapter 61 is amended by striking the item 
     relating to section 6038 and inserting the following new 
     item:

``Sec. 6038. Information reporting with respect to certain foreign 
              corporations and partnerships.''.

       (f) Effective Date.--The amendments made by this section 
     shall apply to annual accounting periods of foreign 
     partnerships beginning after the date of the enactment of 
     this Act.

     SEC. 1143. MODIFICATIONS RELATING TO RETURNS REQUIRED TO BE 
                   FILED BY REASON OF CHANGES IN OWNERSHIP 
                   INTERESTS IN FOREIGN PARTNERSHIP.

       (a) No Return Required Unless Changes Involve 10-Percent 
     Interest in Partnership.--
       (1) In general.--Subsection (a) of section 6046A (relating 
     to returns as to interests in foreign partnerships) is 
     amended by adding at the end the following new sentence: 
     ``Paragraphs (1) and (2) shall apply to any acquisition or 
     disposition only if the United States person directly or 
     indirectly holds at least a 10-percent interest in such 
     partnership either before or after such acquisition or 
     disposition, and paragraph (3) shall apply to any change only 
     if the change is equivalent to at least a 10-interest in such 
     partnership.''.
       (2) 10-percent interest.--Section 6046A is amended by 
     redesignating subsection (d) as subsection (e) and by 
     inserting after subsection (c) the following new subsection:
       ``(d) 10-Percent Interest.--For purposes of subsection (a), 
     a 10-percent interest in a partnership is an interest 
     described in section 6038(e)(3)(C).''.
       (b) Modification of Penalty on Failure to Report Changes in 
     Ownership Interests in Foreign Corporations and 
     Partnerships.--Subsection (a) of section 6679 (relating to 
     failure to file returns, etc., with respect to foreign 
     corporations or foreign partnerships) is amended to read as 
     follows:
       ``(a) Civil Penalty.--
       ``(1) In general.--In addition to any criminal penalty 
     provided by law, any person required to file a return under 
     section 6035, 6046, or 6046A who fails to file such return at 
     the time provided in such section, or who files a return 
     which does not show the information required pursuant to such 
     section, shall pay a penalty of $10,000, unless it is shown 
     that such failure is due to reasonable cause.
       ``(2) Increase in penalty where failure continues after 
     notification.--If any failure described in paragraph (1) 
     continues for more than 90 days after the day on which the 
     Secretary mails notice of such failure to the United States 
     person, such person shall pay a penalty (in addition to the 
     amount required under paragraph (1)) of $10,000 for each 30-
     day period (or fraction thereof) during which such failure 
     continues after the expiration of such 90-day period. The 
     increase in any penalty under this paragraph shall not exceed 
     $50,000.
       ``(3) Reduced penalty for returns relating to foreign 
     personal holding companies.--In the case of a return required 
     under section 6035, paragraph (1) shall be applied by 
     substituting `$1,000' for `$10,000', and paragraph (2) shall 
     not apply.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transfers and changes after the date of the 
     enactment of this Act.

     SEC. 1144. TRANSFERS OF PROPERTY TO FOREIGN PARTNERSHIPS 
                   SUBJECT TO INFORMATION REPORTING COMPARABLE TO 
                   INFORMATION REPORTING FOR SUCH TRANSFERS TO 
                   FOREIGN CORPORATIONS.

       (a) In General.--Paragraph (1) of section 6038B(a) 
     (relating to notice of certain transfers to foreign 
     corporations) is amended to read as follows:
       ``(1) transfers property to--
       ``(A) a foreign corporation in an exchange described in 
     section 332, 351, 354, 355, 356, or 361, or

[[Page H4754]]

       ``(B) a foreign partnership in a contribution described in 
     section 721 or in any other contribution described in 
     regulations prescribed by the Secretary,''.
       (b) Exceptions.--Section 6038B is amended by redesignating 
     subsection (b) as subsection (c) and by inserting after 
     subsection (a) the following new subsection:
       ``(b) Exceptions for Certain Transfers to Foreign 
     Partnerships; Special Rule.--
       ``(1) Exceptions.--Subsection (a)(1)(B) shall apply to a 
     transfer by a United States person to a foreign partnership 
     only if--
       ``(A) the United States person holds (immediately after the 
     transfer) directly or indirectly at least a 10-percent 
     interest (as defined in section 6046A(d)) in the partnership, 
     or
       ``(B) the value of the property transferred (when added to 
     the value of the property transferred by such person or any 
     related person to such partnership or a related partnership 
     during the 12-month period ending on the date of the 
     transfer) exceeds $100,000.

     For purposes of the preceding sentence, the value of any 
     transferred property is its fair market value at the time of 
     its transfer.
       ``(2) Special rule.--If by reason of an adjustment under 
     section 482 or otherwise, a contribution described in 
     subsection (a)(1) is deemed to have been made, such 
     contribution shall be treated for purposes of this section as 
     having been made not earlier than the date specified by the 
     Secretary.''.
        (c) Modification of Penalty Applicable to Foreign 
     Corporations and Partnerships.--Paragraph (1) of section 
     6038B(b) is amended by striking ``equal to'' and all that 
     follows and inserting ``equal to 10 percent of the fair 
     market value of the property at the time of the exchange 
     (and, in the case of a contribution described in subsection 
     (a)(1)(B), such person shall recognize gain as if the 
     contributed property had been sold for such value at the time 
     of such contribution).''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to transfers made after the date of the enactment of 
     this Act.
       (2) Election of retroactive effect.--Section 1494(c) of the 
     Internal Revenue Code of 1986 shall not apply to any transfer 
     after August 20, 1996, if the person otherwise required to 
     file a return with respect to such transfer elects to apply 
     the amendments made by this section to transfers after August 
     20, 1996. The Secretary of the Treasury or his delegate may 
     prescribe simplified reporting under the preceding sentence.

     SEC. 1145. EXTENSION OF STATUTE OF LIMITATION FOR FOREIGN 
                   TRANSFERS.

       (a) In General.--Paragraph (8) of section 6501(c) (relating 
     to failure to notify Secretary under section 6038B) is 
     amended to read as follows:
       ``(8) Failure to notify secretary of certain foreign 
     transfers.--In the case of any information which is required 
     to be reported to the Secretary under section 6038, 6038A, 
     6038B, 6046, 6046A, or 6048, the time for assessment of any 
     tax imposed by this title with respect to any event or period 
     to which such information relates shall not expire before the 
     date which is 3 years after the date on which the Secretary 
     is furnished the information required to be reported under 
     such section.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to information the due date for the reporting of 
     which is after the date of the enactment of this Act.

     SEC. 1146. INCREASE IN FILING THRESHOLDS FOR RETURNS AS TO 
                   ORGANIZATION OF FOREIGN CORPORATIONS AND 
                   ACQUISITIONS OF STOCK IN SUCH CORPORATIONS.

       (a) In General.--Subsection (a) of section 6046 (relating 
     to returns as to organization or reorganization of foreign 
     corporations and as to acquisitions of their stock) is 
     amended to read as follows:
       ``(a) Requirement of return.--
       ``(1) In general.--A return complying with the requirements 
     of subsection (b) shall be made by--
       ``(A) each United States citizen or resident who becomes an 
     officer or director of a foreign corporation if a United 
     States person (as defined in section 7701(a)(30)) meets the 
     stock ownership requirements of paragraph (2) with respect to 
     such corporation,
       ``(B) each United States person--
       ``(i) who acquires stock which, when added to any stock 
     owned on the date of such acquisition, meets the stock 
     ownership requirements of paragraph (2) with respect to a 
     foreign corporation, or
       ``(ii) who acquires stock which, without regard to stock 
     owned on the date of such acquisition, meets the stock 
     ownership requirements of paragraph (2) with respect to a 
     foreign corporation,
       ``(C) each person (not described in subparagraph (B)) who 
     is treated as a United States shareholder under section 
     953(c) with respect to a foreign corporation, and
       ``(D) each person who becomes a United States person while 
     meeting the stock ownership requirements of paragraph (2) 
     with respect to stock of a foreign corporation.

     In the case of a foreign corporation with respect to which 
     any person is treated as a United States shareholder under 
     section 953(c), subparagraph (A) shall be treated as 
     including a reference to each United States person who is an 
     officer or director of such corporation.
       ``(2) Stock ownership requirements.--A person meets the 
     stock ownership requirements of this paragraph with respect 
     to any corporation if such person owns 10 percent or more 
     of--
       ``(A) the total combined voting power of all classes of 
     stock of such corporation entitled to vote, or
       ``(B) the total value of the stock of such corporation.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on January 1, 1998.
Subtitle F--Determination of Foreign or Domestic Status of Partnerships

     SEC. 1151. DETERMINATION OF FOREIGN OR DOMESTIC STATUS OF 
                   PARTNERSHIPS.

       (a) In General.--Paragraph (4) of section 7701(a) is 
     amended by inserting before the period ``unless, in the case 
     of a partnership, the partnership is more properly treated as 
     a foreign partnership under regulations prescribed by the 
     Secretary''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
              Subtitle G--Other Simplification Provisions

     SEC. 1161. TRANSITION RULE FOR CERTAIN TRUSTS.

       (a) In General.--Paragraph (3) of section 1907(a) of the 
     Small Business Job Protection Act of 1996 is amended by 
     adding at the end the following flush sentence:
     ``To the extent prescribed in regulations by the Secretary of 
     the Treasury or his delegate, a trust which was in existence 
     on August 20, 1996 (other than a trust treated as owned by 
     the grantor under subpart E of part I of subchapter J of 
     chapter 1 of the Internal Revenue Code of 1986), and which 
     was treated as a United States person on the day before the 
     date of the enactment of this Act may elect to continue to be 
     treated as a United States person notwithstanding section 
     7701(a)(30)(E) of such Code.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect as if included in the amendments made by 
     section 1907(a) of the Small Business Job Protection Act of 
     1996.

     SEC. 1162. REPEAL OF STOCK AND SECURITIES SAFE HARBOR 
                   REQUIREMENT THAT PRINCIPAL OFFICE BE OUTSIDE 
                   THE UNITED STATES.

       (a) In General.--The last sentence of clause (ii) of 
     section 864(b)(2)(A) (relating to stock or securities) is 
     amended by striking ``, or in the case of a corporation'' and 
     all that follows and inserting a period.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1997.
                      Subtitle H--Other Provisions

     SEC. 1171. 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 subparagraphs:
       ``(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. 1172. 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.

[[Page H4755]]

       ``(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 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. 1173. 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) Withholding taxes.--
       ``(A) In general.--In no event shall a credit be allowed 
     under subsection (a) for any withholding tax on a dividend 
     with respect to stock in a corporation if--
       ``(i) such stock is held by the recipient of the dividend 
     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
       ``(ii) to the extent that the recipient of the dividend 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.
       ``(B) Withholding tax.--For purposes of this paragraph, the 
     term `withholding tax' includes any tax determined on a gross 
     basis; but does not include any tax which is in the nature of 
     a prepayment of a tax imposed on a net basis.
       ``(2) Deemed paid taxes.--In the case of income, war 
     profits, or excess profits taxes deemed paid under section 
     853, 902, or 960 through a chain of ownership of stock in 1 
     or more corporations, no credit shall be allowed under 
     subsection (a) for such taxes if--
       ``(A) any stock of any corporation in such chain (the 
     ownership of which is required to obtain credit under 
     subsection (a) for such taxes) is held for less than the 
     period described in paragraph (1)(A)(i), or
       ``(B) the corporation holding the stock is under an 
     obligation referred to in paragraph (1)(A)(ii).
       ``(3) 45-day rule in the case of certain preference 
     dividends.--In the case of stock having preference in 
     dividends and dividends with respect to such stock which are 
     attributable to a period or periods aggregating in excess of 
     366 days, paragraph (1)(A)(i) 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) Treatment of bona fide sales.--If a person's holding 
     period is reduced by reason of the application of the rules 
     of section 246(c)(4) to any contract for the bona fide sale 
     of stock, the determination of whether such person's holding 
     period meets the requirements of paragraph (2) shall be made 
     as of the date such contract is entered into.
       ``(7) 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. 1174. 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 1 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 paragraphs (1) and (2) of section 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. 1175. DENIAL OF TREATY BENEFITS FOR CERTAIN PAYMENTS 
                   THROUGH HYBRID ENTITIES.

       A foreign person shall be entitled under any income tax 
     treaty of the United States with a foreign country to any 
     reduced rate of any withholding tax imposed by the Internal 
     Revenue Code of 1986 on an item of income derived through any 
     partnership or other pass-thru entity only to the extent that 
     such item is treated for purposes of the taxation laws of 
     such foreign country as an item of income of such person. The 
     preceding sentence shall not apply if--

[[Page H4756]]

       (1) the treaty contains a provision addressing the 
     applicability of the treaty in the case of an item of income 
     derived through a partnership, or
       (2) the foreign country imposes tax on a distribution of 
     such item of income from such partnership to such person.

     SEC. 1176. 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''.

       (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.

     SEC. 1177. CLARIFICATION OF PERIOD OF LIMITATIONS ON CLAIM 
                   FOR CREDIT OR REFUND ATTRIBUTABLE TO FOREIGN 
                   TAX CREDIT CARRYFORWARD.

       (a) In General.--Subparagraph (A) of section 6511(d)(3) is 
     amended by striking ``for the year with respect to which the 
     claim is made'' and inserting ``for the year in which such 
     taxes were actually paid or accrued''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxes paid or accrued in taxable years 
     beginning after the date of the enactment of this Act.

     SEC. 1178. MISCELLANEOUS CLARIFICATIONS.

       (a) Attribution of Deemed Paid Foreign Taxes to Prior 
     Distributions.--Subparagraph (B) of section 902(c)(2) is 
     amended by striking ``deemed paid with respect to'' and 
     inserting ``attributable to''.
       (b) Financial Services Income Determined Without Regard to 
     High-Taxed Income.--Subclause (II) of section 904(d)(2)(C)(i) 
     is amended by striking ``subclause (I)'' and inserting 
     ``subclauses (I) and (III)''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.
   TITLE XII--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
                               BUSINESSES
             Subtitle A--Provisions Relating to Individuals

     SEC. 1201. BASIC STANDARD DEDUCTION AND MINIMUM TAX EXEMPTION 
                   AMOUNT FOR CERTAIN DEPENDENTS.

       (a) Basic Standard Deduction.--
       (1) In general.--Paragraph (5) of section 63(c) (relating 
     to limitation on basic standard deduction in the case of 
     certain dependents) is amended by striking ``shall not 
     exceed'' and all that follows and inserting ``shall not 
     exceed the greater of--
       ``(A) $500, or
       ``(B) the sum of $250 and such individual's earned 
     income.''.
       (2) Conforming amendment.--Paragraph (4) of section 63(c) 
     is amended--
       (A) by striking ``(5)(A)'' in the material preceding 
     subparagraph (A) and inserting ``(5)'', and
       (B) by striking ``by substituting'' and all that follows in 
     subparagraph (B) and inserting ``by substituting for 
     `calendar year 1992' in subparagraph (B) thereof--
       ``(i) `calendar year 1987' in the case of the dollar 
     amounts contained in paragraph (2) or (5)(A) or subsection 
     (f), and
       ``(ii) `calendar year 1997' in the case of the dollar 
     amount contained in paragraph (5)(B).''.
       (b) Minimum Tax Exemption Amount.--Subsection (j) of 
     section 59 is amended to read as follows:
       ``(j) Treatment of Unearned Income of Minor Children.--
       ``(1) In general.--In the case of a child to whom section 
     1(g) applies, the exemption amount for purposes of section 55 
     shall not exceed the sum of--
       ``(A) such child's earned income (as defined in section 
     911(d)(2)) for the taxable year, plus
       ``(B) $5,000.
       ``(2) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 1998, the dollar 
     amount in paragraph (1)(B) shall be increased by an amount 
     equal to the product of--
       ``(A) such dollar amount, and
       ``(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 `1997' for `1992' in 
     subparagraph (B) thereof.

     If any increase determined under the preceding sentence is 
     not a multiple of $50, such increase shall be rounded to the 
     nearest multiple of $50.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1202. INCREASE IN AMOUNT OF TAX EXEMPT FROM ESTIMATED 
                   TAX REQUIREMENTS.

       (a) In General.--Paragraph (1) of section 6654(e) (relating 
     to exception where tax is small amount) is amended by 
     striking ``$500'' and inserting ``$1,000''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1203. OPTIONAL METHODS FOR COMPUTING SECA TAX COMBINED.

       (a) Internal Revenue Code.--
       (1) In general.--Subsection (h) of section 1402 is amended 
     to read as follows:
       ``(h) Optional Method for Computing Self-Employment 
     Income.--
       ``(1) Individuals.--In the case of any trade or business 
     which is carried on by an individual--
       ``(A) if the gross income derived by him from such trade or 
     business is not more than the upper limit for the taxable 
     year, the net earnings from self-employment derived by him 
     from such trade or business may, at his option, be deemed to 
     be 66\2/3\ percent of such gross income, or
       ``(B) if the gross income derived by him from such trade or 
     business is more than the upper limit for the taxable year 
     and the net earnings from self-employment derived by him from 
     such trade or business (computed under subsection (a) without 
     regard to this sentence) are less than the lower limit for 
     the taxable year, the net earnings from self-employment 
     derived by him from such trade or business may, at his 
     option, be deemed to be the lower limit for the taxable year.
       ``(2) Member of a partnership.--In the case of a member of 
     a partnership carrying on any trade or business--
       ``(A) if his distributive share of the gross income of the 
     partnership derived from such trade or business (after such 
     gross income has been reduced by the sum of all payments to 
     which section 707(c) applies) is not more than the upper 
     limit for the taxable year, his distributive share of income 
     described in section 702(a)(8) derived from such trade or 
     business may, at his option, be deemed to be an amount equal 
     to 66\2/3\ percent of his distributive share of such gross 
     income (after such gross income has been so reduced), or
       ``(B) if his distributive share of the gross income of the 
     partnership derived from such trade or business (after such 
     gross income has been reduced by the sum of all payments to 
     which section 707(c) applies) is more than the upper limit 
     for the taxable year and his distributive share (whether or 
     not distributed) of income described in section 702(a)(8) 
     derived from such trade or business (computed under this 
     subsection without regard to this sentence) is less than the 
     lower limit for the taxable year, his distributive share of 
     income described in section 702(a)(8) derived from such trade 
     or business may, at his option, be deemed to be the lower 
     limit for the taxable year.
       ``(3) Upper and lower limits.--For purposes of this 
     subsection--
       ``(A) Lower limit.--The lower limit for any taxable year is 
     the sum of the amounts applicable under section 213(d) of the 
     Social Security Act for calendar quarters ending with or 
     within such taxable year.

[[Page H4757]]

       ``(B) Upper limit.--The upper limit for any taxable year is 
     the amount equal to 150 percent of the lower limit for such 
     taxable year.
       ``(4) Determination of gross income.--For purposes of this 
     subsection, the term `gross income' means--
       ``(A) in the case of any such trade or business in which 
     the income is computed under a cash receipts and 
     disbursements method, the gross receipts from such trade or 
     business reduced by the cost or other basis of property which 
     was purchased and sold in carrying on such trade or business, 
     adjusted (after such reduction) in accordance with the 
     provisions of paragraphs (1) through (7) and paragraph (9) of 
     subsection (a), and
       ``(B) in the case of any such trade or business in which 
     the income is computed under an accrual method, the gross 
     income from such trade or business, adjusted in accordance 
     with the provisions of paragraphs (1) through (7) and 
     paragraph (9) of subsection (a).
       ``(5) Income derived from more than 1 trade or business.--
     For purposes of this subsection, if an individual (including 
     a member of a partnership) derives gross income from more 
     than 1 such trade or business, such gross income (including 
     his distributive share of the gross income of any partnership 
     derived from any such trade or business) shall be deemed to 
     have been derived from one trade or business.
       ``(6) Election.--The option under this subsection shall be 
     allowed for any taxable year only if elected on the first 
     return filed for such taxable year.''.
       (2) Conforming amendment.--Subsection (a) of section 1402 
     is amended by striking all that follows the first sentence 
     following paragraph (15) and inserting ``For optional method 
     of determining net earnings from self-employment, see 
     subsection (h).''.
       (b) Social Security Act.--Subsection (g) of section 211 of 
     the Social Security Act is amended to read as follows:
       ``(g) Optional Method for Computing Self-Employment 
     Income.--
       ``(1) Individuals.--In the case of any trade or business 
     which is carried on by an individual--
       ``(A) if the gross income derived by him from such trade or 
     business is not more than the upper limit for the taxable 
     year, the net earnings from self-employment derived by him 
     from such trade or business may, at his option, be deemed to 
     be 66\2/3\ percent of such gross income, or
       ``(B) if the gross income derived by him from such trade or 
     business is more than the upper limit for the taxable year 
     and the net earnings from self-employment derived by him from 
     such trade or business (computed under subsection (a) without 
     regard to this sentence) are less than the lower limit for 
     the taxable year, the net earnings from self-employment 
     derived by him from such trade or business may, at his 
     option, be deemed to be the lower limit for the taxable year.
       ``(2) Member of a partnership.--In the case of a member of 
     a partnership carrying on any trade or business--
       ``(A) if his distributive share of the gross income of the 
     partnership derived from such trade or business (after such 
     gross income has been reduced by the sum of all payments to 
     which section 707(c) of the Internal Revenue Code of 1986 
     applies) is not more than the upper limit for the taxable 
     year, his distributive share of income described in section 
     702(a)(8) of such Code derived from such trade or business 
     may, at his option, be deemed to be an amount equal to 66\2/
     3\ percent of his distributive share of such gross income 
     (after such gross income has been so reduced), or
       ``(B) if his distributive share of the gross income of the 
     partnership derived from such trade or business (after such 
     gross income has been reduced by the sum of all payments to 
     which section 707(c) of such Code applies) is more than the 
     upper limit for the taxable year and his distributive share 
     (whether or not distributed) of income described in section 
     702(a)(8) of such Code derived from such trade or business 
     (computed under this subsection without regard to this 
     sentence) is less than the lower limit for the taxable year, 
     his distributive share of income described in section 
     702(a)(8) of such Code derived from such trade or business 
     may, at his option, be deemed to be the lower limit for the 
     taxable year.
       ``(3) Upper and lower limits.--For purposes of this 
     subsection--
       ``(A) Lower limit.--The lower limit for any taxable year is 
     the sum of the amounts applicable under section 213(d) for 
     calendar quarters ending with or within such taxable year.
       ``(B) Upper limit.--The upper limit for any taxable year is 
     the amount equal to 150 percent of the lower limit for such 
     taxable year.
       ``(4) Determination of gross income.--For purposes of this 
     subsection, the term `gross income' means--
       ``(A) in the case of any such trade or business in which 
     the income is computed under a cash receipts and 
     disbursements method, the gross receipts from such trade or 
     business reduced by the cost or other basis of property which 
     was purchased and sold in carrying on such trade or business, 
     adjusted (after such reduction) in accordance with the 
     provisions of paragraphs (1) through (6) and paragraph (8) of 
     subsection (a), and
       ``(B) in the case of any such trade or business in which 
     the income is computed under an accrual method, the gross 
     income from such trade or business, adjusted in accordance 
     with the provisions of paragraphs (1) through (6) and 
     paragraph (8) of subsection (a).
       ``(5) Income derived from more than 1 trade or business.--
     For purposes of this subsection, if an individual (including 
     a member of a partnership) derives gross income from more 
     than 1 such trade or business, such gross income (including 
     his distributive share of the gross income of any partnership 
     derived from any such trade or business) shall be deemed to 
     have been derived from one trade or business.
       ``(6) Election.--The option under this subsection shall be 
     allowed for any taxable year only if elected on the first 
     return filed for such taxable year.''.
       (2) Conforming amendment.--Subsection (a) of section 211 of 
     the Social Security Act is amended by striking all that 
     follows the first sentence following paragraph (15) and 
     inserting ``For optional method of determining net earnings 
     from self-employment, see subsection (g).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1204. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL 
                   MAIL CARRIERS.

       (a) In General.--Section 162 (relating to trade or business 
     expenses) is amended by redesignating subsection (o) as 
     subsection (p) and by inserting after subsection (n) the 
     following new subsection:
       ``(o) Treatment of Certain Reimbursed Expenses of Rural 
     Mail Carriers.--
       ``(1) General rule.--In the case of any employee of the 
     United States Postal Service who performs services involving 
     the collection and delivery of mail on a rural route and who 
     receives qualified reimbursements for the expenses incurred 
     by such employee for the use of a vehicle in performing such 
     services--
       ``(A) the amount allowable as a deduction under this 
     chapter for the use of a vehicle in performing such services 
     shall be equal to the amount of such qualified 
     reimbursements; and
       ``(B) such qualified reimbursements shall be treated as 
     paid under a reimbursement or other expense allowance 
     arrangement for purposes of section 62(a)(2)(A) (and section 
     62(c) shall not apply to such qualified reimbursements).
       ``(2) Definition of qualified reimbursements.--For purposes 
     of this subsection, the term `qualified reimbursements' means 
     the amounts paid by the United States Postal Service to 
     employees as an equipment maintenance allowance under the 
     1991 collective bargaining agreement between the United 
     States Postal Service and the National Rural Letter Carriers' 
     Association. Amounts paid as an equipment maintenance 
     allowance by such Postal Service under later collective 
     bargaining agreements that supersede the 1991 agreement shall 
     be considered qualified reimbursements if such amounts do not 
     exceed the amounts that would have been paid under the 1991 
     agreement, adjusted for changes in the Consumer Price Index 
     (as defined in section 1(f)(5)) since 1991.''.
       (b) Technical Amendment.--Section 6008 of the Technical and 
     Miscellaneous Revenue Act of 1988 is hereby repealed.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1205. TREATMENT OF TRAVELING EXPENSES OF CERTAIN FEDERAL 
                   EMPLOYEES ENGAGED IN CRIMINAL INVESTIGATIONS.

       (a) In General.--Subsection (a) of section 162 is amended 
     by adding at the end the following new sentence: ``The 
     preceding sentence shall not apply to any Federal employee 
     during any period for which such employee is certified by the 
     Attorney General (or the designee thereof) as traveling on 
     behalf of the United States in temporary duty status to 
     investigate, or provide support services for the 
     investigation of, a Federal crime.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to amounts paid or incurred with respect to 
     taxable years ending after the date of the enactment of this 
     Act.

     SEC. 1206. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.

       (a) General Rule.--Section 6311 is amended to read as 
     follows:

     ``SEC. 6311. PAYMENT OF TAX BY COMMERCIALLY ACCEPTABLE MEANS.

       ``(a) Authority To Receive.--It shall be lawful for the 
     Secretary to receive for internal revenue taxes (or in 
     payment for internal revenue stamps) any commercially 
     acceptable means that the Secretary deems appropriate to the 
     extent and under the conditions provided in regulations 
     prescribed by the Secretary.
       ``(b) Ultimate Liability.--If a check, money order, or 
     other method of payment, including payment by credit card, 
     debit card, or charge card so received is not duly paid, or 
     is paid and subsequently charged back to the Secretary, the 
     person by whom such check, or money order, or other method of 
     payment has been tendered shall remain liable for the payment 
     of the tax or for the stamps, and for all legal penalties and 
     additions, to the same extent as if such check, money order, 
     or other method of payment had not been tendered.
       ``(c) Liability of Banks and Others.--If any certified, 
     treasurer's, or cashier's check (or other guaranteed draft), 
     or any money order, or any other means of payment that has 
     been guaranteed by a financial institution (such as a credit 
     card, debit card, or

[[Page H4758]]

     charge card transaction which has been guaranteed expressly 
     by a financial institution) so received is not duly paid, the 
     United States shall, in addition to its right to exact 
     payment from the party originally indebted therefor, have a 
     lien for--
       ``(1) the amount of such check (or draft) upon all assets 
     of the financial institution on which drawn,
       ``(2) the amount of such money order upon all the assets of 
     the issuer thereof, or
       ``(3) the guaranteed amount of any other transaction upon 
     all the assets of the institution making such guarantee,

     and such amount shall be paid out of such assets in 
     preference to any other claims whatsoever against such 
     financial institution, issuer, or guaranteeing institution, 
     except the necessary costs and expenses of administration and 
     the reimbursement of the United States for the amount 
     expended in the redemption of the circulating notes of such 
     financial institution.
       ``(d) Payment by Other Means.--
       ``(1) Authority to prescribe regulations.--The Secretary 
     shall prescribe such regulations as the Secretary deems 
     necessary to receive payment by commercially acceptable 
     means, including regulations that--
       ``(A) specify which methods of payment by commercially 
     acceptable means will be acceptable,
       ``(B) specify when payment by such means will be considered 
     received,
       ``(C) identify types of nontax matters related to payment 
     by such means that are to be resolved by persons ultimately 
     liable for payment and financial intermediaries, without the 
     involvement of the Secretary, and
       ``(D) ensure that tax matters will be resolved by the 
     Secretary, without the involvement of financial 
     intermediaries.
       ``(2) Authority to enter into contracts.--Notwithstanding 
     section 3718(f) of title 31, United States Code, the 
     Secretary is authorized to enter into contracts to obtain 
     services related to receiving payment by other means where 
     cost beneficial to the Government.
       ``(3) Special provisions for use of credit cards.--If use 
     of credit cards is accepted as a method of payment of taxes 
     pursuant to subsection (a)--
       ``(A) a payment of internal revenue taxes (or a payment for 
     internal revenue stamps) by a person by use of a credit card 
     shall not be subject to section 161 of the Truth-in-Lending 
     Act (15 U.S.C. 1666), or to any similar provisions of State 
     law, if the error alleged by the person is an error relating 
     to the underlying tax liability, rather than an error 
     relating to the credit card account such as a computational 
     error or numerical transposition in the credit card 
     transaction or an issue as to whether the person authorized 
     payment by use of the credit card,
       ``(B) a payment of internal revenue taxes (or a payment for 
     internal revenue stamps) shall not be subject to section 170 
     of the Truth-in-Lending Act (15 U.S.C. 1666i), or to any 
     similar provisions of State law,
       ``(C) a payment of internal revenue taxes (or a payment for 
     internal revenue stamps) by a person by use of a debit card 
     shall not be subject to section 908 of the Electronic Fund 
     Transfer Act (15 U.S.C. 1693f), or to any similar provisions 
     of State law, if the error alleged by the person is an error 
     relating to the underlying tax liability, rather than an 
     error relating to the debit card account such as a 
     computational error or numerical transposition in the debit 
     card transaction or an issue as to whether the person 
     authorized payment by use of the debit card,
       ``(D) the term `creditor' under section 103(f) of the 
     Truth-in-Lending Act (15 U.S.C. 1602(f)) shall not include 
     the Secretary with respect to credit card transactions in 
     payment of internal revenue taxes (or payment for internal 
     revenue stamps), and
       ``(E) notwithstanding any other provision of law to the 
     contrary, in the case of payment made by credit card or debit 
     card transaction of an amount owed to a person as the result 
     of the correction of an error under section 161 of the Truth-
     in-Lending Act (15 U.S.C. 1666) or section 908 of the 
     Electronic Fund Transfer Act (15 U.S.C. 1693f), the Secretary 
     is authorized to provide such amount to such person as a 
     credit to that person's credit card or debit card account 
     through the applicable credit card or debit card system.
       ``(e) Confidentiality of Information.--
       ``(1) In general.--Except as otherwise authorized by this 
     subsection, no person may use or disclose any information 
     relating to credit or debit card transactions obtained 
     pursuant to section 6103(k)(8) other than for purposes 
     directly related to the processing of such transactions, or 
     the billing or collection of amounts charged or debited 
     pursuant thereto.
       ``(2) Exceptions.--
       ``(A) Debit or credit card issuers or others acting on 
     behalf of such issuers may also use and disclose such 
     information for purposes directly related to servicing an 
     issuer's accounts.
       ``(B) Debit or credit card issuers or others directly 
     involved in the processing of credit or debit card 
     transactions or the billing or collection of amounts charged 
     or debited thereto may also use and disclose such information 
     for purposes directly related to--
       ``(i) statistical risk and profitability assessment;
       ``(ii) transferring receivables, accounts, or interest 
     therein;
       ``(iii) auditing the account information;
       ``(iv) complying with Federal, State, or local law; and
       ``(v) properly authorized civil, criminal, or regulatory 
     investigation by Federal, State, or local authorities.
       ``(3) Procedures.--Use and disclosure of information under 
     this paragraph shall be made only to the extent authorized by 
     written procedures promulgated by the Secretary.
       ``(4) Cross reference.--

  ``For provision providing for civil damages for violation of 
paragraph (1), see section 7431.''.

       (b) Separate Appropriation Required for Payment of Credit 
     Card Fees.--No amount may be paid by the United States to a 
     credit card issuer for the right to receive payments of 
     internal revenue taxes by credit card without a separate 
     appropriation therefor.
       (c) Clerical Amendment.--The table of sections for 
     subchapter B of chapter 64 is amended by striking the item 
     relating to section 6311 and inserting the following:

``Sec. 6311. Payment of tax by commercially acceptable means.''.

       (d) Amendments to Sections 6103 and 7431 With Respect to 
     Disclosure Authorization.--
       (1) Subsection (k) of section 6103 (relating to 
     confidentiality and disclosure of returns and return 
     information) is amended by adding at the end the following 
     new paragraph:
       ``(8) Disclosure of information to administer section 
     6311.--The Secretary may disclose returns or return 
     information to financial institutions and others to the 
     extent the Secretary deems necessary for the administration 
     of section 6311. Disclosures of information for purposes 
     other than to accept payments by checks or money orders shall 
     be made only to the extent authorized by written procedures 
     promulgated by the Secretary.''.
       (2) Section 7431 (relating to civil damages for 
     unauthorized disclosure of returns and return information) is 
     amended by adding at the end the following new subsection:
       ``(g) Special Rule for Information Obtained Under Section 
     6103(k)(8).--For purposes of this section, any reference to 
     section 6103 shall be treated as including a reference to 
     section 6311(e).''.
       (3) Section 6103(p)(3)(A) is amended by striking ``or (6)'' 
     and inserting ``(6), or (8)''.
       (e) Effective Date.--The amendments made by this section 
     shall take effect on the day 9 months after the date of the 
     enactment of this Act.
        Subtitle B--Provisions Relating to Businesses Generally

     SEC. 1211. MODIFICATIONS TO LOOK-BACK METHOD FOR LONG-TERM 
                   CONTRACTS.

       (a) Look-Back Method Not To Apply in Certain Cases.--
     Subsection (b) of section 460 (relating to percentage of 
     completion method) is amended by adding at the end the 
     following new paragraph:
       ``(6) Election to have look-back method not apply in de 
     minimis cases.--
       ``(A) Amounts taken into account after completion of 
     contract.--Paragraph (1)(B) shall not apply with respect to 
     any taxable year (beginning after the taxable year in which 
     the contract is completed) if--
       ``(i) the cumulative taxable income (or loss) under the 
     contract as of the close of such taxable year, is within
       ``(ii) 10 percent of the cumulative look-back taxable 
     income (or loss) under the contract as of the close of the 
     most recent taxable year to which paragraph (1)(B) applied 
     (or would have applied but for subparagraph (B)).
       ``(B) De minimis discrepancies.--Paragraph (1)(B) shall not 
     apply in any case to which it would otherwise apply if--
       ``(i) the cumulative taxable income (or loss) under the 
     contract as of the close of each prior contract year, is 
     within
       ``(ii) 10 percent of the cumulative look-back income (or 
     loss) under the contract as of the close of such prior 
     contract year.
       ``(C) Definitions.--For purposes of this paragraph--
       ``(i) Contract year.--The term `contract year' means any 
     taxable year for which income is taken into account under the 
     contract.
       ``(ii) Look-back income or loss.--The look-back income (or 
     loss) is the amount which would be the taxable income (or 
     loss) under the contract if the allocation method set forth 
     in paragraph (2)(A) were used in determining taxable income.
       ``(iii) Discounting not applicable.--The amounts taken into 
     account after the completion of the contract shall be 
     determined without regard to any discounting under the 2nd 
     sentence of paragraph (2).
       ``(D) Contracts to which paragraph applies.--This paragraph 
     shall only apply if the taxpayer makes an election under this 
     subparagraph. Unless revoked with the consent of the 
     Secretary, such an election shall apply to all long-term 
     contracts completed during the taxable year for which 
     election is made or during any subsequent taxable year.''.
       (b) Modification of Interest Rate.--
       (1) In general.--Subparagraph (C) of section 460(b)(2) is 
     amended by striking ``the overpayment rate established by 
     section 6621'' and inserting ``the adjusted overpayment rate 
     (as defined in paragraph (7))''.
       (2) Adjusted overpayment rate.--Subsection (b) of section 
     460 is amended by adding at the end the following new 
     paragraph:
       ``(7) Adjusted overpayment rate.--

[[Page H4759]]

       ``(A) In general.--The adjusted overpayment rate for any 
     interest accrual period is the overpayment rate in effect 
     under section 6621 for the calendar quarter in which such 
     interest accrual period begins.
       ``(B) Interest accrual period.--For purposes of 
     subparagraph (A), the term `interest accrual period' means 
     the period--
       ``(i) beginning on the day after the return due date for 
     any taxable year of the taxpayer, and
       ``(ii) ending on the return due date for the following 
     taxable year.

     For purposes of the preceding sentence, the term `return due 
     date' means the date prescribed for filing the return of the 
     tax imposed by this chapter (determined without regard to 
     extensions).''.
       (c) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to contracts 
     completed in taxable years ending after the date of the 
     enactment of this Act.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply for purposes of section 167(g) of the Internal 
     Revenue Code of 1986 to property placed in service after 
     September 13, 1995.

     SEC. 1212. MINIMUM TAX TREATMENT OF CERTAIN PROPERTY AND 
                   CASUALTY INSURANCE COMPANIES.

       (a) In General.--Clause (i) of section 56(g)(4)(B) 
     (relating to inclusion of items included for purposes of 
     computing earnings and profits) is amended by adding at the 
     end the following new sentence: ``In the case of any 
     insurance company taxable under section 831(b), this clause 
     shall not apply to any amount not described in section 
     834(b).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1997.
   Subtitle C--Simplification Relating to Electing Large Partnerships

                       PART I--GENERAL PROVISIONS

     SEC. 1221. SIMPLIFIED FLOW-THROUGH FOR ELECTING LARGE 
                   PARTNERSHIPS.

       (a) General Rule.--Subchapter K (relating to partners and 
     partnerships) is amended by adding at the end the following 
     new part:

        ``PART IV--SPECIAL RULES FOR ELECTING LARGE PARTNERSHIPS

``Sec. 771. Application of subchapter to electing large partnerships.
``Sec. 772. Simplified flow-through.
``Sec. 773. Computations at partnership level.
``Sec. 774. Other modifications.
``Sec. 775. Electing large partnership defined.
``Sec. 776. Special rules for partnerships holding oil and gas 
              properties.
``Sec. 777. Regulations.

     ``SEC. 771. APPLICATION OF SUBCHAPTER TO ELECTING LARGE 
                   PARTNERSHIPS.

       ``The preceding provisions of this subchapter to the extent 
     inconsistent with the provisions of this part shall not apply 
     to an electing large partnership and its partners.

     ``SEC. 772. SIMPLIFIED FLOW-THROUGH.

       ``(a) General Rule.--In determining the income tax of a 
     partner of an electing large partnership, such partner shall 
     take into account separately such partner's distributive 
     share of the partnership's--
       ``(1) taxable income or loss from passive loss limitation 
     activities,
       ``(2) taxable income or loss from other activities,
       ``(3) net capital gain (or net capital loss)--
       ``(A) to the extent allocable to passive loss limitation 
     activities, and
       ``(B) to the extent allocable to other activities,
       ``(4) tax-exempt interest,
       ``(5) applicable net AMT adjustment separately computed 
     for--
       ``(A) passive loss limitation activities, and
       ``(B) other activities,
       ``(6) general credits,
       ``(7) low-income housing credit determined under section 
     42,
       ``(8) rehabilitation credit determined under section 47,
       ``(9) foreign income taxes,
       ``(10) the credit allowable under section 29, and
       ``(11) other items to the extent that the Secretary 
     determines that the separate treatment of such items is 
     appropriate.
       ``(b) Separate Computations.--In determining the amounts 
     required under subsection (a) to be separately taken into 
     account by any partner, this section and section 773 shall be 
     applied separately with respect to such partner by taking 
     into account such partner's distributive share of the items 
     of income, gain, loss, deduction, or credit of the 
     partnership.
       ``(c) Treatment at Partner Level.--
       ``(1) In general.--Except as provided in this subsection, 
     rules similar to the rules of section 702(b) shall apply to 
     any partner's distributive share of the amounts referred to 
     in subsection (a).
       ``(2) Income or loss from passive loss limitation 
     activities.--For purposes of this chapter, any partner's 
     distributive share of any income or loss described in 
     subsection (a)(1) shall be treated as an item of income or 
     loss (as the case may be) from the conduct of a trade or 
     business which is a single passive activity (as defined in 
     section 469). A similar rule shall apply to a partner's 
     distributive share of amounts referred to in paragraphs 
     (3)(A) and (5)(A) of subsection (a).
       ``(3) Income or loss from other activities.--
       ``(A) In general.--For purposes of this chapter, any 
     partner's distributive share of any income or loss described 
     in subsection (a)(2) shall be treated as an item of income or 
     expense (as the case may be) with respect to property held 
     for investment.
       ``(B) Deductions for loss not subject to section 67.--The 
     deduction under section 212 for any loss described in 
     subparagraph (A) shall not be treated as a miscellaneous 
     itemized deduction for purposes of section 67.
       ``(4) Treatment of net capital gain or loss.--For purposes 
     of this chapter, any partner's distributive share of any gain 
     or loss described in subsection (a)(3) shall be treated as a 
     long-term capital gain or loss, as the case may be.
       ``(5) Minimum tax treatment.--In determining the 
     alternative minimum taxable income of any partner, such 
     partner's distributive share of any applicable net AMT 
     adjustment shall be taken into account in lieu of making the 
     separate adjustments provided in sections 56, 57, and 58 with 
     respect to the items of the partnership. Except as provided 
     in regulations, the applicable net AMT adjustment shall be 
     treated, for purposes of section 53, as an adjustment or item 
     of tax preference not specified in section 53(d)(1)(B)(ii).
       ``(6) General credits.--A partner's distributive share of 
     the amount referred to in paragraph (6) of subsection (a) 
     shall be taken into account as a current year business 
     credit.
       ``(d) Operating Rules.--For purposes of this section--
       ``(1) Passive loss limitation activity.--The term `passive 
     loss limitation activity' means--
       ``(A) any activity which involves the conduct of a trade or 
     business, and
       ``(B) any rental activity.

     For purposes of the preceding sentence, the term `trade or 
     business' includes any activity treated as a trade or 
     business under paragraph (5) or (6) of section 469(c).
       ``(2) Tax-exempt interest.--The term `tax-exempt interest' 
     means interest excludable from gross income under section 
     103.
       ``(3) Applicable net amt adjustment.--
       ``(A) In general.--The applicable net AMT adjustment is--
       ``(i) with respect to taxpayers other than corporations, 
     the net adjustment determined by using the adjustments 
     applicable to individuals, and
       ``(ii) with respect to corporations, the net adjustment 
     determined by using the adjustments applicable to 
     corporations.
       ``(B) Net adjustment.--The term `net adjustment' means the 
     net adjustment in the items attributable to passive loss 
     activities or other activities (as the case may be) which 
     would result if such items were determined with the 
     adjustments of sections 56, 57, and 58.
       ``(4) Treatment of certain separately stated items.--
       ``(A) Exclusion for certain purposes.--In determining the 
     amounts referred to in paragraphs (1) and (2) of subsection 
     (a), any net capital gain or net capital loss (as the case 
     may be), and any item referred to in subsection (a)(11), 
     shall be excluded.
       ``(B) Allocation rules.--The net capital gain shall be 
     treated--
       ``(i) as allocable to passive loss limitation activities to 
     the extent the net capital gain does not exceed the net 
     capital gain determined by only taking into account gains and 
     losses from sales and exchanges of property used in 
     connection with such activities, and
       ``(ii) as allocable to other activities to the extent such 
     gain exceeds the amount allocated under clause (i).

     A similar rule shall apply for purposes of allocating any net 
     capital loss.
       ``(C) Net capital loss.--The term `net capital loss' means 
     the excess of the losses from sales or exchanges of capital 
     assets over the gains from sales or exchange of capital 
     assets.
       ``(5) General credits.--The term `general credits' means 
     any credit other than the low-income housing credit, the 
     rehabilitation credit, the foreign tax credit, and the credit 
     allowable under section 29.
       ``(6) Foreign income taxes.--The term `foreign income 
     taxes' means taxes described in section 901 which are paid or 
     accrued to foreign countries and to possessions of the United 
     States.
       ``(e) Special Rule for Unrelated Business Tax.--In the case 
     of a partner which is an organization subject to tax under 
     section 511, such partner's distributive share of any items 
     shall be taken into account separately to the extent 
     necessary to comply with the provisions of section 512(c)(1).
       ``(f) Special Rules for Applying Passive Loss 
     Limitations.--If any person holds an interest in an electing 
     large partnership other than as a limited partner--
       ``(1) paragraph (2) of subsection (c) shall not apply to 
     such partner, and
       ``(2) such partner's distributive share of the partnership 
     items allocable to passive loss limitation activities shall 
     be taken into account separately to the extent necessary to 
     comply with the provisions of section 469.

     The preceding sentence shall not apply to any items allocable 
     to an interest held as a limited partner.

     ``SEC. 773. COMPUTATIONS AT PARTNERSHIP LEVEL.

       ``(a) General Rule.--
       ``(1) Taxable income.--The taxable income of an electing 
     large partnership shall be computed in the same manner as in 
     the case of an individual except that--
       ``(A) the items described in section 772(a) shall be 
     separately stated, and

[[Page H4760]]

       ``(B) the modifications of subsection (b) shall apply.
       ``(2) Elections.--All elections affecting the computation 
     of the taxable income of an electing large partnership or the 
     computation of any credit of an electing large partnership 
     shall be made by the partnership; except that the election 
     under section 901, and any election under section 108, shall 
     be made by each partner separately.
       ``(3) Limitations, etc.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     all limitations and other provisions affecting the 
     computation of the taxable income of an electing large 
     partnership or the computation of any credit of an electing 
     large partnership shall be applied at the partnership level 
     (and not at the partner level).
       ``(B) Certain limitations applied at partner level.--The 
     following provisions shall be applied at the partner level 
     (and not at the partnership level):
       ``(i) Section 68 (relating to overall limitation on 
     itemized deductions).
       ``(ii) Sections 49 and 465 (relating to at risk 
     limitations).
       ``(iii) Section 469 (relating to limitation on passive 
     activity losses and credits).
       ``(iv) Any other provision specified in regulations.
       ``(4) Coordination with other provisions.--Paragraphs (2) 
     and (3) shall apply notwithstanding any other provision of 
     this chapter other than this part.
       ``(b) Modifications to Determination of Taxable Income.--In 
     determining the taxable income of an electing large 
     partnership--
       ``(1) Certain deductions not allowed.--The following 
     deductions shall not be allowed:
       ``(A) The deduction for personal exemptions provided in 
     section 151.
       ``(B) The net operating loss deduction provided in section 
     172.
       ``(C) The additional itemized deductions for individuals 
     provided in part VII of subchapter B (other than section 212 
     thereof).
       ``(2) Charitable deductions.--In determining the amount 
     allowable under section 170, the limitation of section 
     170(b)(2) shall apply.
       ``(3) Coordination with section 67.--In lieu of applying 
     section 67, 70 percent of the amount of the miscellaneous 
     itemized deductions shall be disallowed.
       ``(c) Special Rules for Income From Discharge of 
     Indebtedness.--If an electing large partnership has income 
     from the discharge of any indebtedness--
       ``(1) such income shall be excluded in determining the 
     amounts referred to in section 772(a), and
       ``(2) in determining the income tax of any partner of such 
     partnership--
       ``(A) such income shall be treated as an item required to 
     be separately taken into account under section 772(a), and
       ``(B) the provisions of section 108 shall be applied 
     without regard to this part.

     ``SEC. 774. OTHER MODIFICATIONS.

       ``(a) Treatment of Certain Optional Adjustments, Etc.--In 
     the case of an electing large partnership--
       ``(1) computations under section 773 shall be made without 
     regard to any adjustment under section 743(b) or 108(b), but
       ``(2) a partner's distributive share of any amount referred 
     to in section 772(a) shall be appropriately adjusted to take 
     into account any adjustment under section 743(b) or 108(b) 
     with respect to such partner.
       ``(b) Credit Recapture Determined at Partnership Level.--
       ``(1) In general.--In the case of an electing large 
     partnership--
       ``(A) any credit recapture shall be taken into account by 
     the partnership, and
       ``(B) the amount of such recapture shall be determined as 
     if the credit with respect to which the recapture is made had 
     been fully utilized to reduce tax.
       ``(2) Method of taking recapture into account.--An electing 
     large partnership shall take into account a credit recapture 
     by reducing the amount of the appropriate current year credit 
     to the extent thereof, and if such recapture exceeds the 
     amount of such current year credit, the partnership shall be 
     liable to pay such excess.
       ``(3) Dispositions not to trigger recapture.--No credit 
     recapture shall be required by reason of any transfer of an 
     interest in an electing large partnership.
       ``(4) Credit recapture.--For purposes of this subsection, 
     the term `credit recapture' means any increase in tax under 
     section 42(j) or 50(a).
       ``(c) Partnership Not Terminated by Reason of Change in 
     Ownership.--Subparagraph (B) of section 708(b)(1) shall not 
     apply to an electing large partnership.
       ``(d) Partnership Entitled to Certain Credits.--The 
     following shall be allowed to an electing large partnership 
     and shall not be taken into account by the partners of such 
     partnership:
       ``(1) The credit provided by section 34.
       ``(2) Any credit or refund under section 852(b)(3)(D).
       ``(e) Treatment of REMIC Residuals.--For purposes of 
     applying section 860E(e)(6) to any electing large 
     partnership--
       ``(1) all interests in such partnership shall be treated as 
     held by disqualified organizations,
       ``(2) in lieu of applying subparagraph (C) of section 
     860E(e)(6), the amount subject to tax under section 
     860E(e)(6) shall be excluded from the gross income of such 
     partnership, and
       ``(3) subparagraph (D) of section 860E(e)(6) shall not 
     apply.
       ``(f) Special Rules for Applying Certain Installment Sale 
     Rules.--In the case of an electing large partnership--
       ``(1) the provisions of sections 453(l)(3) and 453A shall 
     be applied at the partnership level, and
       ``(2) in determining the amount of interest payable under 
     such sections, such partnership shall be treated as subject 
     to tax under this chapter at the highest rate of tax in 
     effect under section 1 or 11.

     ``SEC. 775. ELECTING LARGE PARTNERSHIP DEFINED.

       ``(a) General Rule.--For purposes of this part--
       ``(1) In general.--The term `electing large partnership' 
     means, with respect to any partnership taxable year, any 
     partnership if--
       ``(A) the number of persons who were partners in such 
     partnership in the preceding partnership taxable year equaled 
     or exceeded 100, and
       ``(B) such partnership elects the application of this part.

     To the extent provided in regulations, a partnership shall 
     cease to be treated as an electing large partnership for any 
     partnership taxable year if in such taxable year fewer than 
     100 persons were partners in such partnership.
       ``(2) Election.--The election under this subsection shall 
     apply to the taxable year for which made and all subsequent 
     taxable years unless revoked with the consent of the 
     Secretary.
       ``(b) Special Rules for Certain Service Partnerships.--
       ``(1) Certain partners not counted.--For purposes of this 
     section, the term `partner' does not include any individual 
     performing substantial services in connection with the 
     activities of the partnership and holding an interest in such 
     partnership, or an individual who formerly performed 
     substantial services in connection with such activities and 
     who held an interest in such partnership at the time the 
     individual performed such services.
       ``(2) Exclusion.--For purposes of this part, an election 
     under subsection (a) shall not be effective with respect to 
     any partnership if substantially all the partners of such 
     partnership--
       ``(A) are individuals performing substantial services in 
     connection with the activities of such partnership or are 
     personal service corporations (as defined in section 269A(b)) 
     the owner-employees (as defined in section 269A(b)) of which 
     perform such substantial services,
       ``(B) are retired partners who had performed such 
     substantial services, or
       ``(C) are spouses of partners who are performing (or had 
     previously performed) such substantial services.
       ``(3) Special rule for lower tier partnerships.--For 
     purposes of this subsection, the activities of a partnership 
     shall include the activities of any other partnership in 
     which the partnership owns directly an interest in the 
     capital and profits of at least 80 percent.
       ``(c) Exclusion of Commodity Pools.--For purposes of this 
     part, an election under subsection (a) shall not be effective 
     with respect to any partnership the principal activity of 
     which is the buying and selling of commodities (not described 
     in section 1221(1)), or options, futures, or forwards with 
     respect to such commodities.
       ``(d) Secretary May Rely on Treatment on Return.--If, on 
     the partnership return of any partnership, such partnership 
     is treated as an electing large partnership, such treatment 
     shall be binding on such partnership and all partners of such 
     partnership but not on the Secretary.

     ``SEC. 776. SPECIAL RULES FOR PARTNERSHIPS HOLDING OIL AND 
                   GAS PROPERTIES.

       ``(a) Computation of Percentage Depletion.--In the case of 
     an electing large partnership, except as provided in 
     subsection (b)--
       ``(1) the allowance for depletion under section 611 with 
     respect to any partnership oil or gas property shall be 
     computed at the partnership level without regard to any 
     provision of section 613A requiring such allowance to be 
     computed separately by each partner,
       ``(2) such allowance shall be determined without regard to 
     the provisions of section 613A(c) limiting the amount of 
     production for which percentage depletion is allowable and 
     without regard to paragraph (1) of section 613A(d), and
       ``(3) paragraph (3) of section 705(a) shall not apply.
       ``(b) Treatment of Certain Partners.--
       ``(1) In general.--In the case of a disqualified person, 
     the treatment under this chapter of such person's 
     distributive share of any item of income, gain, loss, 
     deduction, or credit attributable to any partnership oil or 
     gas property shall be determined without regard to this part. 
     Such person's distributive share of any such items shall be 
     excluded for purposes of making determinations under sections 
     772 and 773.
       ``(2) Disqualified person.--For purposes of paragraph (1), 
     the term `disqualified person' means, with respect to any 
     partnership taxable year--
       ``(A) any person referred to in paragraph (2) or (4) of 
     section 613A(d) for such person's taxable year in which such 
     partnership taxable year ends, and

[[Page H4761]]

       ``(B) any other person if such person's average daily 
     production of domestic crude oil and natural gas for such 
     person's taxable year in which such partnership taxable year 
     ends exceeds 500 barrels.
       ``(3) Average daily production.--For purposes of paragraph 
     (2), a person's average daily production of domestic crude 
     oil and natural gas for any taxable year shall be computed as 
     provided in section 613A(c)(2)--
       ``(A) by taking into account all production of domestic 
     crude oil and natural gas (including such person's 
     proportionate share of any production of a partnership),
       ``(B) by treating 6,000 cubic feet of natural gas as a 
     barrel of crude oil, and
       ``(C) by treating as 1 person all persons treated as 1 
     taxpayer under section 613A(c)(8) or among whom allocations 
     are required under such section.

     ``SEC. 777. REGULATIONS.

       ``The Secretary shall prescribe such regulations as may be 
     appropriate to carry out the purposes of this part.''.
       (b) Clerical Amendment.--The table of parts for subchapter 
     K of chapter 1 is amended by adding at the end the following 
     new item:

``Part IV. Special rules for electing large partnerships.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to partnership taxable years beginning after 
     December 31, 1997.

     SEC. 1222. SIMPLIFIED AUDIT PROCEDURES FOR ELECTING LARGE 
                   PARTNERSHIPS.

       (a) General Rule.--Chapter 63 is amended by adding at the 
     end thereof the following new subchapter:

        ``Subchapter D--Treatment of electing large partnerships

``Part I. Treatment of partnership items and adjustments.
``Part II. Partnership level adjustments.
``Part III. Definitions and special rules.

        ``PART I--TREATMENT OF PARTNERSHIP ITEMS AND ADJUSTMENTS

``Sec. 6240. Application of subchapter.
``Sec. 6241. Partner's return must be consistent with partnership 
              return.
``Sec. 6242. Procedures for taking partnership adjustments into 
              account.

     ``SEC. 6240. APPLICATION OF SUBCHAPTER.

       ``(a) General Rule.--This subchapter shall only apply to 
     electing large partnerships and partners in such 
     partnerships.
       ``(b) Coordination With Other Partnership Audit 
     Procedures.--
       ``(1) In general.--Subchapter C of this chapter shall not 
     apply to any electing large partnership other than in its 
     capacity as a partner in another partnership which is not an 
     electing large partnership.
       ``(2) Treatment where partner in other partnership.--If an 
     electing large partnership is a partner in another 
     partnership which is not an electing large partnership--
       ``(A) subchapter C of this chapter shall apply to items of 
     such electing large partnership which are partnership items 
     with respect to such other partnership, but
       ``(B) any adjustment under such subchapter C shall be taken 
     into account in the manner provided by section 6242.

     ``SEC. 6241. PARTNER'S RETURN MUST BE CONSISTENT WITH 
                   PARTNERSHIP RETURN.

       ``(a) General Rule.--A partner of any electing large 
     partnership shall, on the partner's return, treat each 
     partnership item attributable to such partnership in a manner 
     which is consistent with the treatment of such partnership 
     item on the partnership return.
       ``(b) Underpayment Due to Inconsistent Treatment Assessed 
     as Math Error.--Any underpayment of tax by a partner by 
     reason of failing to comply with the requirements of 
     subsection (a) shall be assessed and collected in the same 
     manner as if such underpayment were on account of a 
     mathematical or clerical error appearing on the partner's 
     return. Paragraph (2) of section 6213(b) shall not apply to 
     any assessment of an underpayment referred to in the 
     preceding sentence.
       ``(c) Adjustments Not To Affect Prior Year of Partners.--
       ``(1) In general.--Except as provided in paragraph (2), 
     subsections (a) and (b) shall apply without regard to any 
     adjustment to the partnership item under part II.
       ``(2) Certain changes in distributive share taken into 
     account by partner.--
       ``(A) In general.--To the extent that any adjustment under 
     part II involves a change under section 704 in a partner's 
     distributive share of the amount of any partnership item 
     shown on the partnership return, such adjustment shall be 
     taken into account in applying this title to such partner for 
     the partner's taxable year for which such item was required 
     to be taken into account.
       ``(B) Coordination with deficiency procedures.--
       ``(i) In general.--Subchapter B shall not apply to the 
     assessment or collection of any underpayment of tax 
     attributable to an adjustment referred to in subparagraph 
     (A).
       ``(ii) Adjustment not precluded.--Notwithstanding any other 
     law or rule of law, nothing in subchapter B (or in any 
     proceeding under subchapter B) shall preclude the assessment 
     or collection of any underpayment of tax (or the allowance of 
     any credit or refund of any overpayment of tax) attributable 
     to an adjustment referred to in subparagraph (A) and such 
     assessment or collection or allowance (or any notice thereof) 
     shall not preclude any notice, proceeding, or determination 
     under subchapter B.
       ``(C) Period of limitations.--The period for--
       ``(i) assessing any underpayment of tax, or
       ``(ii) filing a claim for credit or refund of any 
     overpayment of tax,

     attributable to an adjustment referred to in subparagraph (A) 
     shall not expire before the close of the period prescribed by 
     section 6248 for making adjustments with respect to the 
     partnership taxable year involved.
       ``(D) Tiered structures.--If the partner referred to in 
     subparagraph (A) is another partnership or an S corporation, 
     the rules of this paragraph shall also apply to persons 
     holding interests in such partnership or S corporation (as 
     the case may be); except that, if such partner is an electing 
     large partnership, the adjustment referred to in subparagraph 
     (A) shall be taken into account in the manner provided by 
     section 6242.
       ``(d) Addition to Tax for Failure to Comply With Section.--

  ``For addition to tax in case of partner's disregard of requirements 
of this section, see part II of subchapter A of chapter 68.

     ``SEC. 6242. PROCEDURES FOR TAKING PARTNERSHIP ADJUSTMENTS 
                   INTO ACCOUNT.

       ``(a) Adjustments Flow Through To Partners for Year in 
     Which Adjustment Takes Effect.--
       ``(1) In general.--If any partnership adjustment with 
     respect to any partnership item takes effect (within the 
     meaning of subsection (d)(2)) during any partnership taxable 
     year and if an election under paragraph (2) does not apply to 
     such adjustment, such adjustment shall be taken into account 
     in determining the amount of such item for the partnership 
     taxable year in which such adjustment takes effect. In 
     applying this title to any person who is (directly or 
     indirectly) a partner in such partnership during such 
     partnership taxable year, such adjustment shall be treated as 
     an item actually arising during such taxable year.
       ``(2) Partnership liable in certain cases.--If--
       ``(A) a partnership elects under this paragraph to not take 
     an adjustment into account under paragraph (1),
       ``(B) a partnership does not make such an election but in 
     filing its return for any partnership taxable year fails to 
     take fully into account any partnership adjustment as 
     required under paragraph (1), or
       ``(C) any partnership adjustment involves a reduction in a 
     credit which exceeds the amount of such credit determined for 
     the partnership taxable year in which the adjustment takes 
     effect,
     the partnership shall pay to the Secretary an amount 
     determined by applying the rules of subsection (b)(4) to the 
     adjustments not so taken into account and any excess referred 
     to in subparagraph (C).
       ``(3) Offsetting adjustments taken into account.--If a 
     partnership adjustment requires another adjustment in a 
     taxable year after the adjusted year and before the 
     partnership taxable year in which such partnership adjustment 
     takes effect, such other adjustment shall be taken into 
     account under this subsection for the partnership taxable 
     year in which such partnership adjustment takes effect.
       ``(4) Coordination with part ii.--Amounts taken into 
     account under this subsection for any partnership taxable 
     year shall continue to be treated as adjustments for the 
     adjusted year for purposes of determining whether such 
     amounts may be readjusted under part II.
       ``(b) Partnership Liable for Interest and Penalties.--
       ``(1) In general.--If a partnership adjustment takes effect 
     during any partnership taxable year and such adjustment 
     results in an imputed underpayment for the adjusted year, the 
     partnership--
       ``(A) shall pay to the Secretary interest computed under 
     paragraph (2), and
       ``(B) shall be liable for any penalty, addition to tax, or 
     additional amount as provided in paragraph (3).
       ``(2) Determination of amount of interest.--The interest 
     computed under this paragraph with respect to any partnership 
     adjustment is the interest which would be determined under 
     chapter 67--
       ``(A) on the imputed underpayment determined under 
     paragraph (4) with respect to such adjustment,
       ``(B) for the period beginning on the day after the return 
     due date for the adjusted year and ending on the return due 
     date for the partnership taxable year in which such 
     adjustment takes effect (or, if earlier, in the case of any 
     adjustment to which subsection (a)(2) applies, the date on 
     which the payment under subsection (a)(2) is made).
     Proper adjustments in the amount determined under the 
     preceding sentence shall be made for adjustments required for 
     partnership taxable years after the adjusted year and before 
     the year in which the partnership adjustment takes effect by 
     reason of such partnership adjustment.
       ``(3) Penalties.--A partnership shall be liable for any 
     penalty, addition to tax, or additional amount for which it 
     would have been liable if such partnership had been an 
     individual subject to tax under chapter 1 for the adjusted 
     year and the imputed underpayment determined under paragraph 
     (4) were an actual underpayment (or understatement) for such 
     year.
       ``(4) Imputed underpayment.--For purposes of this 
     subsection, the imputed underpayment determined under this 
     paragraph

[[Page H4762]]

     with respect to any partnership adjustment is the 
     underpayment (if any) which would result--
       ``(A) by netting all adjustments to items of income, gain, 
     loss, or deduction and by treating any net increase in income 
     as an underpayment equal to the amount of such net increase 
     multiplied by the highest rate of tax in effect under section 
     1 or 11 for the adjusted year, and
       ``(B) by taking adjustments to credits into account as 
     increases or decreases (whichever is appropriate) in the 
     amount of tax.
     For purposes of the preceding sentence, any net decrease in a 
     loss shall be treated as an increase in income and a similar 
     rule shall apply to a net increase in a loss.
       ``(c) Administrative Provisions.--
       ``(1) In general.--Any payment required by subsection 
     (a)(2) or (b)(1)(A)--
       ``(A) shall be assessed and collected in the same manner as 
     if it were a tax imposed by subtitle C, and
       ``(B) shall be paid on or before the return due date for 
     the partnership taxable year in which the partnership 
     adjustment takes effect.
       ``(2) Interest.--For purposes of determining interest, any 
     payment required by subsection (a)(2) or (b)(1)(A) shall be 
     treated as an underpayment of tax.
       ``(3) Penalties.--
       ``(A) In general.--In the case of any failure by any 
     partnership to pay on the date prescribed therefor any amount 
     required by subsection (a)(2) or (b)(1)(A), there is hereby 
     imposed on such partnership a penalty of 10 percent of the 
     underpayment. For purposes of the preceding sentence, the 
     term `underpayment' means the excess of any payment required 
     under this section over the amount (if any) paid on or before 
     the date prescribed therefor.
       ``(B) Accuracy-related and fraud penalties made 
     applicable.--For purposes of part II of subchapter A of 
     chapter 68, any payment required by subsection (a)(2) shall 
     be treated as an underpayment of tax.
       ``(d) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Partnership adjustment.--The term `partnership 
     adjustment' means any adjustment in the amount of any 
     partnership item of an electing large partnership.
       ``(2) When adjustment takes effect.--A partnership 
     adjustment takes effect--
       ``(A) in the case of an adjustment pursuant to the decision 
     of a court in a proceeding brought under part II, when such 
     decision becomes final,
       ``(B) in the case of an adjustment pursuant to any 
     administrative adjustment request under section 6251, when 
     such adjustment is allowed by the Secretary, or
       ``(C) in any other case, when such adjustment is made.
       ``(3) Adjusted year.--The term `adjusted year' means the 
     partnership taxable year to which the item being adjusted 
     relates.
       ``(4) Return due date.--The term `return due date' means, 
     with respect to any taxable year, the date prescribed for 
     filing the partnership return for such taxable year 
     (determined without regard to extensions).
       ``(5) Adjustments involving changes in character.--Under 
     regulations, appropriate adjustments in the application of 
     this section shall be made for purposes of taking into 
     account partnership adjustments which involve a change in the 
     character of any item of income, gain, loss, or deduction.
       ``(e) Payments Nondeductible.--No deduction shall be 
     allowed under subtitle A for any payment required to be made 
     by an electing large partnership under this section.

                ``PART II--PARTNERSHIP LEVEL ADJUSTMENTS

``Subpart A. Adjustments by Secretary.
``Subpart B. Claims for adjustments by partnership.

                 ``Subpart A--Adjustments by Secretary

``Sec. 6245. Secretarial authority.
``Sec. 6246. Restrictions on partnership adjustments.
``Sec. 6247. Judicial review of partnership adjustment.
``Sec. 6248. Period of limitations for making adjustments.

     ``SEC. 6245. SECRETARIAL AUTHORITY.

       ``(a) General Rule.--The Secretary is authorized and 
     directed to make adjustments at the partnership level in any 
     partnership item to the extent necessary to have such item be 
     treated in the manner required.
       ``(b) Notice of Partnership Adjustment.--
       ``(1) In general.--If the Secretary determines that a 
     partnership adjustment is required, the Secretary is 
     authorized to send notice of such adjustment to the 
     partnership by certified mail or registered mail. Such notice 
     shall be sufficient if mailed to the partnership at its last 
     known address even if the partnership has terminated its 
     existence.
       ``(2) Further notices restricted.--If the Secretary mails a 
     notice of a partnership adjustment to any partnership for any 
     partnership taxable year and the partnership files a petition 
     under section 6247 with respect to such notice, in the 
     absence of a showing of fraud, malfeasance, or 
     misrepresentation of a material fact, the Secretary shall not 
     mail another such notice to such partnership with respect to 
     such taxable year.
       ``(3) Authority to rescind notice with partnership 
     consent.--The Secretary may, with the consent of the 
     partnership, rescind any notice of a partnership adjustment 
     mailed to such partnership. Any notice so rescinded shall not 
     be treated as a notice of a partnership adjustment, for 
     purposes of this section, section 6246, and section 6247, and 
     the taxpayer shall have no right to bring a proceeding under 
     section 6247 with respect to such notice. Nothing in this 
     subsection shall affect any suspension of the running of any 
     period of limitations during any period during which the 
     rescinded notice was outstanding.

     ``SEC. 6246. RESTRICTIONS ON PARTNERSHIP ADJUSTMENTS.

       ``(a) General Rule.--Except as otherwise provided in this 
     chapter, no adjustment to any partnership item may be made 
     (and no levy or proceeding in any court for the collection of 
     any amount resulting from such adjustment may be made, begun 
     or prosecuted) before--
       ``(1) the close of the 90th day after the day on which a 
     notice of a partnership adjustment was mailed to the 
     partnership, and
       ``(2) if a petition is filed under section 6247 with 
     respect to such notice, the decision of the court has become 
     final.
       ``(b) Premature Action May Be Enjoined.--Notwithstanding 
     section 7421(a), any action which violates subsection (a) may 
     be enjoined in the proper court, including the Tax Court. The 
     Tax Court shall have no jurisdiction to enjoin any action 
     under this subsection unless a timely petition has been filed 
     under section 6247 and then only in respect of the 
     adjustments that are the subject of such petition.
       ``(c) Exceptions to Restrictions on Adjustments.--
       ``(1) Adjustments arising out of math or clerical errors.--
       ``(A) In general.--If the partnership is notified that, on 
     account of a mathematical or clerical error appearing on the 
     partnership return, an adjustment to a partnership item is 
     required, rules similar to the rules of paragraphs (1) and 
     (2) of section 6213(b) shall apply to such adjustment.
       ``(B) Special rule.--If an electing large partnership is a 
     partner in another electing large partnership, any adjustment 
     on account of such partnership's failure to comply with the 
     requirements of section 6241(a) with respect to its interest 
     in such other partnership shall be treated as an adjustment 
     referred to in subparagraph (A), except that paragraph (2) of 
     section 6213(b) shall not apply to such adjustment.
       ``(2) Partnership may waive restrictions.--The partnership 
     shall at any time (whether or not a notice of partnership 
     adjustment has been issued) have the right, by a signed 
     notice in writing filed with the Secretary, to waive the 
     restrictions provided in subsection (a) on the making of any 
     partnership adjustment.
       ``(d) Limit Where No Proceeding Begun.--If no proceeding 
     under section 6247 is begun with respect to any notice of a 
     partnership adjustment during the 90-day period described in 
     subsection (a), the amount for which the partnership is 
     liable under section 6242 (and any increase in any partner's 
     liability for tax under chapter 1 by reason of any adjustment 
     under section 6242(a)) shall not exceed the amount determined 
     in accordance with such notice.

     ``SEC. 6247. JUDICIAL REVIEW OF PARTNERSHIP ADJUSTMENT.

       ``(a) General Rule.--Within 90 days after the date on which 
     a notice of a partnership adjustment is mailed to the 
     partnership with respect to any partnership taxable year, the 
     partnership may file a petition for a readjustment of the 
     partnership items for such taxable year with--
       ``(1) the Tax Court,
       ``(2) the district court of the United States for the 
     district in which the partnership's principal place of 
     business is located, or
       ``(3) the Claims Court.
       ``(b) Jurisdictional Requirement for Bringing Action in 
     District Court or Claims Court.--
       ``(1) In general.--A readjustment petition under this 
     section may be filed in a district court of the United States 
     or the Claims Court only if the partnership filing the 
     petition deposits with the Secretary, on or before the date 
     the petition is filed, the amount for which the partnership 
     would be liable under section 6242(b) (as of the date of the 
     filing of the petition) if the partnership items were 
     adjusted as provided by the notice of partnership adjustment. 
     The court may by order provide that the jurisdictional 
     requirements of this paragraph are satisfied where there has 
     been a good faith attempt to satisfy such requirement and any 
     shortfall of the amount required to be deposited is timely 
     corrected.
       ``(2) Interest payable.--Any amount deposited under 
     paragraph (1), while deposited, shall not be treated as a 
     payment of tax for purposes of this title (other than chapter 
     67).
       ``(c) Scope of Judicial Review.--A court with which a 
     petition is filed in accordance with this section shall have 
     jurisdiction to determine all partnership items of the 
     partnership for the partnership taxable year to which the 
     notice of partnership adjustment relates and the proper 
     allocation of such items among the partners (and the 
     applicability of any penalty, addition to tax, or additional 
     amount for which the partnership may be liable under section 
     6242(b)).
       ``(d) Determination of Court Reviewable.--Any determination 
     by a court under this section shall have the force and effect 
     of a decision of the Tax Court or a final judgment or decree 
     of the district court or the Claims Court, as the case may 
     be, and shall be reviewable as such. The date of any such 
     determination shall be treated as being the date of the 
     court's order entering the decision.

[[Page H4763]]

       ``(e) Effect of Decision Dismissing Action.--If an action 
     brought under this section is dismissed other than by reason 
     of a rescission under section 6245(b)(3), the decision of the 
     court dismissing the action shall be considered as its 
     decision that the notice of partnership adjustment is 
     correct, and an appropriate order shall be entered in the 
     records of the court.

     ``SEC. 6248. PERIOD OF LIMITATIONS FOR MAKING ADJUSTMENTS.

       ``(a) General Rule.--Except as otherwise provided in this 
     section, no adjustment under this subpart to any partnership 
     item for any partnership taxable year may be made after the 
     date which is 3 years after the later of--
       ``(1) the date on which the partnership return for such 
     taxable year was filed, or
       ``(2) the last day for filing such return for such year 
     (determined without regard to extensions).
       ``(b) Extension by Agreement.--The period described in 
     subsection (a) (including an extension period under this 
     subsection) may be extended by an agreement entered into by 
     the Secretary and the partnership before the expiration of 
     such period.
       ``(c) Special Rule in Case of Fraud, Etc.--
       ``(1) False return.--In the case of a false or fraudulent 
     partnership return with intent to evade tax, the adjustment 
     may be made at any time.
       ``(2) Substantial omission of income.--If any partnership 
     omits from gross income an amount properly includible therein 
     which is in excess of 25 percent of the amount of gross 
     income stated in its return, subsection (a) shall be applied 
     by substituting `6 years' for `3 years'.
       ``(3) No return.--In the case of a failure by a partnership 
     to file a return for any taxable year, the adjustment may be 
     made at any time.
       ``(4) Return filed by secretary.--For purposes of this 
     section, a return executed by the Secretary under subsection 
     (b) of section 6020 on behalf of the partnership shall not be 
     treated as a return of the partnership.
       ``(d) Suspension When Secretary Mails Notice of 
     Adjustment.--If notice of a partnership adjustment with 
     respect to any taxable year is mailed to the partnership, the 
     running of the period specified in subsection (a) (as 
     modified by the other provisions of this section) shall be 
     suspended--
       ``(1) for the period during which an action may be brought 
     under section 6247 (and, if a petition is filed under section 
     6247 with respect to such notice, until the decision of the 
     court becomes final), and
       ``(2) for 1 year thereafter.

           ``Subpart B--Claims for Adjustments by Partnership

``Sec. 6251. Administrative adjustment requests.
``Sec. 6252. Judicial review where administrative adjustment request is 
              not allowed in full.

     ``SEC. 6251. ADMINISTRATIVE ADJUSTMENT REQUESTS.

       ``(a) General Rule.--A partnership may file a request for 
     an administrative adjustment of partnership items for any 
     partnership taxable year at any time which is--
       ``(1) within 3 years after the later of--
       ``(A) the date on which the partnership return for such 
     year is filed, or
       ``(B) the last day for filing the partnership return for 
     such year (determined without regard to extensions), and
       ``(2) before the mailing to the partnership of a notice of 
     a partnership adjustment with respect to such taxable year.
       ``(b) Secretarial Action.--If a partnership files an 
     administrative adjustment request under subsection (a), the 
     Secretary may allow any part of the requested adjustments.
       ``(c) Special Rule in Case of Extension Under Section 
     6248.--If the period described in section 6248(a) is extended 
     pursuant to an agreement under section 6248(b), the period 
     prescribed by subsection (a)(1) shall not expire before the 
     date 6 months after the expiration of the extension under 
     section 6248(b).

     ``SEC. 6252. JUDICIAL REVIEW WHERE ADMINISTRATIVE ADJUSTMENT 
                   REQUEST IS NOT ALLOWED IN FULL.

       ``(a) In General.--If any part of an administrative 
     adjustment request filed under section 6251 is not allowed by 
     the Secretary, the partnership may file a petition for an 
     adjustment with respect to the partnership items to which 
     such part of the request relates with--
       ``(1) the Tax Court,
       ``(2) the district court of the United States for the 
     district in which the principal place of business of the 
     partnership is located, or
       ``(3) the Claims Court.
       ``(b) Period for Filing Petition.--A petition may be filed 
     under subsection (a) with respect to partnership items for a 
     partnership taxable year only--
       ``(1) after the expiration of 6 months from the date of 
     filing of the request under section 6251, and
       ``(2) before the date which is 2 years after the date of 
     such request.
     The 2-year period set forth in paragraph (2) shall be 
     extended for such period as may be agreed upon in writing by 
     the partnership and the Secretary.
       ``(c) Coordination With Subpart A.--
       ``(1) Notice of partnership adjustment before filing of 
     petition.--No petition may be filed under this section after 
     the Secretary mails to the partnership a notice of a 
     partnership adjustment for the partnership taxable year to 
     which the request under section 6251 relates.
       ``(2) Notice of partnership adjustment after filing but 
     before hearing of petition.--If the Secretary mails to the 
     partnership a notice of a partnership adjustment for the 
     partnership taxable year to which the request under section 
     6251 relates after the filing of a petition under this 
     subsection but before the hearing of such petition, such 
     petition shall be treated as an action brought under section 
     6247 with respect to such notice, except that subsection (b) 
     of section 6247 shall not apply.
       ``(3) Notice must be before expiration of statute of 
     limitations.--A notice of a partnership adjustment for the 
     partnership taxable year shall be taken into account under 
     paragraphs (1) and (2) only if such notice is mailed before 
     the expiration of the period prescribed by section 6248 for 
     making adjustments to partnership items for such taxable 
     year.
       ``(d) Scope of Judicial Review.--Except in the case 
     described in paragraph (2) of subsection (c), a court with 
     which a petition is filed in accordance with this section 
     shall have jurisdiction to determine only those partnership 
     items to which the part of the request under section 6251 not 
     allowed by the Secretary relates and those items with respect 
     to which the Secretary asserts adjustments as offsets to the 
     adjustments requested by the partnership.
       ``(e) Determination of Court Reviewable.--Any determination 
     by a court under this subsection shall have the force and 
     effect of a decision of the Tax Court or a final judgment or 
     decree of the district court or the Claims Court, as the case 
     may be, and shall be reviewable as such. The date of any such 
     determination shall be treated as being the date of the 
     court's order entering the decision.

               ``PART III--DEFINITIONS AND SPECIAL RULES

``Sec. 6255. Definitions and special rules.

     ``SEC. 6255. DEFINITIONS AND SPECIAL RULES.

       ``(a) Definitions.--For purposes of this subchapter--
       ``(1) Electing large partnership.--The term `electing large 
     partnership' has the meaning given to such term by section 
     775.
       ``(2) Partnership item.--The term `partnership item' has 
     the meaning given to such term by section 6231(a)(3).
       ``(b) Partners Bound by Actions of Partnership, Etc.--
       ``(1) Designation of partner.--Each electing large 
     partnership shall designate (in the manner prescribed by the 
     Secretary) a partner (or other person) who shall have the 
     sole authority to act on behalf of such partnership under 
     this subchapter. In any case in which such a designation is 
     not in effect, the Secretary may select any partner as the 
     partner with such authority.
       ``(2) Binding effect.--An electing large partnership and 
     all partners of such partnership shall be bound--
       ``(A) by actions taken under this subchapter by the 
     partnership, and
       ``(B) by any decision in a proceeding brought under this 
     subchapter.
       ``(c) Partnerships Having Principal Place of Business 
     Outside the United States.--For purposes of sections 6247 and 
     6252, a principal place of business located outside the 
     United States shall be treated as located in the District of 
     Columbia.
       ``(d) Treatment Where Partnership Ceases To Exist.--If a 
     partnership ceases to exist before a partnership adjustment 
     under this subchapter takes effect, such adjustment shall be 
     taken into account by the former partners of such partnership 
     under regulations prescribed by the Secretary.
       ``(e) Date Decision Becomes Final.--For purposes of this 
     subchapter, the principles of section 7481(a) shall be 
     applied in determining the date on which a decision of a 
     district court or the Claims Court becomes final.
       ``(f) Partnerships in Cases Under Title 11 of the United 
     States Code.--The running of any period of limitations 
     provided in this subchapter on making a partnership 
     adjustment (or provided by section 6501 or 6502 on the 
     assessment or collection of any amount required to be paid 
     under section 6242) shall, in a case under title 11 of the 
     United States Code, be suspended during the period during 
     which the Secretary is prohibited by reason of such case from 
     making the adjustment (or assessment or collection) and--
       ``(1) for adjustment or assessment, 60 days thereafter, and
       ``(2) for collection, 6 months thereafter.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the provisions 
     of this subchapter, including regulations--
       ``(1) to prevent abuse through manipulation of the 
     provisions of this subchapter, and
       ``(2) providing that this subchapter shall not apply to any 
     case described in section 6231(c)(1) (or the regulations 
     prescribed thereunder) where the application of this 
     subchapter to such a case would interfere with the effective 
     and efficient enforcement of this title.

     In any case to which this subchapter does not apply by reason 
     of paragraph (2), rules similar to the rules of sections 
     6229(f) and 6255(f) shall apply.''.
       (b) Clerical Amendment.--The table of subchapters for 
     chapter 63 is amended by adding at the end thereof the 
     following new item:

``Subchapter D. Treatment of electing large partnerships.''.

[[Page H4764]]

     SEC. 1223. DUE DATE FOR FURNISHING INFORMATION TO PARTNERS OF 
                   ELECTING LARGE PARTNERSHIPS.

       (a) General Rule.--Subsection (b) of section 6031 (relating 
     to copies to partners) is amended by adding at the end the 
     following new sentence: ``In the case of an electing large 
     partnership (as defined in section 775), such information 
     shall be furnished on or before the first March 15 following 
     the close of such taxable year.''.
       (b) Treatment as Information Return.--Section 6724 is 
     amended by adding at the end the following new subsection:
       ``(e) Special Rule for Certain Partnership Returns.--If any 
     partnership return under section 6031(a) is required under 
     section 6011(e) to be filed on magnetic media or in other 
     machine-readable form, for purposes of this part, each 
     schedule required to be included with such return with 
     respect to each partner shall be treated as a separate 
     information return.''.

     SEC. 1224. RETURNS MAY BE REQUIRED ON MAGNETIC MEDIA.

       Paragraph (2) of section 6011(e) (relating to returns on 
     magnetic media) is amended by adding at the end thereof the 
     following new sentence:
     ``Notwithstanding the preceding sentence, the Secretary shall 
     require partnerships having more than 100 partners to file 
     returns on magnetic media.''.

     SEC. 1225. TREATMENT OF PARTNERSHIP ITEMS OF INDIVIDUAL 
                   RETIREMENT ACCOUNTS.

       Subsection (b) of section 6012 is amended by adding at the 
     end thereof the following new paragraph:
       ``(6) IRA share of partnership income.--In the case of a 
     trust which is exempt from taxation under section 408(e), for 
     purposes of this section, the trust's distributive share of 
     items of gross income and gain of any partnership to which 
     subchapter C or D of chapter 63 applies shall be treated as 
     equal to the trust's distributive share of the taxable income 
     of such partnership.''.

     SEC. 1226. EFFECTIVE DATE.

       The amendments made by this part shall apply to partnership 
     taxable years ending on or after December 31, 1997.

      PART II--PROVISIONS RELATED TO TEFRA PARTNERSHIP PROCEEDINGS

     SEC. 1231. TREATMENT OF PARTNERSHIP ITEMS IN DEFICIENCY 
                   PROCEEDINGS.

       (a) In General.--Subchapter C of chapter 63 is amended by 
     adding at the end the following new section:

     ``SEC. 6234. DECLARATORY JUDGMENT RELATING TO TREATMENT OF 
                   ITEMS OTHER THAN PARTNERSHIP ITEMS WITH RESPECT 
                   TO AN OVERSHELTERED RETURN.

       ``(a) General Rule.--If--
       ``(1) a taxpayer files an oversheltered return for a 
     taxable year,
       ``(2) the Secretary makes a determination with respect to 
     the treatment of items (other than partnership items) of such 
     taxpayer for such taxable year, and
       ``(3) the adjustments resulting from such determination do 
     not give rise to a deficiency (as defined in section 6211) 
     but would give rise to a deficiency if there were no net loss 
     from partnership items,
     the Secretary is authorized to send a notice of adjustment 
     reflecting such determination to the taxpayer by certified or 
     registered mail.
       ``(b) Oversheltered Return.--For purposes of this section, 
     the term `oversheltered return' means an income tax return 
     which--
       ``(1) shows no taxable income for the taxable year, and
       ``(2) shows a net loss from partnership items.
       ``(c) Judicial Review in the Tax Court.--Within 90 days, or 
     150 days if the notice is addressed to a person outside the 
     United States, after the day on which the notice of 
     adjustment authorized in subsection (a) is mailed to the 
     taxpayer, the taxpayer may file a petition with the Tax Court 
     for redetermination of the adjustments. Upon the filing of 
     such a petition, the Tax Court shall have jurisdiction to 
     make a declaration with respect to all items (other than 
     partnership items and affected items which require partner 
     level determinations as described in section 
     6230(a)(2)(A)(i)) for the taxable year to which the notice of 
     adjustment relates, in accordance with the principles of 
     section 6214(a). Any such declaration shall have the force 
     and effect of a decision of the Tax Court and shall be 
     reviewable as such.
       ``(d) Failure To File Petition.--
       ``(1) In general.--Except as provided in paragraph (2), if 
     the taxpayer does not file a petition with the Tax Court 
     within the time prescribed in subsection (c), the 
     determination of the Secretary set forth in the notice of 
     adjustment that was mailed to the taxpayer shall be deemed to 
     be correct.
       ``(2) Exception.--Paragraph (1) shall not apply after the 
     date that the taxpayer--
       ``(A) files a petition with the Tax Court within the time 
     prescribed in subsection (c) with respect to a subsequent 
     notice of adjustment relating to the same taxable year, or
       ``(B) files a claim for refund of an overpayment of tax 
     under section 6511 for the taxable year involved.
     If a claim for refund is filed by the taxpayer, then solely 
     for purposes of determining (for the taxable year involved) 
     the amount of any computational adjustment in connection with 
     a partnership proceeding under this subchapter (other than 
     under this section) or the amount of any deficiency 
     attributable to affected items in a proceeding under section 
     6230(a)(2), the items that are the subject of the notice of 
     adjustment shall be presumed to have been correctly reported 
     on the taxpayer's return during the pendency of the refund 
     claim (and, if within the time prescribed by section 6532 the 
     taxpayer commences a civil action for refund under section 
     7422, until the decision in the refund action becomes final).
       ``(e) Limitations Period.--
       ``(1) In general.--Any notice to a taxpayer under 
     subsection (a) shall be mailed before the expiration of the 
     period prescribed by section 6501 (relating to the period of 
     limitations on assessment).
       ``(2) Suspension when secretary mails notice of 
     adjustment.--If the Secretary mails a notice of adjustment to 
     the taxpayer for a taxable year, the period of limitations on 
     the making of assessments shall be suspended for the period 
     during which the Secretary is prohibited from making the 
     assessment (and, in any event, if a proceeding in respect of 
     the notice of adjustment is placed on the docket of the Tax 
     Court, until the decision of the Tax Court becomes final), 
     and for 60 days thereafter.
       ``(3) Restrictions on assessment.--Except as otherwise 
     provided in section 6851, 6852, or 6861, no assessment of a 
     deficiency with respect to any tax imposed by subtitle A 
     attributable to any item (other than a partnership item or 
     any item affected by a partnership item) shall be made--
       ``(A) until the expiration of the applicable 90-day or 150-
     day period set forth in subsection (c) for filing a petition 
     with the Tax Court, or
       ``(B) if a petition has been filed with the Tax Court, 
     until the decision of the Tax Court has become final.
       ``(f) Further Notices of Adjustment Restricted.--If the 
     Secretary mails a notice of adjustment to the taxpayer for a 
     taxable year and the taxpayer files a petition with the Tax 
     Court within the time prescribed in subsection (c), the 
     Secretary may not mail another such notice to the taxpayer 
     with respect to the same taxable year in the absence of a 
     showing of fraud, malfeasance, or misrepresentation of a 
     material fact.
       ``(g) Coordination With Other Proceedings Under This 
     Subchapter.--
       ``(1) In general.--The treatment of any item that has been 
     determined pursuant to subsection (c) or (d) shall be taken 
     into account in determining the amount of any computational 
     adjustment that is made in connection with a partnership 
     proceeding under this subchapter (other than under this 
     section), or the amount of any deficiency attributable to 
     affected items in a proceeding under section 6230(a)(2), for 
     the taxable year involved. Notwithstanding any other law or 
     rule of law pertaining to the period of limitations on the 
     making of assessments, for purposes of the preceding 
     sentence, any adjustment made in accordance with this section 
     shall be taken into account regardless of whether any 
     assessment has been made with respect to such adjustment.
       ``(2) Special rule in case of computational adjustment.--In 
     the case of a computational adjustment that is made in 
     connection with a partnership proceeding under this 
     subchapter (other than under this section), the provisions of 
     paragraph (1) shall apply only if the computational 
     adjustment is made within the period prescribed by section 
     6229 for assessing any tax under subtitle A which is 
     attributable to any partnership item or affected item for the 
     taxable year involved.
       ``(3) Conversion to deficiency proceeding.--If--
       ``(A) after the notice referred to in subsection (a) is 
     mailed to a taxpayer for a taxable year but before the 
     expiration of the period for filing a petition with the Tax 
     Court under subsection (c) (or, if a petition is filed with 
     the Tax Court, before the Tax Court makes a declaration for 
     that taxable year), the treatment of any partnership item for 
     the taxable year is finally determined, or any such item 
     ceases to be a partnership item pursuant to section 6231(b), 
     and
       ``(B) as a result of that final determination or cessation, 
     a deficiency can be determined with respect to the items that 
     are the subject of the notice of adjustment,

     the notice of adjustment shall be treated as a notice of 
     deficiency under section 6212 and any petition filed in 
     respect of the notice shall be treated as an action brought 
     under section 6213.
       ``(4) Finally determined.--For purposes of this subsection, 
     the treatment of partnership items shall be treated as 
     finally determined if--
       ``(A) the Secretary enters into a settlement agreement 
     (within the meaning of section 6224) with the taxpayer 
     regarding such items,
       ``(B) a notice of final partnership administrative 
     adjustment has been issued and--
       ``(i) no petition has been filed under section 6226 and the 
     time for doing so has expired, or
       ``(ii) a petition has been filed under section 6226 and the 
     decision of the court has become final, or
       ``(C) the period within which any tax attributable to such 
     items may be assessed against the taxpayer has expired.
       ``(h) Special Rules if Secretary Incorrectly Determines 
     Applicable Procedure.--
       ``(1) Special rule if secretary erroneously mails notice of 
     adjustment.--If the Secretary erroneously determines that

[[Page H4765]]

     subchapter B does not apply to a taxable year of a taxpayer 
     and consistent with that determination timely mails a notice 
     of adjustment to the taxpayer pursuant to subsection (a) of 
     this section, the notice of adjustment shall be treated as a 
     notice of deficiency under section 6212 and any petition that 
     is filed in respect of the notice shall be treated as an 
     action brought under section 6213.
       ``(2) Special rule if secretary erroneously mails notice of 
     deficiency.--If the Secretary erroneously determines that 
     subchapter B applies to a taxable year of a taxpayer and 
     consistent with that determination timely mails a notice of 
     deficiency to the taxpayer pursuant to section 6212, the 
     notice of deficiency shall be treated as a notice of 
     adjustment under subsection (a) and any petition that is 
     filed in respect of the notice shall be treated as an action 
     brought under subsection (c).''.
       (b) Treatment of Partnership Items in Deficiency 
     Proceedings.--Section 6211 (defining deficiency) is amended 
     by adding at the end the following new subsection:
       ``(c) Coordination With Subchapter C.--In determining the 
     amount of any deficiency for purposes of this subchapter, 
     adjustments to partnership items shall be made only as 
     provided in subchapter C.''.
       (c) Clerical Amendment.--The table of sections for 
     subchapter C of chapter 63 is amended by adding at the end 
     the following new item:

``Sec. 6234. Declaratory judgment relating to treatment of items other 
              than partnership items with respect to an oversheltered 
              return.''.

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

     SEC. 1232. PARTNERSHIP RETURN TO BE DETERMINATIVE OF AUDIT 
                   PROCEDURES TO BE FOLLOWED.

       (a) In General.--Section 6231 (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new subsection:
       ``(g) Partnership Return To Be Determinative of Whether 
     Subchapter Applies.--
       ``(1) Determination that subchapter applies.--If, on the 
     basis of a partnership return for a taxable year, the 
     Secretary reasonably determines that this subchapter applies 
     to such partnership for such year but such determination is 
     erroneous, then the provisions of this subchapter are hereby 
     extended to such partnership (and its items) for such taxable 
     year and to partners of such partnership.
       ``(2) Determination that subchapter does not apply.--If, on 
     the basis of a partnership return for a taxable year, the 
     Secretary reasonably determines that this subchapter does not 
     apply to such partnership for such year but such 
     determination is erroneous, then the provisions of this 
     subchapter shall not apply to such partnership (and its 
     items) for such taxable year or to partners of such 
     partnership.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to partnership taxable years ending after the 
     date of the enactment of this Act.

     SEC. 1233. PROVISIONS RELATING TO STATUTE OF LIMITATIONS.

       (a) Suspension of Statute Where Untimely Petition Filed.--
     Paragraph (1) of section 6229(d) (relating to suspension 
     where Secretary makes administrative adjustment) is amended 
     by striking all that follows ``section 6226'' and inserting 
     the following: ``(and, if a petition is filed under section 
     6226 with respect to such administrative adjustment, until 
     the decision of the court becomes final), and''.
       (b) Suspension of Statute During Bankruptcy Proceeding.--
     Section 6229 is amended by adding at the end the following 
     new subsection:
       ``(h) Suspension During Pendency of Bankruptcy 
     Proceeding.--If a petition is filed naming a partner as a 
     debtor in a bankruptcy proceeding under title 11 of the 
     United States Code, the running of the period of limitations 
     provided in this section with respect to such partner shall 
     be suspended--
       ``(1) for the period during which the Secretary is 
     prohibited by reason of such bankruptcy proceeding from 
     making an assessment, and
       ``(2) for 60 days thereafter.''.
       (c) Tax Matters Partner in Bankruptcy.--Section 6229(b) is 
     amended by redesignating paragraph (2) as paragraph (3) and 
     by inserting after paragraph (1) the following new paragraph:
       ``(2) Special rule with respect to debtors in title 11 
     cases.--Notwithstanding any other law or rule of law, if an 
     agreement is entered into under paragraph (1)(B) and the 
     agreement is signed by a person who would be the tax matters 
     partner but for the fact that, at the time that the agreement 
     is executed, the person is a debtor in a bankruptcy 
     proceeding under title 11 of the United States Code, such 
     agreement shall be binding on all partners in the partnership 
     unless the Secretary has been notified of the bankruptcy 
     proceeding in accordance with regulations prescribed by the 
     Secretary.''.
       (d) Effective Dates.--
       (1) Subsections (a) and (b).--The amendments made by 
     subsections (a) and (b) shall apply to partnership taxable 
     years with respect to which the period under section 6229 of 
     the Internal Revenue Code of 1986 for assessing tax has not 
     expired on or before the date of the enactment of this Act.
       (2) Subsection (c).--The amendment made by subsection (c) 
     shall apply to agreements entered into after the date of the 
     enactment of this Act.

     SEC. 1234. EXPANSION OF SMALL PARTNERSHIP EXCEPTION.

       (a) In General.--Clause (i) of section 6231(a)(1)(B) 
     (relating to exception for small partnerships) is amended to 
     read as follows:
       ``(i) In general.--The term `partnership' shall not include 
     any partnership having 10 or fewer partners each of whom is 
     an individual (other than a nonresident alien), a C 
     corporation, or an estate of a deceased partner. For purposes 
     of the preceding sentence, a husband and wife (and their 
     estates) shall be treated as 1 partner.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to partnership taxable years ending after the 
     date of the enactment of this Act.

     SEC. 1235. EXCLUSION OF PARTIAL SETTLEMENTS FROM 1-YEAR 
                   LIMITATION ON ASSESSMENT.

       (a) In General.--Subsection (f) of section 6229 (relating 
     to items becoming nonpartnership items) is amended--
       (1) by striking ``(f) Items Becoming Nonpartnership 
     Items.--If'' and inserting the following:
       ``(f) Special Rules.--
       ``(1) Items becoming nonpartnership items.--If'',
       (2) by moving the text of such subsection 2 ems to the 
     right, and
       (3) by adding at the end the following new paragraph:
       ``(2) Special rule for partial settlement agreements.--If a 
     partner enters into a settlement agreement with the Secretary 
     with respect to the treatment of some of the partnership 
     items in dispute for a partnership taxable year but other 
     partnership items for such year remain in dispute, the period 
     of limitations for assessing any tax attributable to the 
     settled items shall be determined as if such agreement had 
     not been entered into.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to settlements entered into after the date of the 
     enactment of this Act.

     SEC. 1236. EXTENSION OF TIME FOR FILING A REQUEST FOR 
                   ADMINISTRATIVE ADJUSTMENT.

       (a) In General.--Section 6227 (relating to administrative 
     adjustment requests) is amended by redesignating subsections 
     (b) and (c) as subsections (c) and (d), respectively, and by 
     inserting after subsection (a) the following new subsection:
       ``(b) Special Rule in Case of Extension of Period of 
     Limitations Under Section 6229.--The period prescribed by 
     subsection (a)(1) for filing of a request for an 
     administrative adjustment shall be extended--
       ``(1) for the period within which an assessment may be made 
     pursuant to an agreement (or any extension thereof) under 
     section 6229(b), and
       ``(2) for 6 months thereafter.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendments made by 
     section 402 of the Tax Equity and Fiscal Responsibility Act 
     of 1982.

     SEC. 1237. AVAILABILITY OF INNOCENT SPOUSE RELIEF IN CONTEXT 
                   OF PARTNERSHIP PROCEEDINGS.

       (a) In General.--Subsection (a) of section 6230 is amended 
     by adding at the end the following new paragraph:
       ``(3) Special rule in case of assertion by partner's spouse 
     of innocent spouse relief.--
       ``(A) Notwithstanding section 6404(b), if the spouse of a 
     partner asserts that section 6013(e) applies with respect to 
     a liability that is attributable to any adjustment to a 
     partnership item, then such spouse may file with the 
     Secretary within 60 days after the notice of computational 
     adjustment is mailed to the spouse a request for abatement of 
     the assessment specified in such notice. Upon receipt of such 
     request, the Secretary shall abate the assessment. Any 
     reassessment of the tax with respect to which an abatement is 
     made under this subparagraph shall be subject to the 
     deficiency procedures prescribed by subchapter B. The period 
     for making any such reassessment shall not expire before the 
     expiration of 60 days after the date of such abatement.
       ``(B) If the spouse files a petition with the Tax Court 
     pursuant to section 6213 with respect to the request for 
     abatement described in subparagraph (A), the Tax Court shall 
     only have jurisdiction pursuant to this section to determine 
     whether the requirements of section 6013(e) have been 
     satisfied. For purposes of such determination, the treatment 
     of partnership items under the settlement, the final 
     partnership administrative adjustment, or the decision of the 
     court (whichever is appropriate) that gave rise to the 
     liability in question shall be conclusive.
       ``(C) Rules similar to the rules contained in subparagraphs 
     (B) and (C) of paragraph (2) shall apply for purposes of this 
     paragraph.''.
       (b) Claims for Refund.--Subsection (c) of section 6230 is 
     amended by adding at the end the following new paragraph:
       ``(5) Rules for seeking innocent spouse relief.--
       ``(A) In general.--The spouse of a partner may file a claim 
     for refund on the ground that the Secretary failed to relieve 
     the spouse under section 6013(e) from a liability that is 
     attributable to an adjustment to a partnership item.
       ``(B) Time for filing claim.--Any claim under subparagraph 
     (A) shall be filed within

[[Page H4766]]

     6 months after the day on which the Secretary mails to the 
     spouse the notice of computational adjustment referred to in 
     subsection (a)(3)(A).
       ``(C) Suit if claim not allowed.--If the claim under 
     subparagraph (B) is not allowed, the spouse may bring suit 
     with respect to the claim within the period specified in 
     paragraph (3).
       ``(D) Prior determinations are binding.--For purposes of 
     any claim or suit under this paragraph, the treatment of 
     partnership items under the settlement, the final partnership 
     administrative adjustment, or the decision of the court 
     (whichever is appropriate) that gave rise to the liability in 
     question shall be conclusive.''.
       (c) Technical Amendments.--
       (1) Paragraph (1) of section 6230(a) is amended by striking 
     ``paragraph (2)'' and inserting ``paragraph (2) or (3)''.
       (2) Subsection (a) of section 6503 is amended by striking 
     ``section 6230(a)(2)(A)'' and inserting ``paragraph (2)(A) or 
     (3) of section 6230(a)''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect as if included in the amendments made by 
     section 402 of the Tax Equity and Fiscal Responsibility Act 
     of 1982.

     SEC. 1238. DETERMINATION OF PENALTIES AT PARTNERSHIP LEVEL.

       (a) In General.--Section 6221 (relating to tax treatment 
     determined at partnership level) is amended by striking 
     ``item'' and inserting ``item (and the applicability of any 
     penalty, addition to tax, or additional amount which relates 
     to an adjustment to a partnership item)''.
       (b) Conforming Amendments.--
       (1) Subsection (f) of section 6226 is amended--
       (A) by striking ``relates and'' and inserting ``relates,'', 
     and
       (B) by inserting before the period ``, and the 
     applicability of any penalty, addition to tax, or additional 
     amount which relates to an adjustment to a partnership 
     item''.
       (2) Clause (i) of section 6230(a)(2)(A) is amended to read 
     as follows:
       ``(i) affected items which require partner level 
     determinations (other than penalties, additions to tax, and 
     additional amounts that relate to adjustments to partnership 
     items), or''.
       (3)(A) Subparagraph (A) of section 6230(a)(3), as added by 
     section 14317, is amended by inserting ``(including any 
     liability for any penalty, addition to tax, or additional 
     amount relating to such adjustment)'' after ``partnership 
     item''.
       (B) Subparagraph (B) of such section is amended by 
     inserting ``(and the applicability of any penalties, 
     additions to tax, or additional amounts)'' after 
     ``partnership items''.
       (C) Subparagraph (A) of section 6230(c)(5), as added by 
     section 14317, is amended by inserting before the period 
     ``(including any liability for any penalties, additions to 
     tax, or additional amounts relating to such adjustment)''.
       (D) Subparagraph (D) of section 6230(c)(5), as added by 
     section 14317, is amended by inserting ``(and the 
     applicability of any penalties, additions to tax, or 
     additional amounts)'' after ``partnership items''.
       (4) Paragraph (1) of section 6230(c) is amended by striking 
     ``or'' at the end of subparagraph (A), by striking the period 
     at the end of subparagraph (B) and inserting ``, or'', and by 
     adding at the end the following new subparagraph:
       ``(C) the Secretary erroneously imposed any penalty, 
     addition to tax, or additional amount which relates to an 
     adjustment to a partnership item.''.
       (5) So much of subparagraph (A) of section 6230(c)(2) as 
     precedes ``shall be filed'' is amended to read as follows:
       ``(A) Under paragraph (1) (a) or (c).--Any claim under 
     subparagraph (A) or (C) of paragraph (1)''.
       (6) Paragraph (4) of section 6230(c) is amended by adding 
     at the end the following: ``In addition, the determination 
     under the final partnership administrative adjustment or 
     under the decision of the court (whichever is appropriate) 
     concerning the applicability of any penalty, addition to tax, 
     or additional amount which relates to an adjustment to a 
     partnership item shall also be conclusive. Notwithstanding 
     the preceding sentence, the partner shall be allowed to 
     assert any partner level defenses that may apply or to 
     challenge the amount of the computational adjustment.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to partnership taxable years ending after the 
     date of the enactment of this Act.

     SEC. 1239. PROVISIONS RELATING TO COURT JURISDICTION, ETC.

       (a) Tax Court Jurisdiction To Enjoin Premature Assessments 
     of Deficiencies Attributable to Partnership Items.--
     Subsection (b) of section 6225 is amended by striking ``the 
     proper court.'' and inserting ``the proper court, including 
     the Tax Court. The Tax Court shall have no jurisdiction to 
     enjoin any action or proceeding under this subsection unless 
     a timely petition for a readjustment of the partnership items 
     for the taxable year has been filed and then only in respect 
     of the adjustments that are the subject of such petition.''.
       (b) Jurisdiction To Consider Statute of Limitations With 
     Respect to Partners.--Paragraph (1) of section 6226(d) is 
     amended by adding at the end the following new sentence:
     ``Notwithstanding subparagraph (B), any person treated under 
     subsection (c) as a party to an action shall be permitted to 
     participate in such action (or file a readjustment petition 
     under subsection (b) or paragraph (2) of this subsection) 
     solely for the purpose of asserting that the period of 
     limitations for assessing any tax attributable to partnership 
     items has expired with respect to such person, and the court 
     having jurisdiction of such action shall have jurisdiction to 
     consider such assertion.''.
       (c) Tax Court Jurisdiction To Determine Overpayments 
     Attributable to Affected Items.--
       (1) Paragraph (6) of section 6230(d) is amended by striking 
     ``(or an affected item)''.
       (2) Paragraph (3) of section 6512(b) is amended by adding 
     at the end the following new sentence:

     ``In the case of a credit or refund relating to an affected 
     item (within the meaning of section 6231(a)(5)), the 
     preceding sentence shall be applied by substituting the 
     periods under sections 6229 and 6230(d) for the periods under 
     section 6511(b)(2), (c), and (d).''.
       (d) Venue on Appeal.--
       (1) Paragraph (1) of section 7482(b) is amended by striking 
     ``or'' at the end of subparagraph (D), by striking the period 
     at the end of subparagraph (E) and inserting ``, or'', and by 
     inserting after subparagraph (E) the following new 
     subparagraph:
       ``(F) in the case of a petition under section 6234(c)--
       ``(i) the legal residence of the petitioner if the 
     petitioner is not a corporation, and
       ``(ii) the place or office applicable under subparagraph 
     (B) if the petitioner is a corporation.''.
       (2) The last sentence of section 7482(b)(1) is amended by 
     striking ``or 6228(a)'' and inserting ``, 6228(a), or 
     6234(c)''.
       (e) Other Provisions.--
       (1) Subsection (c) of section 7459 is amended by striking 
     ``or section 6228(a)'' and inserting ``, 6228(a), or 
     6234(c)''.
       (2) Subsection (o) of section 6501 is amended by adding at 
     the end the following new paragraph:
       ``(3) For declaratory judgment relating to treatment of 
     items other than partnership items with respect to an 
     oversheltered return, see section 6234.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to partnership taxable years ending after the 
     date of the enactment of this Act.

     SEC. 1240. TREATMENT OF PREMATURE PETITIONS FILED BY NOTICE 
                   PARTNERS OR 5-PERCENT GROUPS.

       (a) In General.--Subsection (b) of section 6226 (relating 
     to judicial review of final partnership administrative 
     adjustments) is amended by redesignating paragraph (5) as 
     paragraph (6) and by inserting after paragraph (4) the 
     following new paragraph:
       ``(5) Treatment of premature petitions.--If--
       ``(A) a petition for a readjustment of partnership items 
     for the taxable year involved is filed by a notice partner 
     (or a 5-percent group) during the 90-day period described in 
     subsection (a), and
       ``(B) no action is brought under paragraph (1) during the 
     60-day period described therein with respect to such taxable 
     year which is not dismissed,
     such petition shall be treated for purposes of paragraph (1) 
     as filed on the last day of such 60-day period.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to petitions filed after the date of the 
     enactment of this Act.

     SEC. 1241. BONDS IN CASE OF APPEALS FROM CERTAIN PROCEEDING.

       (a) In General.--Subsection (b) of section 7485 (relating 
     to bonds to stay assessment of collection) is amended--
       (1) by inserting ``penalties,'' after ``any interest,'', 
     and
       (2) by striking ``aggregate of such deficiencies'' and 
     inserting ``aggregate liability of the parties to the 
     action''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendments made by 
     section 402 of the Tax Equity and Fiscal Responsibility Act 
     of 1982.

     SEC. 1242. SUSPENSION OF INTEREST WHERE DELAY IN 
                   COMPUTATIONAL ADJUSTMENT RESULTING FROM CERTAIN 
                   SETTLEMENTS.

       (a) In General.--Subsection (c) of section 6601 (relating 
     to interest on underpayment, nonpayment, or extension of time 
     for payment, of tax) is amended by adding at the end the 
     following new sentence: ``In the case of a settlement under 
     section 6224(c) which results in the conversion of 
     partnership items to nonpartnership items pursuant to section 
     6231(b)(1)(C), the preceding sentence shall apply to a 
     computational adjustment resulting from such settlement in 
     the same manner as if such adjustment were a deficiency and 
     such settlement were a waiver referred to in the preceding 
     sentence.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to adjustments with respect to partnership 
     taxable years beginning after the date of the enactment of 
     this Act.

     SEC. 1243. SPECIAL RULES FOR ADMINISTRATIVE ADJUSTMENT 
                   REQUESTS WITH RESPECT TO BAD DEBTS OR WORTHLESS 
                   SECURITIES.

       (a) General Rule.--Section 6227 (relating to administrative 
     adjustment requests) is amended by adding at the end the 
     following new subsection:

[[Page H4767]]

       ``(e) Requests With Respect to Bad Debts or Worthless 
     Securities.--In the case of that portion of any request for 
     an administrative adjustment which relates to the 
     deductibility by the partnership under section 166 of a debt 
     as a debt which became worthless, or under section 165(g) of 
     a loss from worthlessness of a security, the period 
     prescribed in subsection (a)(1) shall be 7 years from the 
     last day for filing the partnership return for the year with 
     respect to which such request is made (determined without 
     regard to extensions).''.
       (b) Effective Date.--
       (1) In general.--The amendment made by subsection (a) shall 
     take effect as if included in the amendments made by section 
     402 of the Tax Equity and Fiscal Responsibility Act of 1982.
       (2) Treatment of requests filed before date of enactment.--
     In the case of that portion of any request (filed before the 
     date of the enactment of this Act) for an administrative 
     adjustment which relates to the deductibility of a debt as a 
     debt which became worthless or the deductibility of a loss 
     from the worthlessness of a security--
       (A) paragraph (2) of section 6227(a) of the Internal 
     Revenue Code of 1986 shall not apply,
       (B) the period for filing a petition under section 6228 of 
     the Internal Revenue Code of 1986 with respect to such 
     request shall not expire before the date 6 months after the 
     date of the enactment of this Act, and
       (C) such a petition may be filed without regard to whether 
     there was a notice of the beginning of an administrative 
     proceeding or a final partnership administrative adjustment.

  PART III--PROVISION RELATING TO CLOSING OF PARTNERSHIP TAXABLE YEAR 
                 WITH RESPECT TO DECEASED PARTNER, ETC.

     SEC. 1246. CLOSING OF PARTNERSHIP TAXABLE YEAR WITH RESPECT 
                   TO DECEASED PARTNER, ETC.

       (a) General Rule.--Subparagraph (A) of section 706(c)(2) 
     (relating to disposition of entire interest) is amended to 
     read as follows:
       ``(A) Disposition of entire interest.--The taxable year of 
     a partnership shall close with respect to a partner whose 
     entire interest in the partnership terminates (whether by 
     reason of death, liquidation, or otherwise).''.
       (b) Clerical Amendment.--The paragraph heading for 
     paragraph (2) of section 706(c) is amended to read as 
     follows:
       ``(2) Treatment of dispositions.--''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to partnership taxable years beginning after 
     December 31, 1997.
    Subtitle D--Provisions Relating to Real Estate Investment Trusts

     SEC. 1251. CLARIFICATION OF LIMITATION ON MAXIMUM NUMBER OF 
                   SHAREHOLDERS.

       (a) Rules Relating to Determination of Ownership.--
       (1) Failure to issue shareholder demand letter not to 
     disqualify reit.--Section 857(a) (relating to requirements 
     applicable to real estate investment trusts) is amended by 
     striking paragraph (2) and by redesignating paragraph (3) as 
     paragraph (2).
       (2) Shareholder demand letter requirement; penalty.--
     Section 857 (relating to taxation of real estate investment 
     trusts and their beneficiaries) is amended by redesignating 
     subsection (f) as subsection (g) and by inserting after 
     subsection (e) the following new subsection:
       ``(f) Real Estate Investment Trusts To Ascertain 
     Ownership.--
       ``(1) In general.--Each real estate investment trust shall 
     each taxable year comply with regulations prescribed by the 
     Secretary for the purposes of ascertaining the actual 
     ownership of the outstanding shares, or certificates of 
     beneficial interest, of such trust.
       ``(2) Failure to comply.--
       ``(A) In general.--If a real estate investment trust fails 
     to comply with the requirements of paragraph (1) for a 
     taxable year, such trust shall pay (on notice and demand by 
     the Secretary and in the same manner as tax) a penalty of 
     $25,000.
       ``(B) Intentional disregard.--If any failure under 
     paragraph (1) is due to intentional disregard of the 
     requirement under paragraph (1), the penalty under 
     subparagraph (A) shall be $50,000.
       ``(C) Failure to comply after notice.--The Secretary may 
     require a real estate investment trust to take such actions 
     as the Secretary determines appropriate to ascertain actual 
     ownership if the trust fails to meet the requirements of 
     paragraph (1). If the trust fails to take such actions, the 
     trust shall pay (on notice and demand by the Secretary and in 
     the same manner as tax) an additional penalty equal to the 
     penalty determined under subparagraph (A) or (B), whichever 
     is applicable.
       ``(D) Reasonable cause.--No penalty shall be imposed under 
     this paragraph with respect to any failure if it is shown 
     that such failure is due to reasonable cause and not to 
     willful neglect.''.
       (b) Compliance With Closely Held Prohibition.--
       (1) In general.--Section 856 (defining real estate 
     investment trust) is amended by adding at the end the 
     following new subsection:
       ``(k) Requirement That Entity Not Be Closely Held Treated 
     as Met in Certain Cases.--A corporation, trust, or 
     association--
       ``(1) which for a taxable year meets the requirements of 
     section 857(f)(1), and
       ``(2) which does not know, or exercising reasonable 
     diligence would not have known, whether the entity failed to 
     meet the requirement of subsection (a)(6),

     shall be treated as having met the requirement of subsection 
     (a)(6) for the taxable year.''.
       (2) Conforming amendment.--Paragraph (6) of section 856(a) 
     is amended by inserting ``subject to the provisions of 
     subsection (k),'' before ``which is not''.

     SEC. 1252. DE MINIMIS RULE FOR TENANT SERVICES INCOME.

       (a) In General.--Paragraph (2) of section 856(d) (defining 
     rents from real property) is amended by striking subparagraph 
     (C) and the last sentence and inserting:
       ``(C) any impermissible tenant service income (as defined 
     in paragraph (7)).''.
       (b) Impermissible Tenant Service Income.--Section 856(d) is 
     amended by adding at the end the following new paragraph:
       ``(7) Impermissible tenant service income.--For purposes of 
     paragraph (2)(C)--
       ``(A) In general.--The term `impermissible tenant service 
     income' means, with respect to any real or personal property, 
     any amount received or accrued directly or indirectly by the 
     real estate investment trust for--
       ``(i) services furnished or rendered by the trust to the 
     tenants of such property, or
       ``(ii) managing or operating such property.
       ``(B) Disqualification of all amounts where more than de 
     minimis amount.--If the amount described in subparagraph (A) 
     with respect to a property for any taxable year exceeds 1 
     percent of all amounts received or accrued during such 
     taxable year directly or indirectly by the real estate 
     investment trust with respect to such property, the 
     impermissible tenant service income of the trust with respect 
     to the property shall include all such amounts.
       ``(C) Exceptions.--For purposes of subparagraph (A)--
       ``(i) services furnished or rendered, or management or 
     operation provided, through an independent contractor from 
     whom the trust itself does not derive or receive any income 
     shall not be treated as furnished, rendered, or provided by 
     the trust, and
       ``(ii) there shall not be taken into account any amount 
     which would be excluded from unrelated business taxable 
     income under section 512(b)(3) if received by an organization 
     described in section 511(a)(2).
       ``(D) Amount attributable to impermissible services.--For 
     purposes of subparagraph (A), the amount treated as received 
     for any service (or management or operation) shall not be 
     less than 150 percent of the direct cost of the trust in 
     furnishing or rendering the service (or providing the 
     management or operation).
       ``(E) Coordination with limitations.--For purposes of 
     paragraphs (2) and (3) of subsection (c), amounts described 
     in subparagraph (A) shall be included in the gross income of 
     the corporation, trust, or association.''.

     SEC. 1253. ATTRIBUTION RULES APPLICABLE TO TENANT OWNERSHIP.

       Section 856(d)(5) (relating to constructive ownership of 
     stock) is amended by adding at the end the following: ``For 
     purposes of paragraph (2)(B), section 318(a)(3)(A) shall be 
     applied under the preceding sentence in the case of a 
     partnership by taking into account only partners who own 
     (directly or indirectly) 25 percent or more of the capital 
     interest, or the profits interest, in the partnership.''.

     SEC. 1254. CREDIT FOR TAX PAID BY REIT ON RETAINED CAPITAL 
                   GAINS.

       (a) General Rule.--Paragraph (3) of section 857(b) 
     (relating to capital gains) is amended by redesignating 
     subparagraph (D) as subparagraph (E) and by inserting after 
     subparagraph (C) the following new subparagraph:
       ``(D) Treatment by shareholders of undistributed capital 
     gains.--
       ``(i) Every shareholder of a real estate investment trust 
     at the close of the trust's taxable year shall include, in 
     computing his long-term capital gains in his return for his 
     taxable year in which the last day of the trust's taxable 
     year falls, such amount as the trust shall designate in 
     respect of such shares in a written notice mailed to its 
     shareholders at any time prior to the expiration of 60 days 
     after the close of its taxable year (or mailed to its 
     shareholders or holders of beneficial interests with its 
     annual report for the taxable year), but the amount so 
     includible by any shareholder shall not exceed that part of 
     the amount subjected to tax in subparagraph (A)(ii) which he 
     would have received if all of such amount had been 
     distributed as capital gain dividends by the trust to the 
     holders of such shares at the close of its taxable year.
       ``(ii) For purposes of this title, every such shareholder 
     shall be deemed to have paid, for his taxable year under 
     clause (i), the tax imposed by subparagraph (A)(ii) on the 
     amounts required by this subparagraph to be included in 
     respect of such shares in computing his long-term capital 
     gains for that year; and such shareholders shall be allowed 
     credit or refund as the case may be, for the tax so deemed to 
     have been paid by him.
       ``(iii) The adjusted basis of such shares in the hands of 
     the holder shall be increased with respect to the amounts 
     required by this subparagraph to be included in computing his 
     long-term capital gains, by the difference between the amount 
     of such includible gains and the tax deemed paid by such 
     shareholder in respect of such shares under clause (ii).

[[Page H4768]]

       ``(iv) In the event of such designation, the tax imposed by 
     subparagraph (A)(ii) shall be paid by the real estate 
     investment trust within 30 days after the close of its 
     taxable year.
       ``(v) The earnings and profits of such real estate 
     investment trust, and the earnings and profits of any such 
     shareholder which is a corporation, shall be appropriately 
     adjusted in accordance with regulations prescribed by the 
     Secretary.
       ``(vi) As used in this subparagraph, the terms `shares' and 
     `shareholders' shall include beneficial interests and holders 
     of beneficial interests, respectively.''.
       (b) Conforming Amendments.--
       (1) Clause (i) of section 857(b)(7)(A) is amended by 
     striking ``subparagraph (B)'' and inserting ``subparagraph 
     (B) or (D)''.
       (2) Clause (iii) of section 852(b)(3)(D) is amended by 
     striking ``by 65 percent'' and all that follows and inserting 
     ``by the difference between the amount of such includible 
     gains and the tax deemed paid by such shareholder in respect 
     of such shares under clause (ii).''.

     SEC. 1255. REPEAL OF 30-PERCENT GROSS INCOME REQUIREMENT.

       (a) General Rule.--Subsection (c) of section 856 (relating 
     to limitations) is amended--
       (1) by adding ``and'' at the end of paragraph (3),
       (2) by striking paragraphs (4) and (8), and
       (3) by redesignating paragraphs (5), (6), and (7) as 
     paragraphs (4), (5), and (6), respectively.
       (b) Conforming Amendments.--
       (1) Subparagraph (G) of section 856(c)(5), as redesignated 
     by subsection (a), is amended by striking ``and such 
     agreement shall be treated as a security for purposes of 
     paragraph (4)(A)''.
       (2) Paragraph (5) of section 857(b) is amended by striking 
     ``section 856(c)(7)'' and inserting ``section 856(c)(6)''.
       (3) Subparagraph (C) of section 857(b)(6) is amended by 
     striking ``section 856(c)(6)(B)'' and inserting ``section 
     856(c)(5)(B)''.

     SEC. 1256. MODIFICATION OF EARNINGS AND PROFITS RULES FOR 
                   DETERMINING WHETHER REIT HAS EARNINGS AND 
                   PROFITS FROM NON-REIT YEAR.

       Subsection (d) of section 857 is amended by adding at the 
     end the following new paragraph:
       ``(3) Distributions to meet requirements of subsection 
     (a)(2)(B).--Any distribution which is made in order to comply 
     with the requirements of subsection (a)(2)(B)--
       ``(A) shall be treated for purposes of this subsection and 
     subsection (a)(2)(B) as made from the earliest accumulated 
     earnings and profits (other than earnings and profits to 
     which subsection (a)(2)(A) applies) rather than the most 
     recently accumulated earnings and profits, and
       ``(B) to the extent treated under subparagraph (A) as made 
     from accumulated earnings and profits, shall not be treated 
     as a distribution for purposes of subsection (b)(2)(B).''.

     SEC. 1257. TREATMENT OF FORECLOSURE PROPERTY.

       (a) Grace Periods.--
       (1) Initial period.--Paragraph (2) of section 856(e) 
     (relating to special rules for foreclosure property) is 
     amended by striking ``on the date which is 2 years after the 
     date the trust acquired such property'' and inserting ``as of 
     the close of the 3d taxable year following the taxable year 
     in which the trust acquired such property''.
       (2) Extension.--Paragraph (3) of section 856(e) is 
     amended--
       (A) by striking ``or more extensions'' and inserting 
     ``extension'', and
       (B) by striking the last sentence and inserting: ``Any such 
     extension shall not extend the grace period beyond the close 
     of the 3d taxable year following the last taxable year in the 
     period under paragraph (2).''.
       (b) Revocation of Election.--Paragraph (5) of section 
     856(e) is amended by striking the last sentence and 
     inserting: ``A real estate investment trust may revoke any 
     such election for a taxable year by filing the revocation (in 
     the manner provided by the Secretary) on or before the due 
     date (including any extension of time) for filing its return 
     of tax under this chapter for the taxable year. If a trust 
     revokes an election for any property, no election may be made 
     by the trust under this paragraph with respect to the 
     property for any subsequent taxable year.''.
       (c) Certain Activities Not To Disqualify Property.--
     Paragraph (4) of section 856(e) is amended by adding at the 
     end the following new flush sentence:

     ``For purposes of subparagraph (C), property shall not be 
     treated as used in a trade or business by reason of any 
     activities of the real estate investment trust with respect 
     to such property to the extent that such activities would not 
     result in amounts received or accrued, directly or 
     indirectly, with respect to such property being treated as 
     other than rents from real property.''.

     SEC. 1258. PAYMENTS UNDER HEDGING INSTRUMENTS.

       Section 856(c)(5)(G) (relating to treatment of certain 
     interest rate agreements), as redesignated by section 1255, 
     is amended to read as follows:
       ``(G) Treatment of certain hedging instruments.--Except to 
     the extent provided by regulations, any--
       ``(i) payment to a real estate investment trust under an 
     interest rate swap or cap agreement, option, futures 
     contract, forward rate agreement, or any similar financial 
     instrument, entered into by the trust in a transaction to 
     reduce the interest rate risks with respect to any 
     indebtedness incurred or to be incurred by the trust to 
     acquire or carry real estate assets, and
       ``(ii) gain from the sale or other disposition of any such 
     investment,

     shall be treated as income qualifying under paragraph (2).''.

     SEC. 1259. EXCESS NONCASH INCOME.

       Section 857(e)(2) (relating to determination of amount of 
     excess noncash income) is amended--
       (1) by striking subparagraph (B),
       (2) by striking the period at the end of subparagraph (C) 
     and inserting a comma,
       (3) by redesignating subparagraph (C) (as amended by 
     paragraph (2)) as subparagraph (B), and
       (4) by adding at the end the following new subparagraphs:
       ``(C) the amount (if any) by which--
       ``(i) the amounts includible in gross income with respect 
     to instruments to which section 860E(a) or 1272 applies, 
     exceed
       ``(ii) the amount of money and the fair market value of 
     other property received during the taxable year under such 
     instruments, and
       ``(D) amounts includible in income by reason of 
     cancellation of indebtedness.''.

     SEC. 1260. PROHIBITED TRANSACTION SAFE HARBOR.

       Clause (iii) of section 857(b)(6)(C) (relating to certain 
     sales not to constitute prohibited transactions) is amended 
     by striking ``(other than foreclosure property)'' in 
     subclauses (I) and (II) and inserting ``(other than sales of 
     foreclosure property or sales to which section 1033 
     applies)''.

     SEC. 1261. SHARED APPRECIATION MORTGAGES.

       (a) Bankruptcy Safe Harbor.--Section 856(j) (relating to 
     treatment of shared appreciation mortgages) is amended by 
     redesignating paragraph (4) as paragraph (5) and by inserting 
     after paragraph (3) the following new paragraph:
       ``(4) Coordination with 4-year holding period.--
       ``(A) In general.--For purposes of section 857(b)(6)(C), if 
     a real estate investment trust is treated as having sold 
     secured property under paragraph (3)(A), the trust shall be 
     treated as having held such property for at least 4 years 
     if--
       ``(i) the secured property is sold or otherwise disposed of 
     pursuant to a case under title 11 of the United States Code,
       ``(ii) the seller is under the jurisdiction of the court in 
     such case, and
       ``(iii) the disposition is required by the court or is 
     pursuant to a plan approved by the court.
       ``(B) Exception.--Subparagraph (A) shall not apply if--
       ``(i) the secured property was acquired by the trust with 
     the intent to evict or foreclose, or
       ``(ii) the trust knew or had reason to know that default on 
     the obligation described in paragraph (5)(A) would occur.''.
       (b) Clarification of Definition of Shared Appreciation 
     Provision.--Clause (ii) of section 856(j)(5)(A) is amended by 
     inserting before the period ``or appreciation in value as of 
     any specified date''.

     SEC. 1262. WHOLLY OWNED SUBSIDIARIES.

       Section 856(i)(2) (defining qualified REIT subsidiary) is 
     amended by striking ``at all times during the period such 
     corporation was in existence''.

     SEC. 1263. EFFECTIVE DATE.

       The amendments made by this part shall apply to taxable 
     years beginning after the date of the enactment of this Act.
   Subtitle E--Provisions Relating to Regulated Investment Companies

     SEC. 1271. REPEAL OF 30-PERCENT GROSS INCOME LIMITATION.

       (a) General Rule.--Subsection (b) of section 851 (relating 
     to limitations) is amended by striking paragraph (3), by 
     adding ``and'' at the end of paragraph (2), and by 
     redesignating paragraph (4) as paragraph (3).
       (b) Technical Amendments.--
       (1) The material following paragraph (3) of section 851(b) 
     (as redesignated by subsection (a)) is amended--
       (A) by striking out ``paragraphs (2) and (3)'' and 
     inserting ``paragraph (2)'', and
       (B) by striking out the last sentence thereof.
       (2) Subsection (c) of section 851 is amended by striking 
     ``subsection (b)(4)'' each place it appears (including the 
     heading) and inserting ``subsection (b)(3)''.
       (3) Subsection (d) of section 851 is amended by striking 
     ``subsections (b)(4)'' and inserting ``subsections (b)(3)''.
       (4) Paragraph (1) of section 851(e) is amended by striking 
     ``subsection (b)(4)'' and inserting ``subsection (b)(3)''.
       (5) Paragraph (4) of section 851(e) is amended by striking 
     ``subsections (b)(4)'' and inserting ``subsections (b)(3)''.
       (6) Section 851 is amended by striking subsection (g) and 
     redesignating subsection (h) as subsection (g).
       (7) Subsection (g) of section 851 (as redesignated by 
     paragraph (6)) is amended by striking paragraph (3).
       (8) Section 817(h)(2) is amended--
       (A) by striking ``851(b)(4)'' in subparagraph (A) and 
     inserting ``851(b)(3)'', and
       (B) by striking ``851(b)(4)(A)(i)'' in subparagraph (B) and 
     inserting ``851(b)(3)(A)(i)''.
       (9) Section 1092(f)(2) is amended by striking ``Except for 
     purposes of section 851(b)(3), the'' and inserting ``The''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable

[[Page H4769]]

     years ending after the date of the enactment of this Act.
                    Subtitle F--Taxpayer Protections

     SEC. 1281. REASONABLE CAUSE EXCEPTION FOR CERTAIN PENALTIES.

       (a) Information on Deductible Employee Contributions.--
     Subsection (g) of section 6652 (relating to information 
     required in connection with deductible employee 
     contributions) is amended by adding at the end the following 
     new sentence: ``No penalty shall be imposed under this 
     subsection on any failure which is shown to be due to 
     reasonable cause and not willful neglect.''.
       (b) Reports on Status as Qualified Small Business.--
     Subsection (k) of section 6652 (relating to failure to make 
     reports required under section 1202) is amended by adding at 
     the end the following new sentence: ``No penalty shall be 
     imposed under this subsection on any failure which is shown 
     to be due to reasonable cause and not willful neglect.''.
       (c) Returns of Personal Holding Company Tax by Foreign 
     Corporations.--Section 6683 (relating to failure of foreign 
     corporation to file return of personal holding company tax) 
     is amended by adding at the end the following new sentence: 
     ``No penalty shall be imposed under this section on any 
     failure which is shown to be due to reasonable cause and not 
     willful neglect.''.
       (d) Failure To Make Required Payments.--Subparagraph (A) of 
     section 7519(f)(4) is amended by adding at the end the 
     following new sentence: ``No penalty shall be imposed under 
     this subparagraph on any failure which is shown to be due to 
     reasonable cause and not willful neglect.''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 1282. CLARIFICATION OF PERIOD FOR FILING CLAIMS FOR 
                   REFUNDS.

       (a) In General.--Paragraph (3) of section 6512(b) (relating 
     to overpayment determined by Tax Court) is amended by adding 
     at the end the following flush sentence:

     ``In a case described in subparagraph (B) where the date of 
     the mailing of the notice of deficiency is during the third 
     year after the due date (with extensions) for filing the 
     return of tax and no return was filed before such date, the 
     applicable period under subsections (a) and (b)(2) of section 
     6511 shall be 3 years.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to claims for credit or refund for taxable years 
     ending after the date of the enactment of this Act.

     SEC. 1283. REPEAL OF AUTHORITY TO DISCLOSE WHETHER 
                   PROSPECTIVE JUROR HAS BEEN AUDITED.

       (a) In General.--Subsection (h) of section 6103 (relating 
     to disclosure to certain Federal officers and employees for 
     purposes of tax administration, etc.) is amended by striking 
     paragraph (5) and by redesignating paragraph (6) as paragraph 
     (5).
       (b) Conforming Amendment.--Paragraph (4) of section 6103(p) 
     is amended by striking ``(h)(6)'' each place it appears and 
     inserting ``(h)(5)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to judicial proceedings commenced after the date 
     of the enactment of this Act.

     SEC. 1284. CLARIFICATION OF STATUTE OF LIMITATIONS.

       (a) In General.--Subsection (a) of section 6501 (relating 
     to limitations on assessment and collection) is amended by 
     adding at the end thereof the following new sentence: ``For 
     purposes of this chapter, the term `return' means the return 
     required to be filed by the taxpayer (and does not include a 
     return of any person from whom the taxpayer has received an 
     item of income, gain, loss, deduction, or credit).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 1285. AWARDING OF ADMINISTRATIVE COSTS.

       (a) Right to Appeal Tax Court Decision.--Subsection (f) of 
     section 7430 (relating to right of appeal) is amended by 
     adding at the end the following new paragraph:
       ``(3) Appeal of tax court decision.--An order of the Tax 
     Court disposing of a petition under paragraph (2) shall be 
     reviewable in the same manner as a decision of the Tax Court, 
     but only with respect to the matters determined in such 
     order.''.
       (b) Period for Applying to IRS for Costs.--Subsection (b) 
     of section 7430 (relating to limitations) is amended by 
     adding at the end the following new paragraph:
       ``(5) Period for applying to irs for administrative 
     costs.--An award may be made under subsection (a) by the 
     Internal Revenue Service for reasonable administrative costs 
     only if the prevailing party files an application with the 
     Internal Revenue Service for such costs before the 91st day 
     after the date on which the final decision of the Internal 
     Revenue Service as to the determination of the tax, interest, 
     or penalty is mailed to such party.''.
       (c) Period for Petitioning of Tax Court for Review of 
     Denial of Costs.--Paragraph (2) of section 7430(f) (relating 
     to right of appeal) is amended--
       (1) by striking ``appeal to'' and inserting ``the filing of 
     a petition for review with'', and
       (2) by adding at the end the following new sentence: ``If 
     the Secretary sends by certified or registered mail a notice 
     of such decision to the petitioner, no proceeding in the Tax 
     Court may be initiated under this paragraph unless such 
     petition is filed before the 91st day after the date of such 
     mailing.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to civil actions or proceedings commenced after 
     the date of the enactment of this Act.

     SEC. 1286. PENALTY FOR UNAUTHORIZED INSPECTION OF TAX RETURNS 
                   OR TAX RETURN INFORMATION.

       (a) In General.--Part I of subchapter A of chapter 75 
     (relating to crimes, other offenses, and forfeitures) is 
     amended by adding after section 7213 the following new 
     section:

     ``SEC. 7213A. UNAUTHORIZED INSPECTION OF RETURNS OR RETURN 
                   INFORMATION.

       ``(a) Prohibitions.--
       ``(1) Federal employees and other persons.--It shall be 
     unlawful for--
       ``(A) any officer or employee of the United States, or
       ``(B) any person described in section 6103(n) or an officer 
     or employee of any such person,

     willfully to inspect, except as authorized in this title, any 
     return or return information.
       ``(2) State and other employees.--It shall be unlawful for 
     any person (not described in paragraph (1)) willfully to 
     inspect, except as authorized in this title, any return or 
     return information acquired by such person or another person 
     under a provision of section 6103 referred to in section 
     7213(a)(2).
       ``(b) Penalty.--
       ``(1)  In general.--Any violation of subsection (a) shall 
     be punishable upon conviction by a fine in any amount not 
     exceeding $1,000, or imprisonment of not more than 1 year, or 
     both, together with the costs of prosecution.
       ``(2) Federal officers or employees.--An officer or 
     employee of the United States who is convicted of any 
     violation of subsection (a) shall, in addition to any other 
     punishment, be dismissed from office or discharged from 
     employment.
       ``(c) Definitions.--For purposes of this section, the terms 
     `inspect', `return', and `return information' have the 
     respective meanings given such terms by section 6103(b).''.
       (b) Technical Amendments.--
       (1) Paragraph (2) of section 7213(a) is amended by 
     inserting ``(5),'' after ``(m)(2), (4),''.
       (2) The table of sections for part I of subchapter A of 
     chapter 75 is amended by inserting after the item relating to 
     section 7213 the following new item:

``Sec. 7213A. Unauthorized inspection of returns or return 
              information.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to violations occurring on and after the date of 
     the enactment of this Act.

     SEC. 1287. CIVIL DAMAGES FOR UNAUTHORIZED INSPECTION OF 
                   RETURNS AND RETURN INFORMATION; NOTIFICATION OF 
                   UNLAWFUL INSPECTION OR DISCLOSURE.

       (a) Civil Damages for Unauthorized Inspection.--Subsection 
     (a) of section 7431 is amended--
       (1) by striking ``Disclosure'' in the headings for 
     paragraphs (1) and (2) and inserting ``Inspection or 
     disclosure'', and
       (2) by striking ``discloses'' in paragraphs (1) and (2) and 
     inserting ``inspects or discloses''.
       (b) Notification of Unlawful Inspection or Disclosure.--
     Section 7431 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) Notification of Unlawful Inspection and Disclosure.--
     If any person is criminally charged by indictment or 
     information with inspection or disclosure of a taxpayer's 
     return or return information in violation of--
       ``(1) paragraph (1) or (2) of section 7213(a),
       ``(2) section 7213A(a), or
       ``(3) subparagraph (B) of section 1030(a)(2) of title 18, 
     United States Code,

     the Secretary shall notify such taxpayer as soon as 
     practicable of such inspection or disclosure.''.
       (c) No Damages for Inspection Requested by Taxpayer.--
     Subsection (b) of section 7431 is amended to read as follows:
       ``(b) Exceptions.--No liability shall arise under this 
     section with respect to any inspection or disclosure--
       ``(1) which results from a good faith, but erroneous, 
     interpretation of section 6103, or
       ``(2) which is requested by the taxpayer.''.
       (d) Conforming Amendments.--
       (1) Subsections (c)(1)(A), (c)(1)(B)(i), and (d) of section 
     7431 are each amended by inserting ``inspection or'' before 
     ``disclosure''.
       (2) Clause (ii) of section 7431(c)(1)(B) is amended by 
     striking ``willful disclosure or a disclosure'' and inserting 
     ``willful inspection or disclosure or an inspection or 
     disclosure''.
       (3) Subsection (f) of section 7431, as redesignated by 
     subsection (b), is amended to read as follows:
       ``(f) Definitions.--For purposes of this section, the terms 
     `inspect', `inspection', `return', and `return information' 
     have the respective meanings given such terms by section 
     6103(b).''.
       (4) The section heading for section 7431 is amended by 
     inserting ``INSPECTION OR'' before ``DISCLOSURE''.
       (5) The table of sections for subchapter B of chapter 76 is 
     amended by inserting ``inspection or'' before ``disclosure'' 
     in the item relating to section 7431.
       (6) Paragraph (2) of section 7431(g), as redesignated by 
     subsection (b), is amended by

[[Page H4770]]

     striking ``any use'' and inserting ``any inspection or use''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to inspections and disclosures occurring on and 
     after the date of the enactment of this Act.
TITLE XIII--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES

     SEC. 1301. GIFTS TO CHARITIES EXEMPT FROM GIFT TAX FILING 
                   REQUIREMENTS.

       (a) In General.--Section 6019 is amended by striking ``or'' 
     at the end of paragraph (1), by adding ``or'' at the end of 
     paragraph (2), and by inserting after paragraph (2) the 
     following new paragraph:
       ``(3) a transfer with respect to which a deduction is 
     allowed under section 2522, except that this paragraph shall 
     apply with respect to a transfer of property (other than a 
     transfer described in section 2522(d)) only if the entire 
     value of such property is allowed as a deduction under 
     section 2522,''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to gifts made after the date of the enactment of 
     this Act.

     SEC. 1302. CLARIFICATION OF WAIVER OF CERTAIN RIGHTS OF 
                   RECOVERY.

       (a) Amendment to Section 2207A.--Paragraph (2) of section 
     2207A(a) (relating to right of recovery in the case of 
     certain marital deduction property) is amended to read as 
     follows:
       ``(2) Decedent may otherwise direct.--Paragraph (1) shall 
     not apply with respect to any property to the extent that the 
     decedent in his will (or a revocable trust) specifically 
     indicates an intent to waive any right of recovery under this 
     subchapter with respect to such property.''.
       (b) Amendment to Section 2207B.--Paragraph (2) of section 
     2207B(a) (relating to right of recovery where decedent 
     retained interest) is amended to read as follows:
       ``(2) Decedent may otherwise direct.--Paragraph (1) shall 
     not apply with respect to any property to the extent that the 
     decedent in his will (or a revocable trust) specifically 
     indicates an intent to waive any right of recovery under this 
     subchapter with respect to such property.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to the estates of decedents dying 
     after the date of the enactment of this Act.

     SEC. 1303. TRANSITIONAL RULE UNDER SECTION 2056A.

       (a) General Rule.--In the case of any trust created under 
     an instrument executed before the date of the enactment of 
     the Revenue Reconciliation Act of 1990, such trust shall be 
     treated as meeting the requirements of paragraph (1) of 
     section 2056A(a) of the Internal Revenue Code of 1986 if the 
     trust instrument requires that all trustees of the trust be 
     individual citizens of the United States or domestic 
     corporations.
       (b) Effective Date.--The provisions of subsection (a) shall 
     take effect as if included in the provisions of section 
     11702(g) of the Revenue Reconciliation Act of 1990.

     SEC. 1304. CLARIFICATIONS RELATING TO DISCLAIMERS.

       (a) Partial Transfer-Type Disclaimers Permitted.--Paragraph 
     (3) of section 2518(c) (relating to certain transfers treated 
     as disclaimers) is amended by inserting ``(or an undivided 
     portion of such interest)'' after ``entire interest in the 
     property''.
       (b) Retention of Interest by Decedent's Spouse Permitted in 
     Transfer-Type Disclaimers.--Paragraph (3) of section 2518(c) 
     is amended by adding at the end the following new flush 
     sentence:

     ``For purposes of the preceding sentence, a written transfer 
     by the spouse of the decedent of property to a trust shall 
     not fail to be treated as a transfer of such spouse's 
     interest in such property by reason of such spouse having an 
     interest in such trust.''.
       (c) Disclaimers Are Effective For Income Tax Purposes.--
     Subsection (a) of section 2518 is amended by inserting ``and 
     subtitle A'' after ``this subtitle'' each place it appears.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transfers creating an interest in the person 
     disclaiming, and disclaimers, made after the date of the 
     enactment of this Act.

     SEC. 1305. INCREASE OF AMOUNT OF LAPSE OF GENERAL POWER OF 
                   APPOINTMENT NOT TREATED AS RELEASE FOR PURPOSES 
                   OF ESTATE AND GIFT TAX (5 OR 5 POWER).

       (a) Estate Tax.--Subparagraph (A) of section 2041(b)(2) 
     (relating to lapse of power) is amended by striking 
     ``$5,000'' and inserting ``$10,000''.
       (b) Gift Tax.--Paragraph (1) of section 2514(e) (relating 
     to lapse of power) is amended by striking ``$5,000'' and 
     inserting ``$10,000''.
       (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. 1306. TREATMENT FOR ESTATE TAX PURPOSES OF SHORT-TERM 
                   OBLIGATIONS HELD BY NONRESIDENT ALIENS.

       (a) In General.--Subsection (b) of section 2105 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 inserting after paragraph (3) the following new 
     paragraph:
       ``(4) obligations which would be original issue discount 
     obligations as defined in section 871(g)(1) but for 
     subparagraph (B)(i) thereof, if any interest thereon (were 
     such interest received by the decedent at the time of his 
     death) would not be effectively connected with the conduct of 
     a trade or business within the United States.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

     SEC. 1307. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF 
                   ESTATE.

       (a) In General.--Subpart A of part I of subchapter J 
     (relating to estates, trusts, beneficiaries, and decedents) 
     is amended by adding at the end the following new section:

     ``SEC. 646. CERTAIN REVOCABLE TRUSTS TREATED AS PART OF 
                   ESTATE.

       ``(a) General Rule.--For purposes of this subtitle, if both 
     the executor (if any) of an estate and the trustee of a 
     qualified revocable trust elect the treatment provided in 
     this section, such trust shall be treated and taxed as part 
     of such estate (and not as a separate trust) for all taxable 
     years of the estate ending after the date of the decedent's 
     death and before the applicable date.
       ``(b) Definitions.--For purposes of subsection (a)--
       ``(1) Qualified revocable trust.--The term `qualified 
     revocable trust' means any trust (or portion thereof) which 
     was treated under section 676 as owned by the decedent of the 
     estate referred to in subsection (a) by reason of a power in 
     the grantor (determined without regard to section 672(e)).
       ``(2) Applicable date.--The term `applicable date' means--
       ``(A) if no return of tax imposed by chapter 11 is required 
     to be filed, the date which is 2 years after the date of the 
     decedent's death, and
       ``(B) if such a return is required to be filed, the date 
     which is 6 months after the date of the final determination 
     of the liability for tax imposed by chapter 11.
       ``(c) Election.--The election under subsection (a) shall be 
     made not later than the time prescribed for filing the return 
     of tax imposed by this chapter for the first taxable year of 
     the estate (determined with regard to extensions) and, once 
     made, shall be irrevocable.''.
       (b) Comparable Treatment Under Generation-Skipping Tax.--
     Paragraph (1) of section 2652(b) is amended by adding at the 
     end the following new sentence: ``Such term shall not include 
     any trust during any period the trust is treated as part of 
     an estate under section 646.''.
       (c) Clerical Amendment.--The table of sections for such 
     subpart A is amended by adding at the end the following new 
     item:

``Sec. 646. Certain revocable trusts treated as part of estate.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply with respect to estates of decedents dying after 
     the date of the enactment of this Act.

     SEC. 1308. DISTRIBUTIONS DURING FIRST 65 DAYS OF TAXABLE YEAR 
                   OF ESTATE.

       (a) In General.--Subsection (b) of section 663 (relating to 
     distributions in first 65 days of taxable year) is amended by 
     inserting ``an estate or'' before ``a trust'' each place it 
     appears.
       (b) Conforming Amendment.--Paragraph (2) of section 663(b) 
     is amended by striking ``the fiduciary of such trust'' and 
     inserting ``the executor of such estate or the fiduciary of 
     such trust (as the case may be)''.
       (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. 1309. SEPARATE SHARE RULES AVAILABLE TO ESTATES.

       (a) In General.--Subsection (c) of section 663 (relating to 
     separate shares treated as separate trusts) is amended--
       (1) by inserting before the last sentence the following new 
     sentence: ``Rules similar to the rules of the preceding 
     provisions of this subsection shall apply to treat 
     substantially separate and independent shares of different 
     beneficiaries in an estate having more than 1 beneficiary as 
     separate estates.'', and
       (2) by inserting ``or estates'' after ``trusts'' in the 
     last sentence.
       (b) Conforming Amendment.--The subsection heading of 
     section 663(c) is amended by inserting ``Estates or'' before 
     ``Trusts''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

     SEC. 1310. EXECUTOR OF ESTATE AND BENEFICIARIES TREATED AS 
                   RELATED PERSONS FOR DISALLOWANCE OF LOSSES, 
                   ETC.

       (a) Disallowance of Losses.--Subsection (b) of section 267 
     (relating to losses, expenses, and interest with respect to 
     transactions between related taxpayers) is amended by 
     striking ``or'' at the end of paragraph (11), by striking the 
     period at the end of paragraph (12) and inserting ``; or'', 
     and by adding at the end the following new paragraph:
       ``(13) Except in the case of a sale or exchange in 
     satisfaction of a pecuniary bequest, an executor of an estate 
     and a beneficiary of such estate.''.
       (b) Ordinary Income From Gain From Sale of Depreciable 
     Property.--Subsection (b) of section 1239 is amended by 
     striking the period at the end of paragraph (2) and inserting 
     ``, and'' and by adding at the end the following new 
     paragraph:
       ``(3) except in the case of a sale or exchange in 
     satisfaction of a pecuniary bequest, an executor of an estate 
     and a beneficiary of such estate.''.

[[Page H4771]]

       (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. 1311. LIMITATION ON TAXABLE YEAR OF ESTATES.

       (a) In General.--Section 645 (relating to taxable year of 
     trusts) is amended to read as follows:

     ``SEC. 645. TAXABLE YEAR OF ESTATES AND TRUSTS.

       ``(a) Estates.--For purposes of this subtitle, the taxable 
     year of an estate shall be a year ending on October 31, 
     November 30, or December 31.
       ``(b) Trusts.--
       ``(1) In general.--For purposes of this subtitle, the 
     taxable year of any trust shall be the calendar year.
       ``(2) Exception for trusts exempt from tax and charitable 
     trusts.--Paragraph (1) shall not apply to a trust exempt from 
     taxation under section 501(a) or to a trust described in 
     section 4947(a)(1).''.
       (b) Clerical Amendment.--The table of sections for subpart 
     A of part I of subchapter J of chapter 1 is amended by 
     striking the item relating to section 645 and inserting the 
     following new item:

``Sec. 645. Taxable year of estates and trusts.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

     SEC. 1312. TREATMENT OF FUNERAL TRUSTS.

       (a) In General.--Subpart F of part I of subchapter J of 
     chapter 1 is amended by adding at the end the following new 
     section:

     ``SEC. 684. TREATMENT OF FUNERAL TRUSTS.

       ``(a) In General.--In the case of a qualified funeral 
     trust--
       ``(1) subparts B, C, D, and E shall not apply, and
       ``(2) no deduction shall be allowed by section 642(b).
       ``(b) Qualified Funeral Trust.--For purposes of this 
     subsection, the term `qualified funeral trust' means any 
     trust (other than a foreign trust) if--
       ``(1) the trust arises as a result of a contract with a 
     person engaged in the trade or business of providing funeral 
     or burial services or property necessary to provide such 
     services,
       ``(2) the sole purpose of the trust is to hold, invest, and 
     reinvest funds in the trust and to use such funds solely to 
     make payments for such services or property for the benefit 
     of the beneficiaries of the trust,
       ``(3) the only beneficiaries of such trust are individuals 
     who have entered into contracts described in paragraph (1) to 
     have such services or property provided at their death,
       ``(4) the only contributions to the trust are contributions 
     by or for the benefit of such beneficiaries,
       ``(5) the trustee elects the application of this 
     subsection, and
       ``(6) the trust would (but for the election described in 
     paragraph (5)) be treated as owned by the beneficiaries under 
     subpart E.
       ``(c) Dollar Limitation on Contributions.--
       ``(1) In general.--The term `qualified funeral trust' shall 
     not include any trust which accepts aggregate contributions 
     by or for the benefit of an individual in excess of $7,000.
       ``(2) Related trusts.--For purposes of paragraph (1), all 
     trusts having trustees which are related persons shall be
     treated as 1 trust. For purposes of the preceding sentence, 
     persons are related if--
       ``(A) the relationship between such persons is described in 
     section 267 or 707(b),
       ``(B) such persons are treated as a single employer under 
     subsection (a) or (b) of section 52, or
       ``(C) the Secretary determines that treating such persons 
     as related is necessary to prevent avoidance of the purposes 
     of this section.
       ``(3) Inflation adjustment.--In the case of any contract 
     referred to in subsection (b)(1) which is entered into during 
     any calendar year after 1998, the dollar amount referred to 
     paragraph (1) 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 1997' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any dollar amount after being increased under the 
     preceding sentence is not a multiple of $100, such dollar 
     amount shall be rounded to the nearest multiple of $100.
       ``(d) Application of Rate Schedule.--Section 1(e) shall be 
     applied to each qualified funeral trust by treating each 
     beneficiary's interest in each such trust as a separate 
     trust.
       ``(e) Treatment of Amounts Refunded to Beneficiary on 
     Cancellation.--No gain or loss shall be recognized to a 
     beneficiary described in subsection (b)(3) of any qualified 
     funeral trust by reason of any payment from such trust to 
     such beneficiary by reason of cancellation of a contract 
     referred to in subsection (b)(1). If any payment referred to 
     in the preceding sentence consists of property other than 
     money, the basis of such property in the hands of such 
     beneficiary shall be the same as the trust's basis in such 
     property immediately before the payment.
       ``(f) Simplified Reporting.--The Secretary may prescribe 
     rules for simplified reporting of all trusts having a single 
     trustee.''.
       (b) Clerical Amendment.--The table of sections for subpart 
     F of part I of subchapter J of chapter 1 is amended by adding 
     at the end the following new item:

``Sec. 684. Treatment of funeral trusts.''.

       (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. 1313. ADJUSTMENTS FOR GIFTS WITHIN 3 YEARS OF DECEDENT'S 
                   DEATH.

       (a) General Rule.--Section 2035 is amended to read as 
     follows:

     ``SEC. 2035. ADJUSTMENTS FOR CERTAIN GIFTS MADE WITHIN 3 
                   YEARS OF DECEDENT'S DEATH.

       ``(a) Inclusion of Certain Property in Gross Estate.--If--
       ``(1) the decedent made a transfer (by trust or otherwise) 
     of an interest in any property, or relinquished a power with 
     respect to any property, during the 3-year period ending on 
     the date of the decedent's death, and
       ``(2) the value of such property (or an interest therein) 
     would have been included in the decedent's gross estate under 
     section 2036, 2037, 2038, or 2042 if such transferred 
     interest or relinquished power had been retained by the 
     decedent on the date of his death,

     the value of the gross estate shall include the value of any 
     property (or interest therein) which would have been so 
     included.
       ``(b) Inclusion of Gift Tax on Gifts Made During 3 Years 
     Before Decedent's Death.--The amount of the gross estate 
     (determined without regard to this subsection) shall be 
     increased by the amount of any tax paid under chapter 12 by 
     the decedent or his estate on any gift made by the decedent 
     or his spouse during the 3-year period ending on the date of 
     the decedent's death.
       ``(c) Other Rules Relating to Transfers Within 3 Years of 
     Death.--
       ``(1) In general.--For purposes of--
       ``(A) section 303(b) (relating to distributions in 
     redemption of stock to pay death taxes),
       ``(B) section 2032A (relating to special valuation of 
     certain farms, etc., real property), and
       ``(C) subchapter C of chapter 64 (relating to lien for 
     taxes),

     the value of the gross estate shall include the value of all 
     property to the extent of any interest therein of which the 
     decedent has at any time made a transfer, by trust or 
     otherwise, during the 3-year period ending on the date of the 
     decedent's death.
       ``(2) Coordination with section 6166.--An estate shall be 
     treated as meeting the 35 percent of adjusted gross estate 
     requirement of section 6166(a)(1) only if the estate meets 
     such requirement both with and without the application of 
     paragraph (1).
       ``(3) Marital and small transfers.--Paragraph (1) shall not 
     apply to any transfer (other than a transfer with respect to 
     a life insurance policy) made during a calendar year to any 
     donee if the decedent was not required by section 6019 (other 
     than by reason of section 6019(2)) to file any gift tax 
     return for such year with respect to transfers to such donee.
       ``(d) Exception.--Subsection (a) shall not apply to any 
     bona fide sale for an adequate and full consideration in 
     money or money's worth.
       ``(e) Treatment of Certain Transfers From Revocable 
     Trusts.--For purposes of this section and section 2038, any 
     transfer from any portion of a trust during any period that 
     such portion was treated under section 676 as owned by the 
     decedent by reason of a power in the grantor (determined 
     without regard to section 672(e)) shall be treated as a 
     transfer made directly by the decedent.''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter A of chapter 11 is amended by striking 
     ``gifts'' in the item relating to section 2035 and inserting 
     ``certain gifts''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to the estates of decedents dying after the date 
     of the enactment of this Act.

     SEC. 1314. CLARIFICATION OF TREATMENT OF SURVIVOR ANNUITIES 
                   UNDER QUALIFIED TERMINABLE INTEREST RULES.

       (a) In General.--Subparagraph (C) of section 2056(b)(7) is 
     amended by inserting ``(or, in the case of an interest in an 
     annuity arising under the community property laws of a State, 
     included in the gross estate of the decedent under section 
     2033)'' after ``section 2039''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

     SEC. 1315. TREATMENT UNDER QUALIFIED DOMESTIC TRUST RULES OF 
                   FORMS OF OWNERSHIP WHICH ARE NOT TRUSTS.

       (a) In General.--Subsection (c) of section 2056A (defining 
     qualified domestic trust) is amended by adding at the end the 
     following new paragraph:
       ``(3) Trust.--To the extent provided in regulations 
     prescribed by the Secretary, the term `trust' includes other 
     arrangements which have substantially the same effect as a 
     trust.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.

     SEC. 1316. OPPORTUNITY TO CORRECT CERTAIN FAILURES UNDER 
                   SECTION 2032A.

       (a) General Rule.--Paragraph (3) of section 2032A(d) 
     (relating to modification of election and agreement to be 
     permitted) is amended to read as follows:
       ``(3) Modification of election and agreement to be 
     permitted.--The Secretary shall

[[Page H4772]]

     prescribe procedures which provide that in any case in which 
     the executor makes an election under paragraph (1) (and 
     submits the agreement referred to in paragraph (2)) within 
     the time prescribed therefor, but--
       ``(A) the notice of election, as filed, does not contain 
     all required information, or
       ``(B) signatures of 1 or more persons required to enter 
     into the agreement described in paragraph (2) are not 
     included on the agreement as filed, or the agreement does not 
     contain all required information,

     the executor will have a reasonable period of time (not 
     exceeding 90 days) after notification of such failures to 
     provide such information or signatures.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to the estates of decedents dying after the date 
     of the enactment of this Act.

     SEC. 1317. AUTHORITY TO WAIVE REQUIREMENT OF UNITED STATES 
                   TRUSTEE FOR QUALIFIED DOMESTIC TRUSTS.

       (a) In General.--Subparagraph (A) of section 2056A(a)(1) is 
     amended by inserting ``except as provided in regulations 
     prescribed by the Secretary,'' before ``requires''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to estates of decedents dying after the date of 
     the enactment of this Act.
  TITLE XIV--SIMPLIFICATION PROVISIONS RELATING TO EXCISE TAXES, TAX-
                    EXEMPT BONDS, AND OTHER MATTERS
                 Subtitle A--Excise Tax Simplification

          PART I--EXCISE TAXES ON HEAVY TRUCKS AND LUXURY CARS

     SEC. 1401. INCREASE IN DE MINIMIS LIMIT FOR AFTER-MARKET 
                   ALTERATIONS FOR HEAVY TRUCKS AND LUXURY CARS.

       (a) In General.--Sections 4003(a)(3)(C) and 4051(b)(2)(B) 
     (relating to exceptions) are each amended by striking 
     ``$200'' and inserting ``$1,000''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to installations on vehicles sold after the date 
     of the enactment of this Act.

     SEC. 1402. 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.

   PART II--PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER

     SEC. 1411. CREDIT OR REFUND FOR IMPORTED BOTTLED DISTILLED 
                   SPIRITS RETURNED TO DISTILLED SPIRITS PLANT.

       (a) In General.--Section 5008(c)(1) (relating to distilled 
     spirits returned to bonded premises) is amended by striking 
     ``withdrawn from bonded premises on payment or determination 
     of tax'' and inserting ``on which tax has been determined or 
     paid''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1412. AUTHORITY TO CANCEL OR CREDIT EXPORT BONDS WITHOUT 
                   SUBMISSION OF RECORDS.

       (a) In General.--Section 5175(c) (relating to cancellation 
     of credit of export bonds) is amended by striking ``on the 
     submission of'' and all that follows and inserting ``if there 
     is such proof of exportation as the Secretary may by 
     regulations require.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1413. REPEAL OF REQUIRED MAINTENANCE OF RECORDS ON 
                   PREMISES OF DISTILLED SPIRITS PLANT.

       (a) In General.--Section 5207(c) (relating to preservation 
     and inspection) is amended by striking ``shall be kept on the 
     premises where the operations covered by the record are 
     carried on and''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1414. FERMENTED MATERIAL FROM ANY BREWERY MAY BE 
                   RECEIVED AT A DISTILLED SPIRITS PLANT.

       (a) In General.--Section 5222(b)(2) (relating to receipt) 
     is amended to read as follows:
       ``(2) beer conveyed without payment of tax from brewery 
     premises, beer which has been lawfully removed from brewery 
     premises upon determination of tax, or''.
       (b) Clarification of Authority To Permit Removal of Beer 
     Without Payment of Tax for Use as Distilling Material.--
     Section 5053 (relating to exemptions) is amended by 
     redesignating subsection (f) as subsection (i) and by 
     inserting after subsection (e) the following new subsection:
       ``(f) Removal for Use as Distilling Material.--Subject to 
     such regulations as the Secretary may prescribe, beer may be 
     removed from a brewery without payment of tax to any 
     distilled spirits plant for use as distilling material.''.
       (c) Clarification of Refund and Credit of Tax.--Section 
     5056 (relating to refund and credit of tax, or relief from 
     liability) is amended--
       (1) by redesignating subsection (c) as subsection (d) and 
     by inserting after subsection (b) the following new 
     subsection:
       ``(c) Beer Received at a Distilled Spirits Plant.--Any tax 
     paid by any brewer on beer produced in the United States may 
     be refunded or credited to the brewer, without interest, or 
     if the tax has not been paid, the brewer may be relieved of 
     liability therefor, under regulations as the Secretary may 
     prescribe, if such beer is received on the bonded premises of 
     a distilled spirits plant pursuant to the provisions of 
     section 5222(b)(2), for use in the production of distilled 
     spirits.'', and
       (2) by striking ``or rendering unmerchantable'' in 
     subsection (d) (as so redesignated) and inserting ``rendering 
     unmerchantable, or receipt on the bonded premises of a 
     distilled spirits plant''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1415. REPEAL OF REQUIREMENT FOR WHOLESALE DEALERS IN 
                   LIQUORS TO POST SIGN.

       (a) In General.--Section 5115 (relating to sign required on 
     premises) is hereby repealed.
       (b) Conforming Amendments.--
       (1) Section 5681(a) is amended by striking ``, and every 
     wholesale dealer in liquors,'' and by striking ``section 
     5115(a) or''.
       (2) Section 5681(c) is amended--
       (A) by striking ``or wholesale liquor establishment, on 
     which no sign required by section 5115(a) or'' and inserting 
     ``on which no sign required by'', and
       (B) by striking ``or wholesale liquor establishment, or 
     who'' and inserting ``or who''.
       (3) The table of sections for subpart D of part II of 
     subchapter A of chapter 51 is amended by striking the item 
     relating to section 5115.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1416. REFUND OF TAX TO WINE RETURNED TO BOND NOT LIMITED 
                   TO UNMERCHANTABLE WINE.

       (a) In General.--Section 5044(a) (relating to refund of tax 
     on unmerchantable wine) is amended by striking ``as 
     unmerchantable''.
       (b) Conforming Amendments.--
       (1) Section 5361 is amended by striking ``unmerchantable''.
       (2) The section heading for section 5044 is amended by 
     striking ``UNMERCHANTABLE''.
       (3) The item relating to section 5044 in the table of 
     sections for subpart C of part I of subchapter A of chapter 
     51 is amended by striking ``unmerchantable''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1417. USE OF ADDITIONAL AMELIORATING MATERIAL IN CERTAIN 
                   WINES.

       (a) In General.--Section 5384(b)(2)(D) (relating to 
     ameliorated fruit and berry wines) is amended by striking 
     ``loganberries, currants, or gooseberries,'' and inserting 
     ``any fruit or berry with a natural fixed acid of 20 parts 
     per thousand or more (before any correction of such fruit or 
     berry)''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1418. DOMESTICALLY PRODUCED BEER MAY BE WITHDRAWN FREE 
                   OF TAX FOR USE OF FOREIGN EMBASSIES, LEGATIONS, 
                   ETC.

       (a) In General.--Section 5053 (relating to exemptions), as 
     amended by section 1414(b), is amended by inserting after 
     subsection (f) the following new subsection:
       ``(g) Removals for Use of Foreign Embassies, Legations, 
     Etc.--
       ``(1) In general.--Subject to such regulations as the 
     Secretary may prescribe--
       ``(A) beer may be withdrawn from the brewery without 
     payment of tax for transfer to any customs bonded warehouse 
     for entry pending withdrawal therefrom as provided in 
     subparagraph (B), and
       ``(B) beer entered into any customs bonded warehouse under 
     subparagraph (A) may be withdrawn for consumption in the 
     United States by, and for the official and family use of, 
     such foreign governments, organizations, and individuals as 
     are entitled to withdraw imported beer from such warehouses 
     free of tax.

     Beer transferred to any customs bonded warehouse under 
     subparagraph (A) shall be entered, stored, and accounted for 
     in such warehouse under such regulations and bonds as the 
     Secretary may prescribe, and may be withdrawn therefrom by 
     such governments, organizations, and individuals free of tax 
     under the same conditions and procedures as imported beer.
       ``(2) Other rules to apply.--Rules similar to the rules of 
     paragraphs (2) and (3) of section 5362(e) shall apply for 
     purposes of this subsection.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on

[[Page H4773]]

     the 1st day of the 1st calendar quarter that begins at least 
     90 days after the date of the enactment of this Act.

     SEC. 1419. BEER MAY BE WITHDRAWN FREE OF TAX FOR DESTRUCTION.

       (a) In General.--Section 5053 (relating to exemptions), as 
     amended by section 1418(a), is amended by inserting after 
     subsection (g) the following new subsection:
       ``(h) Removals for Destruction.--Subject to such 
     regulations as the Secretary may prescribe, beer may be 
     removed from the brewery without payment of tax for 
     destruction.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1420. AUTHORITY TO ALLOW DRAWBACK ON EXPORTED BEER 
                   WITHOUT SUBMISSION OF RECORDS.

       (a) In General.--The first sentence of section 5055 
     (relating to drawback of tax on beer) is amended by striking 
     ``found to have been paid'' and all that follows and 
     inserting ``paid on such beer if there is such proof of 
     exportation as the Secretary may by regulations require.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1421. TRANSFER TO BREWERY OF BEER IMPORTED IN BULK 
                   WITHOUT PAYMENT OF TAX.

       (a) In General.--Part II of subchapter G of chapter 51 is 
     amended by adding at the end the following new section:

     ``SEC. 5418. BEER IMPORTED IN BULK.

       ``Beer imported or brought into the United States in bulk 
     containers may, under such regulations as the Secretary may 
     prescribe, be withdrawn from customs custody and transferred 
     in such bulk containers to the premises of a brewery without 
     payment of the internal revenue tax imposed on such beer. The 
     proprietor of a brewery to which such beer is transferred 
     shall become liable for the tax on the beer withdrawn from 
     customs custody under this section upon release of the beer 
     from customs custody, and the importer, or the person 
     bringing such beer into the United States, shall thereupon be 
     relieved of the liability for such tax.''.
       (b) Clerical Amendment.--The table of sections for such 
     part II is amended by adding at the end the following new 
     item:

``Sec. 5418. Beer imported in bulk.''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1422. TRANSFER TO BONDED WINE CELLARS OF WINE IMPORTED 
                   IN BULK WITHOUT PAYMENT OF TAX.

       (a) In General.--Part II of subchapter F of chapter 51 is 
     amended by inserting after section 5363 the following new 
     section:

     ``SEC. 5364. WINE IMPORTED IN BULK.

       ``Wine imported or brought into the United States in bulk 
     containers may, under such regulations as the Secretary may 
     prescribe, be withdrawn from customs custody and transferred 
     in such bulk containers to the premises of a bonded wine 
     cellar without payment of the internal revenue tax imposed on 
     such wine. The proprietor of a bonded wine cellar to which 
     such wine is transferred shall become liable for the tax on 
     the wine withdrawn from customs custody under this section 
     upon release of the wine from customs custody, and the 
     importer, or the person bringing such wine into the United 
     States, shall thereupon be relieved of the liability for such 
     tax.''.
       (b) Clerical Amendment.--The table of sections for such 
     part II is amended by inserting after the item relating to 
     section 5363 the following new item:

``Sec. 5364. Wine imported in bulk.''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

                 PART III--OTHER EXCISE TAX PROVISIONS

     SEC. 1431. AUTHORITY TO GRANT EXEMPTIONS FROM REGISTRATION 
                   REQUIREMENTS.

       (a) In General.--Section 4222(b)(2) (relating to export) is 
     amended--
       (1) by striking ``in the case of any sale or resale for 
     export,'', and
       (2) by striking ``Export'' and inserting ``Under 
     regulations''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall take effect on the date of the enactment of this Act.

     SEC. 1432. REPEAL OF EXPIRED PROVISIONS.

       (a) Piggy-Back Trailers.--Section 4051 (relating to 
     imposition of tax on heavy trucks and trailers sold at 
     retail) is amended by striking subsection (d) and by 
     redesignating subsection (e) as subsection (d).
       (b) Deep Seabed Mining.--
       (1) In general.--Subchapter F of chapter 36 (relating to 
     tax on removal of hard mineral resources from deep seabed) is 
     hereby repealed.
       (2) Conforming amendment.--The table of subchapters for 
     chapter 36 is amended by striking the item relating to 
     subchapter F.
       (c) Ozone-Depleting Chemicals.--
       (1) Paragraph (1) of section 4681(b) is amended by striking 
     subparagraphs (B) and (C) and inserting the following new 
     subparagraph:
       ``(B) Base tax amount.--The base tax amount for purposes of 
     subparagraph (A) with respect to any sale or use during any 
     calendar year after 1995 shall be $5.35 increased by 45 cents 
     for each year after 1995.''.
       (2) Subsection (g) of section 4682 is amended to read as 
     follows:
       ``(g) Chemicals Used as Propellants in Metered-Dose 
     Inhalers.--
       ``(1) Exemption from tax.--
       ``(A) In general.--No tax shall be imposed by section 4681 
     on--
       ``(i) any use of any substance as a propellant in metered-
     dose inhalers, or
       ``(ii) any qualified sale by the manufacturer, producer, or 
     importer of any substance.
       ``(B) Qualified sale.--For purposes of subparagraph (A), 
     the term `qualified sale' means any sale by the manufacturer, 
     producer, or importer of any substance--
       ``(i) for use by the purchaser as a propellant in metered 
     dose inhalers, or
       ``(ii) for resale by the purchaser to a 2d purchaser for 
     such use by the 2d purchaser.

     The preceding sentence shall apply only if the manufacturer, 
     producer, and importer, and the 1st and 2d purchasers (if 
     any) meet such registration requirements as may be prescribed 
     by the Secretary.
       ``(2) Overpayments.--If any substance on which tax was paid 
     under this subchapter is used by any person as a propellant 
     in metered-dose inhalers, credit or refund without interest 
     shall be allowed to such person in an amount equal to the tax 
     so paid. Amounts payable under the preceding sentence with 
     respect to uses during the taxable year shall be treated as 
     described in section 34(a) for such year unless claim thereof 
     has been timely filed under this paragraph.''.
                 Subtitle B--Tax-Exempt Bond Provisions

     SEC. 1441. REPEAL OF $100,000 LIMITATION ON UNSPENT PROCEEDS 
                   UNDER 1-YEAR EXCEPTION FROM REBATE.

       Subclause (I) of section 148(f)(4)(B)(ii) (relating to 
     additional period for certain bonds) is amended by striking 
     ``the lesser of 5 percent of the proceeds of the issue or 
     $100,000'' and inserting ``5 percent of the proceeds of the 
     issue''.

     SEC. 1442. EXCEPTION FROM REBATE FOR EARNINGS ON BONA FIDE 
                   DEBT SERVICE FUND UNDER CONSTRUCTION BOND 
                   RULES.

       Subparagraph (C) of section 148(f)(4) is amended by adding 
     at the end the following new clause:
       ``(xvii) Treatment of bona fide debt service funds.--If the 
     spending requirements of clause (ii) are met with respect to 
     the available construction proceeds of a construction issue, 
     then paragraph (2) shall not apply to earnings on a bona fide 
     debt service fund for such issue.''.

     SEC. 1443. REPEAL OF DEBT SERVICE-BASED LIMITATION ON 
                   INVESTMENT IN CERTAIN NONPURPOSE INVESTMENTS.

       Subsection (d) of section 148 (relating to special rules 
     for reasonably required reserve or replacement fund) is 
     amended by striking paragraph (3).

     SEC. 1444. REPEAL OF EXPIRED PROVISIONS.

       (a) Paragraph (2) of section 148(c) is amended by striking 
     subparagraph (B) and by redesignating subparagraphs (C), (D), 
     and (E) as subparagraphs (B), (C), and (D), respectively.
       (b) Paragraph (4) of section 148(f) is amended by striking 
     subparagraph (E).

     SEC. 1445. EFFECTIVE DATE.

       The amendments made by this subtitle shall apply to bonds 
     issued after the date of the enactment of this Act.
                    Subtitle C--Tax Court Procedures

     SEC. 1451. OVERPAYMENT DETERMINATIONS OF TAX COURT.

       (a) Appeal of Order.--Paragraph (2) of section 6512(b) 
     (relating to jurisdiction to enforce) is amended by adding at 
     the end the following new sentence: ``An order of the Tax 
     Court disposing of a motion under this paragraph shall be 
     reviewable in the same manner as a decision of the Tax Court, 
     but only with respect to the matters determined in such 
     order.''.
       (b) Denial of Jurisdiction Regarding Certain Credits and 
     Reductions.--Subsection (b) of section 6512 (relating to 
     overpayment determined by Tax Court) is amended by adding at 
     the end the following new paragraph:
       ``(4) Denial of jurisdiction regarding certain credits and 
     reductions.--The Tax Court shall have no jurisdiction under 
     this subsection to restrain or review any credit or reduction 
     made by the Secretary under section 6402.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1452. REDETERMINATION OF INTEREST PURSUANT TO MOTION.

       (a) In General.--Subsection (c) of section 7481 (relating 
     to jurisdiction over interest determinations) is amended to 
     read as follows:
       ``(c) Jurisdiction Over Interest Determinations.--
       ``(1) In general.--Notwithstanding subsection (a), if, 
     within 1 year after the date the decision of the Tax Court 
     becomes final under subsection (a) in a case to which this 
     subsection applies, the taxpayer files a motion in the Tax 
     Court for a redetermination of the amount of interest 
     involved, then the Tax Court may reopen the case solely to 
     determine whether the taxpayer has made an overpayment of 
     such interest or the Secretary has made an underpayment of 
     such interest and the amount thereof.

[[Page H4774]]

       ``(2) Cases to which this subsection applies.--This 
     subsection shall apply where--
       ``(A)(i) an assessment has been made by the Secretary under 
     section 6215 which includes interest as imposed by this 
     title, and
       ``(ii) the taxpayer has paid the entire amount of the 
     deficiency plus interest claimed by the Secretary, and
       ``(B) the Tax Court finds under section 6512(b) that the 
     taxpayer has made an overpayment.
       ``(3) Special rules.--If the Tax Court determines under 
     this subsection that the taxpayer has made an overpayment of 
     interest or that the Secretary has made an underpayment of 
     interest, then that determination shall be treated under 
     section 6512(b)(1) as a determination of an overpayment of 
     tax. An order of the Tax Court redetermining interest, when 
     entered upon the records of the court, shall be reviewable in 
     the same manner as a decision of the Tax Court.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1453. APPLICATION OF NET WORTH REQUIREMENT FOR AWARDS OF 
                   LITIGATION COSTS.

       (a) In General.--Paragraph (4) of section 7430(c) (defining 
     prevailing party) is amended by adding at the end thereof the 
     following new subparagraph:
       ``(D) Special rules for applying net worth requirement.--In 
     applying the requirements of section 2412(d)(2)(B) of title 
     28, United States Code, for purposes of subparagraph (A)(iii) 
     of this paragraph--
       ``(i) the net worth limitation in clause (i) of such 
     section shall apply to--

       ``(I) an estate but shall be determined as of the date of 
     the decedent's death, and
       ``(II) a trust but shall be determined as of the last day 
     of the taxable year involved in the proceeding, and

       ``(ii) individuals filing a joint return shall be treated 
     as 1 individual for purposes of clause (i) of such section, 
     except in the case of a spouse relieved of liability under 
     section 6013(e).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to proceedings commenced after the date of the 
     enactment of this Act.

     SEC. 1454. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT 
                   STATUS.

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

     ``SEC. 7435. PROCEEDINGS FOR DETERMINATION OF EMPLOYMENT 
                   STATUS.

       ``(a) Creation of Remedy.--If, in connection with an audit 
     of any person, there is an actual controversy involving a 
     determination by the Secretary as part of an examination 
     that--
       ``(1) one or more individuals performing services for such 
     person are employees of such person for purposes of subtitle 
     C, or
       ``(2) such person is not entitled to the treatment under 
     subsection (a) of section 530 of the Revenue Act of 1978 with 
     respect to such an individual,

     upon the filing of an appropriate pleading, the Tax Court may 
     determine whether such a determination by the Secretary is 
     correct. Any such determination by the Tax Court shall have 
     the force and effect of a decision of the Tax Court and shall 
     be reviewable as such.
       ``(b) Limitations.--
       ``(1) Petitioner.--A pleading may be filed under this 
     section only by the person for whom the services are 
     performed.
       ``(2) Time for filing action.--If the Secretary sends by 
     certified or registered mail notice to the petitioner of a 
     determination by the Secretary described in subsection (a), 
     no proceeding may be initiated under this section with 
     respect to such determination unless the pleading is filed 
     before the 91st day after the date of such mailing.
       ``(3) No adverse inference from treatment while action is 
     pending.--If, during the pendency of any proceeding brought 
     under this section, the petitioner changes his treatment for 
     employment tax purposes of any individual whose employment 
     status as an employee is involved in such proceeding (or of 
     any individual holding a substantially similar position) to 
     treatment as an employee, such change shall not be taken into 
     account in the Tax Court's determination under this section.
       ``(c) Small Case Procedures.--
       ``(1) In general.--At the option of the petitioner, 
     concurred in by the Tax Court or a division thereof before 
     the hearing of the case, proceedings under this section may 
     (notwithstanding the provisions of section 7453) be conducted 
     subject to the rules of evidence, practice, and procedure 
     applicable under section 7463 if the amount of employment 
     taxes placed in dispute is $10,000 or less for each calendar 
     quarter involved.
       ``(2) Finality of decisions.--A decision entered in any 
     proceeding conducted under this subsection shall not be 
     reviewed in any other court and shall not be treated as a 
     precedent for any other case not involving the same 
     petitioner and the same determinations.
       ``(3) Certain rules to apply.--Rules similar to the rules 
     of the last sentence of subsection (a), and subsections (c), 
     (d), and (e), of section 7463 shall apply to proceedings 
     conducted under this subsection.
       ``(d) Special Rules.--
       ``(1) Restrictions on assessment and collection pending 
     action, etc.--The principles of subsections (a), (b), and (d) 
     of section 6213, section 6214(a), section 6503(a), and 
     section 6512 shall apply to proceedings brought under this 
     section in the same manner as if the Secretary's 
     determination described in subsection (a) were a notice of 
     deficiency.
       ``(2) Awarding of costs and certain fees.--Section 7430 
     shall apply to proceedings brought under this section.
       ``(e) Employment Tax.--The term `employment tax' means any 
     tax imposed by subtitle C.''.
       (b) Conforming Amendments.--
       (1) Subsection (d) of section 6511 is amended by adding at 
     the end the following new paragraph:
       ``(7) Special period of limitation with respect to self-
     employment tax in certain cases.--If--
       ``(A) the claim for credit or refund relates to an 
     overpayment of the tax imposed by chapter 2 (relating to the 
     tax on self-employment income) attributable to Tax Court 
     determination in a proceeding under section 7435, and
       ``(B) the allowance of a credit or refund of such 
     overpayment is otherwise prevented by the operation of any 
     law or rule of law other than section 7122 (relating to 
     compromises),

     such credit or refund may be allowed or made if claim 
     therefor is filed on or before the last day of the second 
     year after the calendar year in which such determination 
     becomes final.''.
       (2) Sections 7453 and 7481(b) are each amended by striking 
     ``section 7463'' and inserting ``section 7435(c) or 7463''.
       (3) The table of sections for subchapter B of chapter 76 is 
     amended by striking the last item and inserting the 
     following:

``Sec. 7435. Proceedings for determination of employment status.
``Sec. 7436. Cross references.''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.
                      Subtitle D--Other Provisions

     SEC. 1461. EXTENSION OF DUE DATE OF FIRST QUARTER ESTIMATED 
                   TAX PAYMENT BY PRIVATE FOUNDATIONS.

       (a) In General.--Paragraph (3) of section 6655(g) is 
     amended by adding at the end the following new sentence: ``In 
     the case of a private foundation, subsection (c)(2) shall be 
     applied by substituting `May 15' for `April 15'.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply for purposes of determining underpayments of 
     estimated tax for taxable years beginning after the date of 
     the enactment of this Act.

     SEC. 1462. CLARIFICATION OF AUTHORITY TO WITHHOLD PUERTO RICO 
                   INCOME TAXES FROM SALARIES OF FEDERAL 
                   EMPLOYEES.

       (a) In General.--Subsection (c) of section 5517 of title 5, 
     United States Code, is amended by striking ``or territory or 
     possession'' and inserting ``, territory, possession, or 
     commonwealth''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on January 1, 1998.

     SEC. 1463. CERTAIN NOTICES DISREGARDED UNDER PROVISION 
                   INCREASING INTEREST RATE ON LARGE CORPORATE 
                   UNDERPAYMENTS.

       (a) General Rule.--Subparagraph (B) of section 6621(c)(2) 
     (defining applicable date) is amended by adding at the end 
     the following new clause:
       ``(iii) Exception for letters or notices involving small 
     amounts.--For purposes of this paragraph, any letter or 
     notice shall be disregarded if the amount of the deficiency 
     or proposed deficiency (or the assessment or proposed 
     assessment) set forth in such letter or notice is not greater 
     than $100,000 (determined by not taking into account any 
     interest, penalties, or additions to tax).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply for purposes of determining interest for periods 
     after December 31, 1997.
TITLE XV--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB PROTECTION 
                   ACT OF 1996 AND OTHER LEGISLATION

     SEC. 1501. AMENDMENTS RELATED TO SMALL BUSINESS JOB 
                   PROTECTION ACT OF 1996.

       (a) Amendments Related to Subtitle A.--
       (1) Amendment related to section 1116.--Paragraph (1) of 
     section 6050R(c) is amended by striking ``name and address'' 
     and inserting ``name, address, and phone number of the 
     information contact''.
       (2) Amendment to section 1116.--Paragraphs (1) and (2)(C) 
     of section 1116(b) of the Small Business Job Protection Act 
     of 1996 shall each be applied as if the reference to chapter 
     68 were a reference to chapter 61.
       (b) Amendment Related to Subtitle B.--Subsection (c) of 
     section 52 is amended by striking ``targeted jobs credit'' 
     and inserting ``work opportunity credit''.
       (c) Amendments Related to Subtitle C.--
       (1) Amendment related to section 1302.--Subparagraph (B) of 
     section 1361(e)(1) is amended by striking ``and'' at the end 
     of clause (i), striking the period at the end of clause (ii) 
     and inserting ``, and'', and adding at the end the following 
     new clause:
       ``(iii) any charitable remainder annuity trust or 
     charitable remainder unitrust (as defined in section 
     664(d)).''.
       (2) Effective date for section 1307.--
       (A) Notwithstanding section 1317 of the Small Business Job 
     Protection Act of 1996, the amendments made by subsections 
     (a) and (b) of section 1307 of such Act shall apply to 
     determinations made after December 31, 1996.

[[Page H4775]]

       (B) In no event shall the 120-day period referred to in 
     section 1377(b)(1)(B) of the Internal Revenue Code of 1986 
     (as added by such section 1307) expire before the end of the 
     120-day period beginning on the date of the enactment of this 
     Act.
       (3) Amendment related to section 1308.--Subparagraph (A) of 
     section 1361(b)(3) is amended by striking ``For purposes of 
     this title'' and inserting ``Except as provided in 
     regulations prescribed by the Secretary, for purposes of this 
     title''.
       (4) Amendments related to section 1316.--
       (A) Paragraph (2) of section 512(e) is amended by striking 
     ``within the meaning of section 1012'' and inserting ``as 
     defined in section 1361(e)(1)(C)''.
       (B) Paragraph (7) of section 1361(c) is redesignated as 
     paragraph (6).
       (C) Subparagraph (B) of section 1361(b)(1) is amended by 
     striking ``subsection (c)(7)'' and inserting ``subsection 
     (c)(6)''.
       (D) Paragraph (1) of section 512(e) is amended by striking 
     ``section 1361(c)(7)'' and inserting ``section 1361(e)(6)''.
       (d) Amendments Related to Subtitle D.--
       (1) Amendments related to section 1421.--
       (A) Subsection (i) of section 408 is amended in the last 
     sentence by striking ``30 days'' and inserting ``31 days''.
       (B) Subparagraph (H) of section 408(k)(6) is amended by 
     striking ``if the terms of such pension'' and inserting ``of 
     an employer if the terms of simplified employee pensions of 
     such employer''.
       (C)(i) Subparagraph (B) of section 408(l)(2) is amended--
       (I) by inserting ``and the issuer of an annuity established 
     under such an arrangement'' after ``under subsection (p)'', 
     and
       (II) in clause (i), by inserting ``or issuer'' after 
     ``trustee''.
       (ii) Paragraph (2) of section 6693(c) is amended--
       (I) by inserting ``or issuer'' after ``trustee'', and
       (II) in the heading, by inserting ``and issuer'' after 
     ``trustee''.
       (D) Subsection (p) of section 408 is amended by adding at 
     the end the following new paragraph:
       ``(8) Coordination with maximum limitation under subsection 
     (a).--In the case of any simple retirement account, 
     subsections (a)(1) and (b)(2) shall be applied by 
     substituting `the sum of the dollar amount in effect under 
     paragraph (2)(A)(ii) of this subsection and the employer 
     contribution required under subparagraph (A)(iii) or (B)(i) 
     of paragraph (2) of this subsection, whichever is applicable' 
     for `$2,000'.''.
       (E) Clause (i) of section 408(p)(2)(D) is amended by adding 
     at the end the following new sentence: ``If only individuals 
     other than employees described in subparagraph (A) or (B) of 
     section 410(b)(3) are eligible to participate in such 
     arrangement, then the preceding sentence shall be applied 
     without regard to any qualified plan in which only employees 
     so described are eligible to participate.''.
       (F) Subparagraph (D) of section 408(p)(2) is amended by 
     adding at the end the following new clause:
       ``(iii) Grace period.--In the case of an employer who 
     establishes and maintains a plan under this subsection for 1 
     or more years and who fails to meet the requirements of this 
     subparagraph for any subsequent year due to any acquisition, 
     disposition, or similar transaction involving another such 
     employer, rules similar to the rules of section 410(b)(6)(C) 
     shall apply for purposes of this subparagraph.''.
       (G) Paragraph (5) of section 408(p) is amended in the text 
     preceding subparagraph (A) by striking ``simplified'' and 
     inserting ``simple''.
       (2) Amendments related to section 1422.--
       (A) Clause (ii) of section 401(k)(11)(D) is amended by 
     striking the period and inserting ``if such plan allows only 
     contributions required under this paragraph.''.
       (B) Paragraph (11) of section 401(k) is amended by adding 
     at the end the following new subparagraph:
       ``(E) Cost-of-living adjustment.--The Secretary shall 
     adjust the $6,000 amount under subparagraph (B)(i)(I) at the 
     same time and in the same manner as under section 
     408(p)(2)(E).''.
       (C) Subparagraph (A) of section 404(a)(3) is amended--
       (i) in clause (i), by striking ``not in excess of'' and all 
     that follows and inserting the following: ``not in excess of 
     the greater of--

       ``(I) 15 percent of the compensation otherwise paid or 
     accrued during the taxable year to the beneficiaries under 
     the stock bonus or profit-sharing plan, or
       ``(II) the amount such employer is required to contribute 
     to such trust under section 401(k)(11) for such year.'', and

       (ii) in clause (ii), by striking ``15 percent'' and all 
     that follows and inserting the following ``the amount 
     described in subclause (I) or (II) of clause (i), whichever 
     is greater, with respect to such taxable year.''.
       (D) Subparagraph (B) of section 401(k)(11) is amended by 
     adding at the end the following new clause:
       ``(iii) Administrative requirements.--

       ``(I) In general.--Rules similar to the rules of 
     subparagraphs (B) and (C) of section 408(p)(5) shall apply 
     for purposes of this subparagraph.
       ``(II) Notice of election period.--The requirements of this 
     subparagraph shall not be treated as met with respect to any 
     year unless the employer notifies each employee eligible to 
     participate, within a reasonable period of time before the 
     60th day before the beginning of such year (and, for the 
     first year the employee is so eligible, the 60th day before 
     the first day such employee is so eligible), of the rules 
     similar to the rules of section 408(p)(5)(C) which apply by 
     reason of subclause (I).''.

       (3) Amendment related to section 1433.--The heading of 
     paragraph (11) of section 401(m) is amended by striking 
     ``Alternative'' and inserting ``Additional alternative''.
       (4) Amendment related to section 1462.--The paragraph (7) 
     of section 414(q) added by section 1462 of the Small Business 
     Job Protection Act of 1996 is redesignated as paragraph (9).
       (5) Clarification of section 1450.--
       (A) Section 403(b)(11) of the Internal Revenue Code of 1986 
     shall not apply with respect to a distribution from a 
     contract described in section 1450(b)(1) of such Act to the 
     extent that such distribution is not includible in income by 
     reason of section 403(b)(8) of such Code (determined after 
     the application of section 1450(b)(2) of such Act).
       (B) This paragraph shall apply as if included in section 
     1450 of the Small Business Job Protection Act of 1996.
       (e) Amendment Related to Subtitle E.--Subparagraph (A) of 
     section 956(b)(1) is amended by inserting ``to the extent 
     such amount was accumulated in prior taxable years'' after 
     ``section 316(a)(1)''.
       (f) Amendments Related to Subtitle F.--
       (1) Amendments related to section 1601.--
       (A) The heading of section 30A is amended to read as 
     follows:

     ``SEC. 30A. PUERTO RICO ECONOMIC ACTIVITY CREDIT.''.

       (B) The table of sections for subpart B of part IV of 
     subchapter A of chapter 1 is amended in the item relating to 
     section 30A by striking ``Puerto Rican'' and inserting 
     ``Puerto Rico''.
       (C) Paragraph (1) of section 55(c) is amended by striking 
     ``Puerto Rican'' and inserting ``Puerto Rico''.
       (2) Amendments related to section 1606.--
       (A) Clause (ii) of section 9503(c)(2)(A) is amended by 
     striking ``(or with respect to qualified diesel-powered 
     highway vehicles purchased before January 1, 1999)''.
       (B) Subparagraph (A) of section 9503(e)(5) is amended by 
     striking ``; except that'' and all that follows and inserting 
     a period.
       (3) Amendments related to section 1607.--
       (A) Subsection (f) of section 4001 (relating to phasedown 
     of tax on luxury passenger automobiles) is amended--
       (i) by inserting ``and section 4003(a)'' after ``subsection 
     (a)'', and
       (ii) by inserting ``, each place it appears,'' before ``the 
     percentage''.
       (B) Subsection (g) of section 4001 (relating to 
     termination) is amended by striking ``tax imposed by this 
     section'' and inserting ``taxes imposed by this section and 
     section 4003'' and by striking ``or use'' and inserting ``, 
     use, or installation''.
       (4) Amendments related to section 1609.--
       (A) Subsection (l) of section 4041 is amended--
       (i) by inserting ``or a fixed-wing aircraft'' after 
     ``helicopter'', and
       (ii) in the heading, by striking ``Helicopter''.
       (B) The last sentence of section 4041(a)(2) is amended by 
     striking ``section 4081(a)(2)(A)'' and inserting ``section 
     4081(a)(2)(A)(i)''.
       (C) Subsection (b) of section 4092 is amended by striking 
     ``section 4041(c)(4)'' and inserting ``section 4041(c)(2)''.
       (D) Subsection (g) of section 4261 (as redesignated by 
     title X) is amended by inserting ``on that flight'' after 
     ``dedicated''.
       (E) Paragraph (1) of section 1609(h) of such Act is amended 
     by striking ``paragraph (3)(A)(i)'' and inserting ``paragraph 
     (3)(A)''.
       (F) Paragraph (4) of section 1609(h) of such Act is amended 
     by inserting before the period ``or exclusively for the use 
     described in section 4092(b) of such Code''.
       (5) Amendments related to section 1616.--
       (A) Subparagraph (A) of section 593(e)(1) is amended by 
     inserting ``(and, in the case of an S corporation, the 
     accumulated adjustments account, as defined in section 
     1368(e)(1))'' after ``1951,''.
       (B) Paragraph (7) of section 1374(d) is amended by adding 
     at the end the following new sentence: ``For purposes of 
     applying this section to any amount includible in income by 
     reason of section 593(e), the preceding sentence shall be 
     applied without regard to the phrase `10-year'.''.
       (6) Amendments related to section 1621.--
       (A) Subparagraph (A) of section 860L(b)(1) is amended in 
     the text preceding clause (i) by striking ``after the startup 
     date'' and inserting ``on or after the startup date''.
       (B) Paragraph (2) of section 860L(d) is amended by striking 
     ``section 860I(c)(2)'' and inserting ``section 860I(b)(2)''.
       (C) Subparagraph (B) of section 860L(e)(2) is amended by 
     inserting ``other than foreclosure property'' after ``any 
     permitted asset''.
       (D) Subparagraph (A) of section 860L(e)(3) is amended by 
     striking ``if the FASIT'' and all that follows and inserting 
     the following new flush text after clause (ii):

     ``if the FASIT were treated as a REMIC and permitted assets 
     (other than cash or cash equivalents) were treated as 
     qualified mortgages.''.
       (E)(i) Paragraph (3) of section 860L(e) is amended by 
     adding at the end the following new subparagraph:
       ``(D) Income from dispositions of former hedge assets.--
     Paragraph (2)(A) shall not apply to income derived from the 
     disposition of--

[[Page H4776]]

       ``(i) an asset which was described in subsection (c)(1)(D) 
     when first acquired by the FASIT but on the date of such 
     disposition was no longer described in subsection 
     (c)(1)(D)(ii), or
       ``(ii) a contract right to acquire an asset described in 
     clause (i).''.
       (ii) Subparagraph (A) of section 860L(e)(2) is amended by 
     inserting ``except as provided in paragraph (3),'' before 
     ``the receipt''.
       (g) Amendments Related to Subtitle G.--
       (1) Extension of period for claiming refunds for alcohol 
     fuels.--Notwithstanding section 6427(i)(3)(C) of the Internal 
     Revenue Code of 1986, a claim filed under section 6427(f) of 
     such Code for any period after September 30, 1995, and before 
     October 1, 1996, shall be treated as timely filed if filed 
     before the 60th day after the date of the enactment of this 
     Act.
       (2) Amendments to sections 1703 and 1704.--Sections 
     1703(n)(8) and 1704(j)(4)(B) of the Small Business Job 
     Protection Act of 1996 shall each be applied as if such 
     sections referred to section 1702 instead of section 1602.
       (h) Amendments Related to Subtitle H.--
       (1) Amendments related to section 1806.--
       (A) Subparagraph (B) of section 529(e)(1) is amended by 
     striking ``subsection (c)(2)(C)'' and inserting ``subsection 
     (c)(3)(C)''.
       (B) Subparagraph (C) of section 529(e)(1) is amended by 
     inserting ``(or agency or instrumentality thereof)'' after 
     ``local government''.
       (C) Paragraph (2) of section 1806(c) of the Small Business 
     Job Protection Act of 1996 is amended by striking so much of 
     the first sentence as follows subparagraph (B)(ii) and 
     inserting the following:

     ``then such program (as in effect on August 20, 1996) shall 
     be treated as a qualified State tuition program with respect 
     to contributions (and earnings allocable thereto) pursuant to 
     contracts entered into under such program before the first 
     date on which such program meets such requirements 
     (determined without regard to this paragraph) and the 
     provisions of such program (as so in effect) shall apply in 
     lieu of section 529(b) of the Internal Revenue Code of 1986 
     with respect to such contributions and earnings.''.
       (2) Amendments related to section 1807.--
       (A) Paragraph (2) of section 23(a) is amended to read as 
     follows:
       ``(2) Year credit allowed.--The credit under paragraph (1) 
     with respect to any expense shall be allowed--
       ``(A) in the case of any expense paid or incurred before 
     the taxable year in which such adoption becomes final, for 
     the taxable year following the taxable year during which such 
     expense is paid or incurred, and
       ``(B) in the case of an expense paid or incurred during or 
     after the taxable year in which such adoption becomes final, 
     for the taxable year in which such expense is paid or 
     incurred.''.
       (B) Subparagraph (B) of section 23(b)(2) is amended by 
     striking ``determined--'' and all that follows and inserting 
     the following: ``determined without regard to sections 911, 
     931, and 933.''.
       (C) Paragraph (1) of section 137(b) (relating to adoption 
     assistance programs) is amended by striking ``amount 
     excludable from gross income'' and inserting ``of the amounts 
     paid or expenses incurred which may be taken into account''.
       (D)(i) Subparagraph (C) of section 414(n)(3) is amended by 
     inserting ``137,'' after ``132,''.
       (ii) Paragraph (2) of section 414(t) is amended by 
     inserting ``137,'' after ``132,''.
       (iii) Paragraph (1) of section 6039D(d) is amended by 
     striking ``or 129'' and inserting ``129, or 137''.
       (i) Amendments Related to Subtitle I.--
       (1) Amendment related to section 1901.--Subsection (b) of 
     section 6048 is amended in the heading by striking 
     ``Grantor'' and inserting ``Owner''.
       (2) Amendments related to section 1903.--
       Clauses (ii) and (iii) of section 679(a)(3)(C) are each 
     amended by inserting ``, owner,'' after ``grantor''.
       (3) Amendments related to section 1907.--
       (A) Clause (ii) of section 7701(a)(30)(E) is amended by 
     striking ``fiduciaries'' and inserting ``persons''.
       (B) Subsection (b) of section 641 is amended by adding at 
     the end the following new sentence: ``For purposes of this 
     subsection, a foreign trust or foreign estate shall be 
     treated as a nonresident alien individual who is not present 
     in the United States at any time.''.
       (4) Effective Date Related to Subtitle I.--The Secretary of 
     the Treasury may by regulations or other administrative 
     guidance provide that the amendments made by section 1907(a) 
     of the Small Business Job Protection Act of 1996 shall not 
     apply to a trust with respect to a reasonable period 
     beginning on the date of the enactment of such Act, if--
       (A) such trust is in existence on August 20, 1996, and is a 
     United States person for purposes of the Internal Revenue 
     Code of 1986 on such date (determined without regard to such 
     amendments),
       (B) no election is in effect under section 1907(a)(3)(B) of 
     such Act with respect to such trust,
       (C) before the expiration of such reasonable period, such 
     trust makes the modifications necessary to be treated as a 
     United States person for purposes of such Code (determined 
     with regard to such amendments), and
       (D) such trust meets such other conditions as the Secretary 
     may require.
       (j) Effective Date.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall take effect as if 
     included in the provisions of the Small Business Job 
     Protection Act of 1996 to which they relate.
       (2) Certain administrative requirements with respect to 
     certain pension plans.--The amendment made by subsection 
     (d)(2)(D) shall apply to calendar years beginning after the 
     date of the enactment of this Act.

     SEC. 1502. AMENDMENTS RELATED TO HEALTH INSURANCE PORTABILITY 
                   AND ACCOUNTABILITY ACT OF 1996.

       (a) Amendments Related to Section 301.--
       (1) Paragraph (2) of section 26(b) is amended by striking 
     ``and'' at the end of subparagraph (N), by striking the 
     period at the end of subparagraph (O) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(P) section 220(f)(4) (relating to additional tax on 
     medical savings account distributions not used for qualified 
     medical expenses).''.
       (2) Paragraph (3) of section 220(c) is amended by striking 
     subparagraph (A) and redesignating subparagraphs (B) through 
     (D) as subparagraphs (A) through (C), respectively.
       (3) Subparagraph (C) of section 220(d)(2) is amended by 
     striking ``an eligible individual'' and inserting ``described 
     in clauses (i) and (ii) of subsection (c)(1)(A)''.
       (4) Subsection (a) of section 6693 is amended by adding at 
     the end the following new sentence:

     ``This subsection shall not apply to any report which is an 
     information return described in section 6724(d)(1)(C)(i) or a 
     payee statement described in section 6724(d)(2)(X).''.
       (5) Paragraph (4) of section 4975(d) is amended by striking 
     ``if, with respect to such transaction'' and all that follows 
     and inserting the following: ``if section 220(e)(2) applies 
     to such transaction.''.
       (b) Amendment Related to Section 321.--Subparagraph (B) of 
     section 7702B(c)(2) is amended in the last sentence by 
     inserting ``described in subparagraph (A)(i)'' after 
     ``chronically ill individual''.
       (c) Amendment Related to Section 322.--Subparagraph (B) of 
     section 162(l)(2) is amended by adding at the end the 
     following new sentence: ``The preceding sentence shall be 
     applied separately with respect to--
       ``(i) plans which include coverage for qualified long-term 
     care services (as defined in section 7702B(c)) or are 
     qualified long-term care insurance contracts (as defined in 
     section 7702B(b)), and
       ``(ii) plans which do not include such coverage and are not 
     such contracts.''.
       (d) Amendments Related to Section 323.--
       (1) Paragraph (1) of section 6050Q(b) is amended by 
     inserting ``, address, and phone number of the information 
     contact'' after ``name''.
       (2)(A) Paragraph (2) of section 6724(d) is amended by 
     striking so much as follows subparagraph (Q) and precedes the 
     last sentence, and inserting the following new subparagraphs:
       ``(R) section 6050R(c) (relating to returns relating to 
     certain purchases of fish),
       ``(S) section 6051 (relating to receipts for employees),
       ``(T) section 6052(b) (relating to returns regarding 
     payment of wages in the form of group-term life insurance),
       ``(U) section 6053(b) or (c) (relating to reports of tips),
       ``(V) section 6048(b)(1)(B) (relating to foreign trust 
     reporting requirements),
       ``(W) section 4093(c)(4)(B) (relating to certain purchasers 
     of diesel and aviation fuels),
       ``(X) section 408(i) (relating to reports with respect to 
     individual retirement plans) to any person other than the 
     Secretary with respect to the amount of payments made to such 
     person, or
       ``(Y) section 6047(d) (relating to reports by plan 
     administrators) to any person other than the Secretary with 
     respect to the amount of payments made to such person.''.
       (B) Subsection (e) of section 6652 is amended in the last 
     sentence by striking ``section 6724(d)(2)(X)'' and inserting 
     ``section 6724(d)(2)(Y)''.
       (e) Amendment Related to Section 325.--Clauses (ii) and 
     (iii) of section 7702B(g)(4)(B) are each amended by striking 
     ``Secretary'' and inserting ``appropriate State regulatory 
     agency''.
       (f) Amendments Related to Section 501.--
       (1) Paragraph (4) of section 264(a) is amended by striking 
     subparagraph (A) and all that follows through ``by the 
     taxpayer.'' and inserting the following:
       ``(A) is or was an officer or employee, or
       ``(B) is or was financially interested in,
     any trade or business carried on (currently or formerly) by 
     the taxpayer.''.
       (2) The last 2 sentences of section 264(d)(2)(B)(ii) are 
     amended to read as follows:

     ``For purposes of subclause (II), the term `applicable 
     period' means the 12-month period beginning on the date the 
     policy is issued (and each successive 12-month period 
     thereafter) unless the taxpayer elects a number of months 
     (not greater than 12) other than such 12-month period to be 
     its applicable period. Such an election shall be made not 
     later than the 90th day after the date of the enactment of 
     this sentence and, if made, shall apply to the taxpayer's 
     first taxable year ending on or after October 13, 1995, and 
     all subsequent taxable years unless revoked with the consent 
     of the Secretary.''.
       (3) Subparagraph (B) of section 264(d)(4) is amended by 
     striking ``the employer'' and inserting ``the taxpayer''.

[[Page H4777]]

       (4) Subsection (c) of section 501 of the Health Insurance 
     Portability and Accountability Act of 1996 is amended by 
     striking paragraph (3).
       (5) Paragraph (2) of section 501(d) of such Act is amended 
     by striking ``no additional premiums'' and all that follows 
     and inserting the following: ``a lapse occurring by reason of 
     no additional premiums being received under the contract 
     after October 13, 1995.''.
       (g) Amendments Related to Section 511.--
       (1) Subparagraph (B) of section 877(d)(2) is amended by 
     striking ``the 10-year period described in subsection (a)'' 
     and inserting ``the 10-year period beginning on the date the 
     individual loses United States citizenship''.
       (2) Subparagraph (D) of section 877(d)(2) is amended by 
     adding at the end the following new sentence: ``In the case 
     of any exchange occurring during such 5 years, any gain 
     recognized under this subparagraph shall be recognized 
     immediately after such loss of citizenship.''.
       (3) Paragraph (3) of section 877(d) is amended by inserting 
     ``and the period applicable under paragraph (2)'' after 
     ``subsection (a)''.
       (4) Subparagraph (A) of section 877(d)(4) is amended--
       (A) by inserting ``during the 10-year period beginning on 
     the date the individual loses United States citizenship'' 
     after ``contributes property'' in clause (i),
       (B) by inserting ``immediately before such contribution'' 
     after ``from such property'', and
       (C) by striking ``during the 10-year period referred to in 
     subsection (a),''.
       (5) Subparagraph (C) of section 2501(a)(3) is amended by 
     striking ``decedent'' and inserting ``donor''.
       (6)(A) Clause (i) of section 2107(c)(2)(A) is amended by 
     striking ``such foreign country in respect of property 
     included in the gross estate'' and inserting ``such foreign 
     country''.
       (B) Subparagraph (C) of section 2107(c)(2) is amended to 
     read as follows:
       ``(C) Proportionate share.--In the case of property which 
     is included in the gross estate solely by reason of 
     subsection (b), such property's proportionate share is the 
     percentage which the value of such property bears to the 
     total value of all property included in the gross estate 
     solely by reason of subsection (b).''.
       (h) Amendments Related to Section 512.--
       (1) Subpart A of part III of subchapter A of chapter 61 is 
     amended by redesignating the section 6039F added by section 
     512 of the Health Insurance Portability and Accountability 
     Act of 1996 as section 6039G and by moving such section 6039G 
     to immediately after the section 6039F added by section 1905 
     of the Small Business Job Protection Act of 1996.
       (2) The table of sections for subpart A of part III of 
     subchapter A of chapter 61 is amended by striking the item 
     relating to the section 6039F related to information on 
     individuals losing United States citizenship and inserting 
     after the item relating to the section 6039F related to 
     notice of large gifts received from foreign persons the 
     following new item:

``Sec. 6039G. Information on individuals losing United States 
              citizenship.''.

       (3) Paragraph (1) of section 877(e) is amended by striking 
     ``6039F'' and inserting ``6039G''.
       (i) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Health Insurance Portability and Accountability Act of 1996 
     to which such amendments relate.

     SEC. 1503. AMENDMENTS RELATED TO TAXPAYER BILL OF RIGHTS 2.

       (a) Amendment Related to Section 1311.--Subsection (b) of 
     section 4962 is amended by striking ``subchapter A or C'' and 
     inserting ``subchapter A, C, or D''.
       (b) Amendments Related to Section 1312.--
       (1)(A) Paragraph (10) of section 6033(b) is amended by 
     striking all that precedes subparagraph (A) and inserting the 
     following:
       ``(10) the respective amounts (if any) of the taxes imposed 
     on the organization, or any organization manager of the 
     organization, during the taxable year under any of the 
     following provisions (and the respective amounts (if any) of 
     reimbursements paid by the organization during the taxable 
     year with respect to taxes imposed on any such organization 
     manager under any of such provisions):''.
       (B) Subparagraph (C) of section 6033(b)(10) is amended by 
     adding at the end the following: ``except to the extent that, 
     by reason of section 4962, the taxes imposed under such 
     section are not required to be paid or are credited or 
     refunded,''.
       (2) Paragraph (11) of section 6033(b) is amended to read as 
     follows:
       ``(11) the respective amounts (if any) of--
       ``(A) the taxes imposed with respect to the organization on 
     any organization manager, or any disqualified person, during 
     the taxable year under section 4958 (relating to taxes on 
     private excess benefit from certain charitable 
     organizations), and
       ``(B) reimbursements paid by the organization during the 
     taxable year with respect to taxes imposed under such 
     section,

     except to the extent that, by reason of section 4962, the 
     taxes imposed under such section are not required to be paid 
     or are credited or refunded,''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Taxpayer Bill of Rights 2 to which such amendments relate.

     SEC. 1504. MISCELLANEOUS PROVISIONS.

       (a) Amendments Related to Energy Policy Act of 1992.--
       (1) Paragraph (1) of section 263(a) is amended by striking 
     ``or'' at the end of subparagraph (F), by striking the period 
     at the end of subparagraph (G) and inserting ``; or'', and by 
     adding at the end the following new subparagraph:
       ``(H) expenditures for which a deduction is allowed under 
     section 179A.''.
       (2) Subparagraph (B) of section 312(k)(3) is amended--
       (A) by striking ``179'' in the heading and the first place 
     it appears in the text and inserting ``179 or 179A'', and
       (B) by striking ``179'' the last place it appears and 
     inserting ``179 or 179A, as the case may be''.
       (3) Paragraphs (2)(C) and (3)(C) of section 1245(a) are 
     each amended by inserting ``179A,'' after ``179,''.
       (4) The amendments made by this subsection shall take 
     effect as if included in the amendments made by section 1913 
     of the Energy Policy Act of 1992.
       (b) Amendments Related to Uruguay Round Agreements Act.--
       (1) Paragraph (1) of section 6621(a) is amended in the last 
     sentence by striking ``subsection (c)(3))'' and inserting 
     ``subsection (c)(3), applied by substituting `overpayment' 
     for `underpayment')''.
       (2) Subclause (II) of section 412(m)(5)(E)(ii) is amended 
     by striking ``clause (i)'' and inserting ``subclause (I)''.
       (3) Subparagraph (A) of section 767(d)(3) of the Uruguay 
     Round Agreements Act is amended in the last sentence by 
     striking ``(except that'' and all that follows through ``into 
     account)''.
       (4) The amendments made by this subsection shall take 
     effect as if included in the sections of the Uruguay Round 
     Agreements Act to which they relate.
       (c) Amendment Related to Omnibus Budget Reconciliation Act 
     of 1993.--
       (1) Paragraph (6) of section 168(j) (defining Indian 
     reservation) is amended by adding at the end the following 
     new flush sentence:

     ``For purposes of the preceding sentence, such section 3(d) 
     shall be applied by treating the term `former Indian 
     reservations in Oklahoma' as including only lands which are 
     within the jurisdictional area of an Oklahoma Indian tribe 
     (as determined by the Secretary of the Interior) and are 
     recognized by such Secretary as eligible for trust land 
     status under 25 CFR Part 151 (as in effect on the date of the 
     enactment of this sentence).''.
       (2) The amendment made by paragraph (1) shall apply as if 
     included in the amendments made by section 13321 of the 
     Omnibus Budget Reconciliation Act of 1993, except that such 
     amendment shall not apply--
       (A) with respect to property (with an applicable recovery 
     period under section 168(j) of the Internal Revenue Code of 
     1986 of 6 years or less) held by the taxpayer if the taxpayer 
     claimed the benefits of section 168(j) of such Code with 
     respect to such property on a return filed before March 18, 
     1997, but only if such return is the first return of tax 
     filed for the taxable year in which such property was placed 
     in service, or
       (B) with respect to wages for which the taxpayer claimed 
     the benefits of section 45A of such Code for a taxable year 
     on a return filed before March 18, 1997, but only if such 
     return was the first return of tax filed for such taxable 
     year.
       (d) Amendment Related to Tax Reform Act of 1986.--Paragraph 
     (3) of section 1059(d) is amended by striking ``subsection 
     (a)(2)'' and inserting ``subsection (a)''.
       (e) Amendment Related to Tax Reform Act of 1984.--
       (1) Section 267(f) is amended by adding at the end the 
     following new paragraph:
       ``(4) Determination of relationship resulting in 
     disallowance of loss, for purposes of other provisions.--For 
     purposes of any other section of this title which refers to a 
     relationship which would result in a disallowance of losses 
     under this section, deferral under paragraph (2) shall be 
     treated as disallowance.''.
       (2) Effective Date.--The amendment made by paragraph (1) 
     shall take effect as if included in section 174(b) of the Tax 
     Reform Act of 1984.
       (f) Clerical Amendments.--
       (1) Clause (iii) of section 163(j)(2)(B) is amended by 
     striking ``clause (i)'' and inserting ``clause (ii)''.
       (2) Paragraph (1) of section 665(d) is amended in the last 
     sentence by striking ``or 669(d) and (e)''.
       (3) Subsection (g) of section 1441 (relating to cross 
     reference) is amended by striking ``one-half'' and inserting 
     ``85 percent''.
       (4) Paragraph (1) of section 2523(g) is amended by striking 
     ``qualified remainder trust'' and inserting ``qualified 
     charitable remainder trust''.
       (5) Subsection (d) of section 9502 is amended by 
     redesignating the paragraph added by section 806 of the 
     Federal Aviation Reauthorization Act of 1996 as paragraph 
     (6).
                                  ____

  The CHAIRMAN pro tempore. No other amendment is in order except the 
further amendment numbered 1 in the Congressional Record. That 
amendment may be offered only by the gentleman from New York [Mr. 
Rangel] or

[[Page H4778]]

his designee, shall be considered as read, shall be debatable for 1 
hour, equally divided and controlled by the proponent and an opponent, 
shall not be subject to amendment, and shall not be subject to a demand 
for a division of the question.


     Amendment in the Nature of a Substitute Offered by Mr. Rangel

  Mr. RANGEL. Mr. Chairman, I offer an amendment in the nature of a 
substitute No. 1, pursuant to the rule.
  The CHAIRMAN pro tempore. The Clerk will designate the amendment in 
the nature of a substitute.
  The text of the amendment in the nature of a substitute is as 
follows:

       Amendment in the nature of a substitute No. 1 offered by 
     Mr. Rangel:
       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.
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

[[Page H4779]]

     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.
       ``(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

[[Page H4780]]

     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.''
       (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'').

[[Page H4781]]

     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.
       ``(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.''


[[Page H4782]]


       (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 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--

[[Page H4783]]

       ``(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 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.''

[[Page H4784]]

       (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.
                       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

[[Page H4785]]

       ``(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 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).''

[[Page H4786]]

       (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 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:

[[Page H4787]]

       ``(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 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

[[Page H4788]]

       ``(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.''
       (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:

[[Page H4789]]

       ``(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 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).''

[[Page H4790]]

       (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 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

[[Page H4791]]

     (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.
       ``(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

[[Page H4792]]

     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,
       ``(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.''

[[Page H4793]]

       (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 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

[[Page H4794]]

     ``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:
       ``(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--

[[Page H4795]]

       ``(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.
       ``(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

[[Page H4796]]

     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.
     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

[[Page H4797]]

     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).
       ``(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

[[Page H4798]]

     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.
       (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--

[[Page H4799]]

       ``(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 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.

[[Page H4800]]

       ``(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''.

       (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--

[[Page H4801]]

       ``(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,
       ``(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

[[Page H4802]]

     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.

  The CHAIRMAN pro tempore. Pursuant to House Resolution 174, the 
gentleman from New York [Mr. Rangel] and a Member opposed each will 
control 30 minutes.
  Does the gentleman from Texas [Mr. Archer] wish to control the time 
in opposition?
  Mr. ARCHER. Yes, Mr. Chairman, I do.
  The CHAIRMAN pro tempore. The gentleman from Texas [Mr. Archer] will 
be recognized for 30 minutes in opposition.
  The Chair recognizes the gentleman from New York [Mr. Rangel].
  Mr. RANGEL. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, the President of the United States, as I pointed out, 
made an effort to get a bipartisan bill. It is still referred to by the 
chairman of the Committee on Ways and Means as a bipartisan bill. The 
President has reviewed that bill, the President has, the Secretary of 
the Treasury has. They think that it is very difficult for them to see 
the goals and objectives that they wanted to have.
  One of the classic examples would be in the area of education. The 
President sees the dream of an America, that our economic growth would 
be based on productivity, and he knows so well that in this area of 
education is where we are lacking. We have one of the biggest imports 
into China, American education. Those people are going there, picking 
up our technology, and through 1\1/2\ billion people, they are able to 
be more productive.
  Which area are we going in America? We have the prison population 
growing, not our education population. We have 1.5 million people in 
jail, not only not productive, but hundreds of billions of dollars is 
being paid just to keep them incarcerated.
  In the Democratic alternative that we are talking about, we take it 
even further than the President's plan, and say, start in our public 
school systems, but do not try to do it alone. Bring in our private 
sector. What will be the jobs demanded in 10 years, in 20 years, in 30 
years? Formulate that in a partnership with the schools so that the 
employees will be able to come from the communities in which they live, 
and when they graduate from high school, when they graduate from 
college, they not only would have the pomp, the circumstance, and the 
diploma, but they would have a job, so they will not be dependent on 
society.
  Clearly we have seen a division in our way of thinking. We have an 
opportunity now to have a bill that is fair for Americans. The 
President is not going to tolerate that the other party dictate who are 
working Americans. You can use your formulas, make up your charts, but 
if you are working, the President of the United States insists that you 
get the child credit to assist you with some of the problems that you 
face.
  The President is not going to accept the capital gains tax indexing. 
We went out of our way to make certain that we can make it freer for 
the small business person, the farmer, those people that have special 
needs. But we cannot afford to have, in the next 5, 10, 15, 20 years, 
revenue losses that our budget cannot carry.
  So since we know that the President says that the Republican bill is 
not bipartisan, it is born politically dead on arrival, it is going to 
be defeated, let us pick up what we can to make certain that we have an 
alternative that can go into conference, and invite our Republican 
friends to learn what bipartisanship is about.
  We have swallowed a lot on our side. We ask you to really work with 
us so we can take to the American people not a battle based on class 
but a bipartisan effort to show that we can work together, liberals and 
conservatives, Democrats and Republicans, with the President of the 
United States for a better America.
  Mr. Chairman, I reserve the balance of my time.
  Mr. ARCHER. Mr. Chairman, I yield myself such time as I may consume.
  Mr. Chairman, I welcome the remarks of the gentleman from New York 
[Mr. Rangel]. I certainly work to achieve bipartisanship. I would say 
to the gentleman, since we have worked so hard in plowing this ground 
for tax relief for middle-income Americans, beginning with the Contract 
With America in 1994, that I would welcome his joining us in a 
bipartisan effort to pass this bill.
  While my proposal offers tax relief for life, the Democrat substitute 
provides tax relief for a portion of life. It is helpful to parents 
with children but it does not help the children once they grow up to 
become taxpayers. The Democrat substitute contains provisions that 
actually hurt the taxpayer. The manner in which they stack the child 
credit and the EITC represents a back-door increase in welfare 
spending. The substitute has a $300-per-child tax credit through the 
year 2001, not $500, which hard-hit families need; takes money away 
from middle-income parents who pay income taxes and gives it to people 
who do not pay income taxes or who already receive a large check from 
the Government.

  Republicans think income tax relief should be reserved for people who 
pay income taxes. They have waited 16 years for this relief. And it 
should be devoted to them. And, yes, we do not give the tax credit, 
which is an income tax credit, to those who pay no income tax.
  The substitute actually raises taxes because it cancels the scheduled 
drop in the FUTA tax, the Federal unemployment tax, which is a tax on 
payroll, a tax on work and is a discouragement for job creation.
  Their education provisions, just like the President's, risk driving 
up college costs for all Americans, thanks to their inflationary 
nature.
  Finally, the capital gains provision is way too limited to protect 
domestic savings and to increase risk-taking in the development of more 
business opportunities and greater job creation.
  Mr. Chairman, I believe clearly that although the Democrats are 
trying and trying very hard, and I applaud them for that, that they 
should rather join us in a program that really gives relief, which has 
been too long in coming, creates the opportunity for job expansion, 
economic growth, and greater jobs for Americans who are now finally 
trying to get off welfare and to break the cycle of dependency. I urge 
a vote against the substitute.
  Mr. Chairman, I reserve the balance of my time.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute and 30 seconds to the 
gentleman from Texas [Mr. Doggett].
  Mr. DOGGETT. Mr. Chairman, one of the many good reasons to oppose 
this Republican tax bill is the fact that it actually increases taxes 
on some Americans, a tax on educational opportunity.
  There are universities all across this country who assist their 
graduate students who work as teaching assistants, as research 
assistants, by reducing their tuition and lowering their cost of 
education. Under the current law, when graduate students get that help, 
their

[[Page H4803]]

tuition assistance is not taxable. But under this bill, as proposed by 
the Republicans, those students who represent our future will face a 
significant tax increase while at the same time the Republican bill 
will give many tax breaks to the rich and famous of America.
  These teaching and research assistants are providing assistance with 
over 40 percent of the courses at many of our largest universities. 
They get by on $12,000 to $15,000 a year at the same time they are 
trying to get an education and help others get an education.
  At the University of Texas in Austin, we have more of these graduate 
students than any other college in the country. To Joe and Sheryl 
Schaefer, this is not just some arcane print in the Tax Code. Rather, 
these two neuroscientists who represent our future and who also happen 
to be the parents of a young baby while they maintain a near perfect 4-
point average at the University of Texas, they will not get a dime from 
the child tax credit under this Republican bill.
  But they will face such a substantial increase in their taxes under 
this bill that they have told me that one or both of them will have to 
drop out of graduate school.
  I have heard the same thing from other graduate students across this 
country. Hiking taxes on young Americans like this, which the 
Democratic substitute does not do but the Republican tax bill does do, 
is a tax on education. It is in the wrong direction. Let us live up to 
our commitment on education and reject the tax increase.
  Mr. ARCHER. Mr. Chairman, I yield 3 minutes to the gentleman from 
California [Mr. Thomas], respected member of the Committee on Ways and 
Means, chairman of the Subcommittee on Health.
  (Mr. THOMAS asked and was given permission to revise and extend his 
remarks.)
  Mr. THOMAS. Mr. Chairman, I thank my chairman for yielding me the 
time.
  I talked earlier about the fact that the Democrats are just loath to 
have the myth of Republicans only cutting taxes for the rich and so 
they have had to create a ridiculous explanation of how much someone 
has to argue that this is for the wealthy. But I now realize that they 
have another problem; that is, they have tax package envy.
  It is amazing to listen to the Democrats put together a tax package. 
Is it not interesting in their tax package they have a child credit? We 
have a child credit; they have a child credit. But it is a whole lot 
like Hollywood, when you walk down the movie sets, they are a facade. 
It looks like a house but it is really just a fake front. They do not 
give $500 to families until 2001.
  We have capital gains. They have capital gains. There is that front, 
looks like capital gains. Walk through the door. It is not available to 
people who trade in public securities. There is a lifetime cap of 
$600,000, but they need that section for their tax bill.
  Education, there is no incentive here to save and to grow and to 
teach people that education is valuable, and we have a structure that 
will allow you to nurture growth for education. It is a 100 percent 
pass-through.
  Let me tell my colleagues, as soon as those institutions out there, 
in my background as a teacher, once you have a $10,000 checkoff spot on 
your income tax, do you know how much tuition is going to go up? Do you 
know what the argument is going to be? Just pass it through. Where is 
quality? Where is growth? Where is incentive?
  But they have got that facade. Estate tax, have to have the estate 
tax facade. It is there not for individuals, just small businesses. 
Expiring provision, got to have a section on expiring provisions. Read 
the fine print. It is only for 1 year. Why bother? Because they have 
tax package envy. We have expiring provisions. They have to have 
expiring provisions.
  And then to really show you the game, all day the gentleman from New 
York has been talking about giving hardworking people relief, not just 
those who pay income taxes, but those people who pay other taxes as 
well. Well, one of the biggest taxes that are paid are payroll taxes. 
If an employer pays a payroll tax, that is money not available to go to 
the worker.
  Guess what, in the fine print of their tax package is the 
perpetuation of a payroll tax, $6.3 billion over 5 years. While they 
are saying we ought to give some relief to those who pay payroll taxes, 
they are perpetuating a tax which guarantees workers will get less.
  Tax package envy, I am really surprised. It looks pretty good. It 
looks a lot like ours, but beware, it is a Hollywood set.
  Mr. RANGEL. Mr. Chairman, I yield 1 minute to the gentleman from 
Wisconsin [Mr. Obey].
  Mr. OBEY. Mr. Chairman, the issue is not whether there is going to be 
a tax cut. It is who going to get most of it. Under the Republican tax 
bill, you have the biggest transfer of wealth out of the pockets of 
low- and middle-income families to the most well-off families in this 
country that we have had since 1981. The Republican package does not 
contribute to long-term deficit reduction. It threatens it.
  The Democratic bill, by contrast, provides far more help to families 
who make less than $75,000 a year. It does not penalize working mothers 
who need child care because they are concerned about their children. It 
helps Main Street rather than Wall Street.
  I am not envious at all of the Republican package. I am appalled by 
the fact that it once again, as they have done continuously in this 
Congress, tried to use virtually every other piece of the tax package 
as a Trojan horse to drive through this place a giant bonanza for the 
wealthiest 100,000 or 200,000 tax-paying families in this country. That 
is wrong and the Democratic package tries to correct it.
  Mr. ARCHER. Mr. Chairman, I yield 3 minutes to a respected member of 
the Committee on Ways and Means, the gentleman from Arizona [Mr. 
Hayworth].
  Mr. HAYWORTH. Mr. Chairman, I listened with great interest to the 
ranking member of the Committee on Appropriations. I have a great deal 
of respect for the gentleman from Wisconsin. But I think this points 
out the fundamental difference between our two major parties. Indeed, 
to echo the comments of my colleague from California, sadly, sadly so 
many of our friends on the other side are unalterably opposed to the 
American people hanging onto more of their own money and sending less 
of it here to Washington that they would try to nitpick an agreement 
broadly arrived at with the President of the United States.
  Mr. Chairman, all we need do is listen to the hardworking American 
people. One of my constituents, via telefax, a small business owner, 
Jon Cramer, points out the wisdom of those who live far beyond the 
Beltway in the great State of Arizona, when he says, ``JD, you cannot 
give an income tax break to those who do not pay income taxes.''
  It is a very simple thought. Not fraught with cruelty, as some would 
suggest, but a commonsense compassion. And again it is important to 
note the reality of the evaluation by the nonpartisan Joint Tax 
Commission that tells us that fully, fully 76 percent of the tax relief 
in the Republican plan goes to families earning between $20 and $75,000 
a year.
  Indeed, for those who lament and would claim the greatest tax breaks 
go to the wealthy, well, it is interesting to evaluate who they believe 
is wealthy. Mr. Chairman, I do not believe anyone here who is a 
homeowner pays rent to himself, and yet that is the twisted evaluation 
that comes from the highly partisan report from the Treasury 
Department.
  No, I believe that the majority tax plan is the best and I believe 
that, sadly, though our friends on the other side rhetorically come 
here to the well and say that, yes, they have now embraced tax cuts, 
history is an incredible teacher. It shows us, Mr. Chairman, that for 
the first time in 16 years, the first time in over a decade and a half, 
a new majority is finally about the business of giving Americans, 
working Americans, much-needed tax relief.
  My colleague from California said it well, and I do not impugn the 
motives of those on the other side who are trying to catch up and 
proffer some sort of tax relief. Indeed, in a sense, Mr. Chairman, it 
is a measure of how far we have come, but sadly the minority substitute 
has miles and miles and dollars and dollars to go before it is 
credible.
  Mr. RANGEL. Mr. Chairman, I yield myself such time as I may consume 
to

[[Page H4804]]

say that I am a member of this bipartisan Joint Committee on Taxation. 
I have not hired any staff. I have not seen any reports. I know it is 
bipartisan because the chairman said it was. But if we would be kind 
enough to release this bipartisan statement so we would know what is in 
it, I think the American people will have a better idea about our 
differences.
  Mr. Chairman, I yield such time as he may consume to the gentleman 
from Texas [Mr. Bentsen].
  (Mr. BENTSEN asked and was given permission to revise and extend his 
remarks.)
  Mr. BENTSEN. Mr. Chairman, I rise in opposition to H.R. 2014 and in 
support of the substitute of gentleman from New York.
  Mr. Chairman, I support the bipartisan balanced budget agreement and 
I support responsible tax relief, but I cannot support the legislation 
before us today because it is unfair and fiscally irresponsible. This 
legislation does not do enough to help middle-income families. What it 
does is set off a tax time bomb that will drain revenue from the 
Treasury and cause budget deficits to explode again and completely 
undermine our efforts to balance the budget for the first time since 
1969.
  Mr. Chairman, I support responsible tax relief. I have introduced 
legislation to reduce the capital gains tax on a sliding scale based on 
how long an asset is held, which I believe would be both economically 
productive and fiscally responsible. But this legislation makes no 
distinction between productive and unproductive investments and will do 
little to spur economic growth. Even worse, it includes inflation 
indexing that would cause revenue losses to explode after it fully 
takes effect.
  This bill is also unfair in many ways. It gives more than half its 
benefits to the wealthiest 5 percent of Americans, people making an 
average of $250,000 a year. It denies the full $500 per child tax 
credit to 15 million working, taxpaying, wage-earning parents because 
it doesn't let them count the credit against their payroll taxes. It 
limits tax breaks on college for those most in need of this assistance 
by providing only half of the $1,500 tuition tax credit originally 
proposed by the President. And it penalizes working families by cutting 
back on their child tax credit if they have child care expenses.
  Even worse, Mr. Chairman, middle-income families will be penalized 
again in the future when the costs of this tax legislation explode and 
cause massive budget deficits to build up again. Then we would face the 
choice of either increasing taxes or cutting vital programs such as 
Medicare, Medicaid, and education to pay for these exploding tax cuts.
  And explode they will. This tax bill is full of gimmicks to limit the 
costs of the tax cuts in the first 5 years and to hide their true long-
term costs. The size of the net tax cuts grows rapidly after the first 
5 years. In the second 5 years, net tax cuts grow at 15 percent per 
year, much faster than inflation or growth in the size of the economy. 
The explosion will be even worse outside the 10-year horizon.
  We need responsible tax relief that helps our families and keeps the 
Federal budget in balance. That is what the Democratic substitute will 
provide. The majority of the tax cuts in the substitute benefit middle-
income Americans. It provides a full $1,500 tuition tax credit for each 
of the first 2 years of college and a credit of 20 percent of tuition 
costs after the first 2 years. This is a vital investment because, in 
today's global, high technology economy, higher levels of education are 
required than ever before. While the capital gains tax reduction in the 
substitute does not conform with that which I believe is most 
productive, it is more responsible than that contained in H.R. 2014. 
This substitute also provides tax relief to families who are selling 
their home, the biggest investment for most middle-income families; it 
helps families struggling to keep the family business and the family 
farm in the family; and it does not contain back loaded provisions that 
explode the deficit.
  The Democratic substitute is more fair and more responsible. I urge a 
``no'' vote on the bill and a ``yes'' vote on the Democratic 
substitute.
  Mr. RANGEL. Mr. Chairman, I yield 3 minutes to the gentleman from 
Massachusetts [Mr. Neal].
  Mr. NEAL of Massachusetts. Mr. Chairman, what we have here is a 
continuation of the argument that began in 1993. Late in the evening 
hour, without one Republican vote, the Democratic Members of this House 
voted for a deficit reduction plan that worked. That is what has 
brought us here today to the position of where we can discuss tax cuts 
for the American people.
  I recall that evening because of the hand wringing that we heard from 
the other side. I remember the doomsday prophets who took on the well 
on the other side and predicted that the modern American economy would 
be wrecked because of what the President and the Democratic majority at 
that time were doing here in the House. What has been the result? Four 
years of unparalleled economic prosperity and economic growth where 
each quarter seems almost to get better than the previous quarter. It 
has almost defied modern imagination because the Democrats had the 
courage to take on the issue of deficit reduction in a real way. So 
today this is a continuation of that argument. This is not an argument 
about tax cuts.

                              {time}  1600

  We all agree that this is the time for tax cuts. What we honestly 
bicker about today in this institution is simply this: Who is to get 
these tax cuts?
  Now, we can believe the people that gave us our Social Security and 
Medicare and the 8-hour workday and the notion that everybody in 
America ought to be able to try their hand at college, people like me, 
who went to college because of Social Security, or we can accept the 
arguments of those on the other side that now they are the champions of 
middle-class Americans because they favor tax cuts for the people who 
reside on Wall Street.
  The simple truth is that the Democratic substitute that we have today 
is not tax cut envy; it speaks to middle America. It assists 12 million 
Americans who are struggling with the costs of tuition. It does address 
the issue of estate tax relief. It speaks to capital gains.
  And we forced the issue of capital gains in this simple sense: We 
believe that for middle-income Americans the most capital asset they 
are ever going to have is their home. We argue on their behalf today 
that they need relief.
  We address the issue of middle-income tax relief in our Democratic 
alternative. Offer an affirmative vote. Vote for the Democratic 
alternative.
  Mr. ARCHER. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman 
from Ohio [Mr. Chabot].
  Mr. CHABOT. Mr. Chairman, I think we all know when a big government 
liberal gets his hands on your money, he is going to be very reluctant 
to give it back. Today we are hearing from a lot of our liberal friends 
on the other side of the aisle who are facing that very dilemma.
  In 1993 this Congress, then under control of the liberal Democrats 
and joined by President Clinton, engineered the largest single 
peacetime tax increase in American history. Shortly thereafter, the 
taxpayers decided to elect a Republican Congress; and today that 
Republican Congress is attempting to cut taxes.
  Mr. Chairman, the howling has started. Our liberal friends have come 
to the well, one after another, waging what amounts to class warfare, 
trying to convince us that tax cuts for working families are somehow 
unfair.
  Like it or not, Mr. Chairman, we are going to pass a bill today that 
cuts taxes for American families, that cuts taxes for those who sell 
their homes, that cuts the death tax. Hopefully the President will not 
stand in our way.
  We keep hearing ``tax cuts for the rich, tax cuts for the rich.'' 
Seventy-five percent of the tax cuts that we are talking about go to 
people who make less than $75,000. Let me repeat that. Seventy-five 
percent of the tax cuts that we are talking about go to people who make 
less than $75,000.
  So what is the liberal Democrats' definition of the rich? I guess it 
is anybody who has got a job. So let us pass the tax cuts. Let us get 
away from all this ``tax cuts for the rich.'' Let us do something for 
the American people.
  Mr. RANGEL. Mr. Chairman, I yield 2\1/2\ minutes to the gentleman 
from Maryland [Mr. Hoyer].
  (Mr. HOYER asked and was given permission to revise and extend his 
remarks.)
  Mr. HOYER. Mr. Chairman, working Americans are in need of tax relief. 
They are also in need of their country balancing its budget. The 
Republican bill fails average, hard-working Americans on both counts.
  Al Hunt of the Wall Street Journal says of the Gingrich-Archer plan 
that it is, and I quote, ``a bonanza for the affluent, crumbs for the 
working class, and eventually costly.'' In fact, it will likely cost 
over $600 billion in the second 10-year period from 2008 through

[[Page H4805]]

2017. The capital gains, IRA, and estate tax provisions alone are more 
expensive in the year 2007 than they are in the entire first 5 years.
  Look at this chart. On the far right here is the first 5 years of 
their tax cut where, lo and behold, the capital gains brings us money. 
That is the bait. The switch, in 2007 alone the capital gains explode 
into the loss of revenue. Who is going to pay for that?
  Last weekend's NBC-Wall Street Journal poll said that two-thirds of 
Americans reject the Republicans' bonanza for the affluent and support 
the Democratic tax cut for mainstream working Americans who need relief 
from the burden they bear from income taxes but also, as the chairman 
surely knows, those half of Americans who pay more in FICA than they do 
in income taxes.
  Hunt's characterization of the Republicans' failure to give relief to 
most working Americans who need it is an effort which, and I quote, 
``shamefully shortchanges the working poor,'' that is what the other 
bill does, and I am not envious at all of that bill, I say to the 
gentleman from Arizona [Mr. Hayworth].
  In 1993 Republicans led the Nation into deep debt, a course not 
reversed until President Clinton's budget was adopted in 1993, as has 
been pointed out, without one Republican vote. That resulted in five 
straight years of deficit reduction, the first time that has happened 
in this century.
  We Democrats are for giving tax cuts to working Americans, small 
businessmen and family farmers, and our alternative does just that. We 
should reject the Republican's repeat of the 1981 disaster. We should 
give real cuts to those most pressed in our society Americans who are 
going to work daily, staying off welfare and raising their children, 
making America stronger for their efforts.
  Mr. ARCHER. Mr. Chairman. I yield 3 minutes to the gentleman from 
Louisiana [Mr. McCrery], another well-respected member of the Committee 
on Ways and Means.
  Mr. McCRERY. Mr. Chairman, I thank the gentleman from Texas [Mr. 
Archer] for yielding. I just want to talk for a couple minutes about 
their question of children in working families that will not receive 
the tax credit.
  I think what everybody should know is that those children or at least 
the families of those children already receive a tax credit, the earned 
income tax credit. Even though those families do not have any income 
tax liability, in other words, even though those families pay zero in 
income taxes, we provide them with a tax credit. We send money back to 
them from Washington, even though they do not send any income taxes to 
Washington, so we already give those families a tax credit.
  Our bill provides some income tax relief through an income tax credit 
to families with children who pay income taxes. Now, having talked to a 
lot of folks down in my district on the street about this, that kind of 
makes sense to them. If you pay income taxes, you need a tax break, you 
need the child tax credit. If you do not pay income taxes, you should 
not get an income tax credit. I think that probably makes sense to most 
Americans, and that is what we are trying to do in our bill. If we want 
to talk about increasing welfare benefits, which is what the earned 
income tax credit is, then we can do that.
  I happen to like the earned income tax credit. I think it is sound 
policy. It does encourage people to get off welfare and into work. But 
that is a different subject from giving hard-working, tax-paying 
Americans a tax break. So I hope that the public will not be confused 
by the continual harangue from the other side that we are not giving 
the families of certain numbers of children this tax break. We already 
give them a tax break. We already give them money back when they pay no 
taxes.
  So the bill that the Democrats have proposed is, in effect, an 
increase on welfare benefits, not a true income tax credit for folks 
who pay income tax.
  Mr. RANGEL. Mr. Chairman, I yield myself such time as I may consume, 
and I would just like to say to the gentleman that it is a hurting 
thing when you are talking about working Americans with children asking 
for welfare, whether they all are asking for the dignity to continue to 
work, and sever the benefits that other working families would get.
  Mr. RANGEL. Mr. Chairman, I yield 1\1/2\ minutes to the gentleman 
from Maine [Mr. Allen].
  Mr. ALLEN. Mr. Chairman, I thank the gentleman from New York [Mr. 
Rangel] for yielding.
  In the course of this debate there has been a lot of reference by the 
other side to the fact that 76 percent of the benefits of this tax cut 
will go to families earning $75,000 a year or less. We have heard that 
number over and over again, 75 percent, 76 percent.
  It is a bogus number because it does not include, when they measure 
family income they do not include interest, they do not include 
dividends, they do not include investment income in municipal bonds, 
they do not include money from other investments. If you have someone 
earning $200,000 in dividends and interest, they are listed on the 
records of the Joint Committee on Taxation here as earning nothing 
unless they have income of $30,000 or so. The 76 percent is a bogus 
number.
  If we look at the Treasury figures, those numbers measure dividends, 
they measure all sorts of investment income. When we look at those 
numbers, only 22 percent of the benefits of this tax cut go to families 
earning $75,000 or less. Twenty-two percent is the real number, not 76 
percent.
  Now, by contrast, the Democratic substitute provides 58 percent of 
its benefits to families earning less than $75,000. That is the truth. 
There is a huge difference between 22 percent and 58 percent. The 
Democratic substitute provides tax relief for working families because, 
let us face it, those families who get $200,000 in dividend income are 
earning more than $75,000.
  Mr. ARCHER. Mr. Chairman, I yield 3 minutes to the gentleman from 
Texas [Mr. DeLay], the majority whip of the House of Representatives.
  Mr. DeLAY. Mr. Chairman, I appreciate the chairman yielding me this 
time. I rise in opposition to this substitute and in support of the 
Taxpayers Relief Act of 1997.
  It has been 16 years since the taxpayers of America have had tax 
relief from the Federal Government, and today's bill is long overdue. 
But instead of embracing tax relief, the Democrat minority embraces 
class warfare.
  America's working families are forced to pay over 50 percent of their 
salaries to the government because of high taxes and costly 
regulations. No wonder it takes one parent to work for the Government 
while the other parent works for the family. Instead of working with us 
to ease that tax burden, the minority leadership offers in their 
substitute more welfare.
  It should come as no surprise that the members of the minority oppose 
this bill. Asking liberals to go support tax relief is like asking 
aliens to come back to Roswell. If it has not happened in the last 50 
years, it probably will not happen in the next 50 years.
  The liberals oppose tax cuts but they choose to cloak their 
opposition in the rhetoric of class warfare. Frankly, this rhetoric is 
giving me a headache. It is like listening to my daughter Mandy's 
favorite music. The beat is simple, the volume is loud, but the 
ultimate contribution to society is meaningless.
  Mr. Chairman, we need less rhetoric for the Democrats regarding taxes 
and more illumination. Our tax cuts help working families in all stages 
of life, from those who have children to those who are grandparents, 
from those who want to save for a retirement to those who want to 
invest in the future of America. Working families are not necessarily 
rich in wealth, but they are rich in spirit.
  The liberals believe that these people do not deserve tax relief, and 
I think that is pretty sad. So I just urge my colleagues to reject this 
weak substitute and vote for America's first tax cut in 17 years.

                              {time}  1645

  Mr. RANGEL. Mr. Chairman, I yield such time as he may consume to the 
gentleman from Louisiana [Mr. Jefferson].
  (Mr. JEFFERSON asked and was given permission to revise and extend 
his remarks.)
  Mr. JEFFERSON. Mr. Chairman, I rise in opposition to the Republican's 
so-called Taxpayer Relief Act and in support of the Democratic 
substitute. We are all for tax cuts, Democrats and Republicans. But, 
the question

[[Page H4806]]

is, will middle-income families, the working families of our country, 
get any relief from the Republican's capital gains tax cut? The answer 
is very, very little, if at all. This is necessarily true because 
middle-class working families own very little of the capital assets 
that are taxed at capital gains rates today. If your family made 
between zero and $25,000 last year, you were in an income group that 
paid 2.2 percent of the capital gains taxes. Those who made between 
$25,000 and $50,000 paid another 8 percent of the capital gains taxes. 
And, if you made between $100,000 and $200,000, you paid 16 percent of 
the capital gains taxes.
  The fact is that 60 percent of all capital gains taxes paid in 1996 
were paid by taxpayers who made more than $200,000. These super rich 
taxpayers, make up only 1 percent of all the taxpayers in America; only 
110,000 tax filers out of more than 110 million taxpayers, and they get 
a tax break of roughly $7 billion a year. So how do we make capital 
gains tax breaks fair to working families?
  The Democratic substitute does it by targeting the capital gains tax 
relief to small businesses, family farms, and homeowners. It leaves out 
most families that make more than $100,000 a year, and gives 76 percent 
of its tax relief to families that make less than $100,000 a year.
  The Democratic substitute targets family farm owners and small 
business owners for its estate tax relief, assets that keep families 
together and that usually represents a lifetime of work and investment.
  The Republican's bill gets worse still on capital gains. Not only do 
more than half of the capital gains tax breaks in this bill go to the 
top 1 percent, it is going to open the door to an old stripe of 
shenanigan that only the super rich taxpayer can play. It will 
reintroduce the opportunity for clever new tax shelters. This is 
because there will now be under the Republican bill a 20 percent 
differential between the top marginal rate of 39 percent that high-
income earners will have to pay on salaries and the 20 percent capital 
gains rate that Republicans are pushing on the floor.
  If you were a high-income taxpayer making more than $100,000 a year, 
wouldn't you rather pay a 20 percent rate on your earnings that a 39 
percent rate? Of course you would. So what you would do, with your 
lawyer or your tax accountant, is devise ways to re-characterize your 
income from income from a salary to income from a capital asset. Thus, 
by changing the name of your income, or as a tax lawyer would say, by 
recharacterizing your income, you could save 20 percent of the taxes 
that you otherwise would have to pay. It's a great deal if you can get. 
But you can only get it if you are one of the super rich in our 
country. This is a back to the future tax bill. It's the same old story 
all over again--if you are a working stiff, you work and pay your 
taxes; and if you are a high-income taxpayer, you find a loophole to 
get out of paying. This Republican bill provides loopholes big enough 
to drive a Brink's truck through, and that's exactly what the high-
income taxpayers of this country are going to do. the Republican bill 
is an unfair, unprogressive, inefficient, complex tax proposal. The 
Democratic substitute solves these problems.
  Like we used to say in the Louisiana legislature, the Republican tax 
bill is a snake and we ought to kill it. Then pass the Democratic 
substitute.
  Mr. RANGEL. Mr. Chairman, I yield 8 minutes to the gentleman from 
California [Mr. Becerra].
  Mr. BECERRA. Mr. Chairman, I thank the gentleman from New York for 
yielding the time, and if I could, just in taking in all this debate, 
and we are now discussing the Democratic alternative, it strikes me 
that there are two provisions that really make it clear why the 
Democratic alternative is so much better than the bill we have before 
us from the Republican majority.
  First, when my colleagues talk about the child tax credit, when any 
working American comes home with that pay stub and that American looks 
down the list of taxes paid, I do not think the American says, well, 
that was excise tax, that was payroll tax, that was income tax. She 
knows she paid taxes. And for those here in this Chamber to say that 
those taxes paid by that individual making $20,000, $23,000, $28,000 do 
not count verges on being un-American to me because that is a tax paid 
to provide for the operation of this government and the programs that 
we all use.
  Second, the average cost of a community college education, a public 
community college education, is about $1,200. Under the Republican tax 
bill, they will get a credit, but only half of that, $600.
  In our bill we try to reflect what the President agreed or thought he 
agreed to do with the Republicans when he negotiated a budget deal, and 
that was to give them a $1,200 tax credit for education.
  Two ways that the deal was broken. There are other ways the deal was 
broken. The gentleman from Texas [Mr. Doggett] mentioned one, that we 
are going to be taxing graduate students. That seems to me to be so 
unfair, and I see the gentlewoman from Michigan [Ms. Stabenow] here.
  Ms. STABENOW. Mr. Chairman, will the gentleman yield?
  Mr. BECERRA. I yield to the gentlewoman from Michigan to make some 
remarks.
  Ms. STABENOW. Mr. Chairman, I appreciate my friend from California 
yielding to me regarding the issue of graduate students because there 
is an important difference between the Democratic and Republican plan. 
As we know, in the Republican plan they take away what is now tuition 
tax relief. If someone is a graduate student, and I received a number 
of letters from Michigan State University graduate students in my 
district indicating that they are receiving right now about $15,000 in 
salary for teaching graduate courses, and that is in addition to some 
relief that they get by being given tuition, free tuition, in order to 
be able to go to school, the Republican plan would now tax that tuition 
that they are given as part of their salaries. And so my $15,000 
graduate student that is working their way through school will add 
$1,000 to their tax bill. That is a huge tax cut, $1,000 on a $15,000 
salary. The other piece that is so important about the Democratic 
plan----
  Mr. BECERRA. Reclaiming my time, they are taxing graduate students 
and they are collecting $430 million in taxes as a result of doing 
that, and at the same time they are giving corporations a tax windfall 
and not asking them to pay any taxes. Does that seem fair?
  Ms. STABENOW. It is not fair, and one of the reasons I am proud to 
support the Democrat plan is that we fulfill the commitment of giving 
over $35 billion; I believe it is over $40 billion, to education-
related tax relief so anyone going to school can further their 
education to get a good job, and that graduate student will not 
actually see a tax increase.
  It is amazing to me that as we are talking about tax cuts today that 
for too many of my constituents they are going to see an actual tax 
increase, and I am not going to support a tax increase on those folks.
  Mr. BECERRA. Mr. Chairman, I yield to the gentleman from Louisiana 
[Mr. Jefferson].
  Mr. JEFFERSON. Mr. Chairman, I think what is really important is that 
the Republicans are using gimmicks in this whole operation. Just as 
they are in the education tax credit area, so they are doing it in the 
capital gains area. When they tell us that 75 percent of the capital 
gains taxes go to ordinary folks who are middle-income taxpayers, what 
they are saying in the first 5 years when they use this idea of induced 
sales, this gimmick of induced sales, but when we look past the first 5 
years there is a huge windfall for those high-income taxpayers, and 
this is, after all, a 10-year window we are dealing with here, not the 
first 5 years.
  So we need to tell the whole story that this Democratic substitute 
does it quite differently. We come up front with what we are talking 
about here, we give the capital gains tax to people who need it, the 
small business owners, those people who are small farmers and folks who 
are homeowners. These are the folks who make up the heart of America, 
and these are the people who are hard-working folks who need the help, 
and we concentrate our capital gains relief to them, and this is no 
gimmick, this is real relief for those people.
  Ms. STABENOW. Mr. Chairman, will the gentleman yield?
  Mr. BECERRA. I yield to the gentlewoman from Michigan.
  Ms. STABENOW. Mr. Chairman, I came to Congress in January 
representing middle-Michigan, middle-class working men and women in 
Michigan who want to receive tax relief directly in their pockets. What 
I see is a basic philosophical difference about how to create jobs and 
grow the economy in this country. Republicans say give it to those at 
the top, it trickles down. We say put it directly in the pockets, money 
directly in the pockets of middle-income working people,

[[Page H4807]]

whether it is their house, sending their children to college, their 
children, their small business, their farm, put it in their pocket; 
they will turn around, buy cars, buy houses, take care of their 
children. That is how we create jobs and that is why I support this 
proposal.
  Mr. BECERRA. Mr. Chairman, I see one of the gentlewoman's colleagues 
is also interested and I will recognize the gentlewoman from Michigan 
[Ms. Kilpatrick] in a second. If I can just mention this child tax 
credit we have been talking about all day, 73 million children in this 
country under the age of 18. Under the Democratic alternative, 60 
million children will be provided with a tax credit. Under the 
Republican plan, 39 million children; 21 million children will not.
  Ms. STABENOW. Would the gentleman from California say that again, 
please, for us?
  Mr. BECERRA. Sixty million children under the Democratic alternative 
will qualify for the child tax credit. Under the Republican plan, 39 
million. Twenty-one million children in America will not qualify under 
the Republican plan that will under the Democratic plan.
  Ms. KILPATRICK. Mr. Chairman, will the gentleman yield?
  Mr. BECERRA. I yield to the gentlewoman from Michigan.
  Ms. KILPATRICK. Mr. Chairman, for those reasons we need to support 
this tax plan. The Democratic plan takes care of more American 
families, it offers more opportunities for America's children, and it 
offers the tax cuts to those families who need the tax cuts, 
hardworking families who pay taxes.
  So I thank the gentleman from California for yielding, and I hope and 
encourage my colleagues to vote for the Democratic plan, the tax plan 
that does offer tax cuts to America's working families.
  The Republican tax bill would deny tax credits for another 4 million 
lower middle income children. Forty percent--2 out of every 5 
children--would be ineligible for the credit because their family's 
incomes are not high enough. The total number of children denied this 
credit because their families do not make enough money would be 28 
million. The Republican's highly touted $500 tax credit that is 
nonrefundable allegedly gives tax relief to families. While 
corporations will reap a $22 billion windfall in this bill, 28 million 
children would get nothing.
  The Republican tax bill denies tax credits to working families. For 
example, a family of four with two children with no child care expenses 
would not receive any credit unless its income exceeded $24,385. 
Moreover, if the family had child care expenses, it could earn as much 
as $27,180 and fail to qualify for the credit. Also, families that have 
more than two children, or have high mortgage or health care costs and 
itemize their deductions, could make close to $30,000 and still not 
qualify for the credit.
  The Democratic tax bill has real child credit tax credits. The 
Democratic bill does not compute a family's child care tax credit after 
the earned income tax credit [EITC] is figured. This is a significant 
difference--millions of lower- to middle-income families owe income tax 
before EITC is calculated, but have little or no income tax obligation 
remaining after EITC is calculated. Under the Democratic bill, these 
families would be covered.
  The Republican tax bill's largest tax cuts--capital gains, Individual 
Retirement Accounts, estate, and corporate taxes--provide most of their 
benefits to the rich. The richest 1 percent get more of the overall tax 
break than the bottom 60 percent combined. According to the Center on 
Budget and Policy Priorities, the Joint Tax Committee's distribution 
tables do not reflect any of the benefits that taxpayers would receive 
from these four provisions.
  The Democratic tax bill makes the benefits in these four areas, 
especially for working people, fair. It provides 71 percent of the tax 
breaks to families earning $100,000 or less. It provides a capital 
gains tax cut, an estate tax cut, and tax cuts for small businesses, 
family farms, and homeowners. The only way that you are eligible for 
these tax breaks is if you work and pay taxes.
  Mr. BECERRA. Reclaiming my time, Mr. Chairman, just in closing 
because I know we are going to run out of time, is just mention the 
reason there is a difference of 21 million children is because we do 
what we can to provide a tax break for those families that are earning 
$30,000 and under. The Republicans unfortunately say it is not worth it 
because they do not believe that that tax that we are imposing on those 
families is worth counting.
  So it is a difference of opinion. There is a difference in values 
here.
  Ms. STABENOW. Mr. Chairman, will the gentleman yield?
  Mr. BECERRA. I yield to the gentlewoman from Michigan.
  Ms. STABENOW. Mr. Chairman, we have talked a lot today about a police 
officer in Georgia. I would like to just like to share with my 
colleague my police officers' starting salary in Lansing, MI, as well 
as my firefighters.' They start at $26,800, working hard. These are 
folks with families, protecting my community whether it is for fires or 
from crime. Under the proposal the Republicans have, they will not 
receive the full $500 child tax credit because they get another tax 
credit. Under the Democratic plan my firefighters and police officers 
will receive the total amount of tax credits and deductions that they 
ought to receive to be able to help take care of their families. Folks 
with higher incomes get lots of different tax credits. I want my 
firefighters and my police officers to be able to get what they have 
now in tax credits and be able to get the full value of the $500-per-
child tax credit.
  Mr. BECERRA. I do not know what the gentlewoman from Michigan did but 
she is bringing out all her colleagues from Michigan.
  Mr. LEVIN. Mr. Chairman, will the gentleman yield?
  Mr. BECERRA. I yield to the gentleman from Michigan.
  Mr. LEVIN. Mr. Chairman, just quickly I want to say again about this 
76 percent figure that the Republicans have used. It is at best a 5-
year figure.
  One of the benefits of going to conference would be that the 
Republicans here will have to face up to the consequences of their bill 
over 10 years. What it means in terms of exploding the deficit and what 
it means in terms of fairness, the Democratic alternative is fiscally 
responsible and fair. The Republican proposal is irresponsible fiscally 
and unfair both in education and the child credit among others.
  I urge that we support the Democratic alternative.
  Mr. ARCHER. Mr. Chairman, I yield such time as he may consume to the 
gentleman from Missouri [Mr. Blunt].
  (MR. BLUNT asked and was given permission to revise and extend his 
remarks.)
  Mr. BLUNT. Mr. Chairman, I have some concerns about this bill that I 
think could be handled in conference. I will be supporting the 
Republican bill that gives relief to American families today.
   Mr. Chairman, while I intend to support this tax relief bill today, 
I want the record to reflect my concern about two provisions of the 
bill that I strongly oppose. One is the limited renewal of employer 
provided continuing undergraduate education reimbursement. While the 
Senate tax bill extends the current law section 127 exemption 
permanently, the House bill extends sec. 127 until December 31, 1997.
  Nearly two-thirds of major employers in southwest Missouri offer this 
benefit, affecting over 60,000 workers in Springfield and Joplin alone. 
These employers include a chicken processor, a fan belt manufacturer, a 
paper goods processor, and a ball bearings producer. Without a long-
term extension of section 127, many of these companies will discontinue 
this benefit, denying their employees the help they need to improve 
their skills.
  The second provision I oppose is the elimination of tax exempt 
treatment of tuition reduction provided to employees of educational 
institutions. Again, the Senate bill maintains the current law. The 
majority of people who take this benefit are staff members, not 
faculty.
  The person who cleans toilets for $7 an hour so that both of her 
children can attend college at the same time would have to pay taxes on 
a tuition benefit that far exceeds her income. Graduate teaching 
assistants at an institution like Tulane would pay taxes on a tuition 
benefit of $20,930 per year with an income stipend that is far lower 
than the tuition benefit.
  Let me be clear that I am not concerned about the president of 
Harvard or the person who heads up the medical program at Johns 
Hopkins. What I object to is raising taxes on people who clean chickens 
for a living or work as security guards at colleges. It is simply 
unthinkable that we would make it harder for people who make fan belts 
or work at a college to go to school, get a graduate degree, or work at 
a job that makes higher education affordable for their kids.
  While I do intend to vote for the bill today, I do so only because I 
have been assured by the Republican leadership that they will work to 
address my concerns before the final version of this legislation comes 
back before the House next month. The American people have long 
deserved the tax relief we are considering today, and I look forward to 
working with

[[Page H4808]]

Chairman Archer and our leadership as the bill goes to conference.
  Mr. ARCHER. Mr. Chairman, I yield 30 seconds to the gentleman from 
Louisiana [Mr. McCrery].
  Mr. McCRERY. Mr. Chairman, I just wanted 30 seconds to respond to my 
good friend from California. Nobody on this side of the aisle said that 
payroll taxes were not taxes. Certainly they are taxes. We recognize 
that and we created the earned income tax credit specifically for that 
purpose, to give those families some tax relief against the burden of 
those payroll taxes. But they do not pay any income taxes so we are not 
going to give them income tax relief.
  So I just wanted to make that point crystal clear. They are taxes, we 
believe they are taxes, we already give them a credit against those 
taxes.
  Mr. ARCHER. Mr. Chairman, I yield such time as he may consume to the 
gentleman from Minnesota [Mr. Ramstad], a respected member of the 
Committee on Ways and Means.
  (Mr. RAMSTAD asked and was given permission to revise and extend his 
remarks.)
  Mr. RAMSTAD. Mr. Chairman, I thank my distinguished chairman for 
yielding this time to me and for his strong leadership in bringing this 
Taxpayers Relief Act to the floor to provide hardworking Americans with 
the most substantial tax relief since 1981, Mr. Chairman. This tax 
relief bill here today truly does cover people at all stages of life, 
from the childhood years through the education years to the savings 
years and into the retirement years.
  But in addition to the five major provisions in this tax bill which 
have been debated most extensively here today, the child tax credit, 
the education tax incentives, the capital gains tax relief, the 
extension of IRAs and reduction in death taxes, I would like to focus 
on three provisions which have not gotten much attention today but are 
very, very important to help victims of the recent flooding in the Red 
River Valley, and I would like to thank the chairman and the other 
members of the Committee on Ways and Means who worked together in a 
bipartisan way, who listened to those flood victims when we were there 
in the Red River Valley at those town meetings, particularly the 
gentleman from North Dakota [Mr. Pomeroy] and the gentleman from 
Minnesota [Mr. Peterson] on the other side of the aisle who worked to 
help craft these provisions.
  This bill today, this tax relief bill, includes special mortgage 
revenue bond rules for those people to rebuild their homes, their 
apartment buildings and houses in the flood areas. It includes 
extensions of IRS deadlines for flood area taxpayers. And it also 
includes special IRS rules for sales of livestock caused by the 
horrible historic flooding in the Red River Valley.
  Mr. Chairman, this bill will help real people right away. This bill 
will not only help all taxpayers at all stages of their life, but 
particularly right now those people in the Red River Valley who have 
been devastated, devastated by the horrible flooding. This Congress has 
listened to those people at those town meetings elsewhere, when the 
mayors came out here. The Committee on Ways and Means has responded. I 
strongly urge my colleagues to pass this important bill.
  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentleman from 
Illinois [Mr. Shimkus].
  (Mr. SHIMKUS asked and was given permission to revise and extend his 
remarks.)
  Mr. SHIMKUS. Mr. Chairman, this debate speaks highly in support of 
tax reform, a fairer, flatter, simpler Tax Code, but as a new Member 
this debate has also been very disheartening.
  As a West Point cadet I lived by a motto: I will not lie, cheat or 
steal nor tolerate those who do. As an Army officer we said an 
officer's word is his bond. I am here to tell my colleagues 75 percent 
of these tax cuts go to those who make $75,000 or less.
  Let us reject the Democratic proposal and continue the work that the 
American people sent us here to do.

                              {time}  1630

  Mr. ARCHER. Mr. Chairman, I yield 1 minute to the gentleman from 
Pennsylvania [Mr. Fox].
  Mr. FOX of Pennsylvania. Mr. Chairman, I thank the gentleman for his 
leadership on this bill.
  The majority bill, Mr. Chairman, will give the hard-working Americans 
their first tax cut in 16 years. It will allow millions of hard-working 
American families the opportunity to keep more of their own money and 
make their own decisions about what they do with it.
  I am especially pleased with provisions that deal with assistance in 
education. The House tax relief plan provides millions of college-age 
students and their parents with a $1,500 tax credit that provides 15 
percent of expenses for the first 2 years of college, vocational 
training, or other postsecondary education program.
  Moreover, parents and students are also provided with a $10,000 
deduction per student per year for expenses with State prepaid tuition 
plans for education investment accounts and families making penalty-
free withdrawals from any IRA to help further cover the cost of 
college, vocational training, or other postsecondary education program.
  This House Republican plan will also allow families to make 
contributions to non-State-operated education investment accounts to 
encourage savings for college, and I would ask support for the majority 
proposal from the Committee on Ways and Means.
  Mr. ARCHER. Mr. Chairman, I reserve the balance of my time.
  Mr. RANGEL. Mr. Chairman, I yield 2 minutes to the gentlewoman from 
California [Ms. Sanchez].
  Ms. SANCHEZ. Mr. Chairman, tonight I wanted to be in my hometown with 
my constituents, the people who worked hard to get me here. But they 
recognize the historic importance of the vote we are about to take on 
this bill. As we are casting our votes, I urge my colleagues to 
carefully consider every American who will be affected by our actions 
today.
  This is a monumental day. Before us we have the opportunity to vote 
on a bill which will affect the life of every single American. But 
before we take that vote, we must really think about whether or not 
every hard-working American is being treated equally. Will all 
Americans, including single parents, workers who are struggling to get 
by on the minimum wage, and families with schoolchildren receive the 
benefits promised from this tax bill?
  I am a fiscal conservative. I agree with my colleagues on both sides 
of the aisle that we must balance the budget, that we should cut taxes, 
and that we must cut spending. Today's proposed tax bill has big 
problems. However, the Democratic substitute addresses the capital 
gains tax, the child tax credit, and the education tax credit in a more 
equitable fashion than the proposed Republican tax bill.
  Working-class Americans should not be excluded from the majority of 
the tax cuts. Working-class Americans should not continue to carry the 
burden of taxes without sufficient relief, and working-class Americans 
deserve fair tax relief from this Congress.
  If this bill does pass and go to conference, I hope the conferees 
will remember the pledge that we made for equality of tax relief. 
Fairness in taxation is what we pledged to the American people. 
Fairness is what we must deliver in our actions here today.
  Yesterday, it was with much hesitation that I voted in favor of the 
spending bill. Although this bill may not follow through on all of the 
promises of the balanced budget agreement, it is an important first 
step as the budget moves to conference.
  Mr. ARCHER. Mr. Chairman, I have no further requests for time, and I 
will close, so I would encourage the gentleman from New York [Mr. 
Rangel] to use the balance of his time.
  Mr. RANGEL. Mr. Chairman, I yield 30 seconds to the gentlewoman from 
Texas [Ms. Jackson-Lee].
  Ms. JACKSON-LEE of Texas. Mr. Chairman, I thank the gentleman for 
yielding to me.
  Let me briefly say that I rise in strong support of the Democratic 
alternative on two counts. One, just take as an example the chairman of 
Microsoft who would get capital gains and estate tax reductions and 
even a new IRA provision under the Republican plan that would also let 
him take a $4,000 tax break for educational expenses, while at the same 
time a working police officer in my district in Houston and a working 
police officer in the Speaker's district would not be allowed to get a 
tax credit for their children, or to benefit from this particular 
Republican

[[Page H4809]]

bill. The bill on the Democratic side allows for working Americans to 
receive tax cuts.
  Mr. Chairman, I rise today in support of the Democratic alternative 
to H.R. 2014. The Democratic plan authored by the distinguished ranking 
member of the Ways and Means Committee, Representative Charles Rangel, 
is the fairer tax plan. It is the plan that gives tax relief to those 
who need it--to hard-working tax-paying families. The Democratic 
substitute provides 71 percent of tax cuts to families earning less 
than $100,000.
  The Republican plan, in striking contrast, overwhelmingly benefits 
the wealthiest at the expense of working families. A recent analysis by 
the Center for Budget and Policy Priorities highlighted this disparity 
and revealed that between the Republican tax bill and spending bill 
voted on yesterday, the very wealthiest 1 percent of families will have 
their incomes boosted by an average of $27,000 a year, while struggling 
families in the bottom 20 percent of the economic ladder actually end 
up losing $63 a year. According to an analysis of the Republican bill 
by the Treasury Department, the richest 1 percent get more of the 
overall tax breaks than the bottom 60 percent combined.
  The disparities between the Democratic and Republican plans are most 
obvious in the areas of education and child care tax credits. The 
differences illustrate clearly the lack of concern in the Republican 
plan for our Nation's working families.
  The Democratic alternative would make the $500 child credit available 
to families who work and pay taxes--and who earn less than $75,000. 
This ensures that millions more children would qualify for the tax 
credit than do under the Republican bill. The Republican bill denies 
adequate tax relief to 15 million working, tax-paying families by 
refusing to give them the full $500 child tax credit for the earned 
income tax credit. This would mean that a working family with two 
children earning $25,000 would not receive the $500 child credit.
  Democrats understand that college affordability is a priority for 
American families and so the Democratic substitute provides the full 
$1,500 HOPE scholarship tuition tax credit for the first 2 years of 
postsecondary education including vocational and 2-year educational 
programs, as well as a credit of 20 percent of tuition costs after the 
first 2 years. The Republican bill, however, skimps on tax breaks for 
college by providing only half of the $1,500 HOPE tuition tax credit 
and only for the first 2 years of college illustrating that the 
Democratic plan is the one that protects and provides for the concerns 
of working families.
  Additionally, the Democratic alternative provides immediate and 
targeted tax relief to small businesses and family farms. It does not 
give capital gains tax breaks to wealthy people whose principal assets 
are stocks, bonds, and collectibles as the Republican plan does.
  Finally, the Republican bill gives large corporations a $22 billion 
windfall by scaling back the corporate minimum tax. The Democratic 
alternative contains no such provision.
  Mr. Chairman, it is abundantly clear that H.R. 2014, the Republican 
tax plan, is one that is designed to benefit the wealthy in our Nation. 
It is for this reason that I stand resolutely behind the Democratic 
alternative--a balanced tax package that is good for working families 
and good for America.
  Mr. RANGEL. Mr. Chairman, I yield 30 seconds to the gentlewoman from 
California [Ms. Woolsey].
  (Ms. WOOLSEY asked and was given permission to revise and extend her 
remarks.)
  Ms. WOOLSEY. Mr. Chairman, it is absolutely certain that we knew when 
we passed the balanced budget that the devil would be in the details. 
Well, this bill is full of devils. I would urge everyone who really 
wants to help working families and to support educational opportunities 
to vote it down.
  Mr. RANGEL. Mr. Chairman, I yield the remainder of the time for 
closing purposes to the gentleman from Missouri [Mr. Gephardt], the 
Democratic minority leader.
  (Mr. GEPHARDT asked and was given permission to revise and extend his 
remarks.)
  Mr. GEPHARDT. Mr. Chairman, I rise tonight in favor of the Rangel 
Democratic bill and to speak in favor of it over the Republican bill.
  I rise to raise a simple question, which is who should be getting the 
lion's share of the benefit from this tax cut bill. Everybody is for 
tax cuts. I am, the Republicans are, I think every Member of the House 
is happy tonight that we are here on the floor talking about tax cuts. 
The reason we are here, in my view, is that the Democratic Party in 
1993 produced this deficit dividend as a result of courageous votes 
cast by Democrats, all Democrats in 1993. Now we are very near to 
balancing the budget. Some say we might even balance the budget next 
year as a result of that action.
  So the question is, who gets the tax cut? I believe, and I think 
Democrats believe, that this tax cut should go to hard-working, middle-
income families and families struggling to get into the middle class.
  I refer the Members to these charts. The Republican bill gives 19 
million families the lion's share of their tax cut, about 70 percent, 
to families earning over $100,000 a year. They only give about 30 
percent of their tax cut to families earning less than $100,000, 
whereas with the Democratic tax bill we give the lion's share of our 
tax cut to families earning below $100,000 a year, 91 million families. 
We give a tax cut to families earning over $100,000 a year, but it is 
less of a tax cut. We want everybody to have a tax cut, we just want 
the lion's share of it to go to hard-working middle income families and 
families trying to get into the middle class.
  My colleagues may say why? Why do we insist that the tax cut go to 
people in the middle and trying to get into the middle? There is a 
simple reason. The people at the top, the 19 million families that are 
the top earners in the country have seen their income over the last 20 
years go up by about 50 percent. We are thrilled that their income has 
gone up. God bless them. I wish everybody in this country would have 
their income go up by 50 percent. But the truth is, the people below 
$100,000 a year in income over the last 20 years has seen their income 
stay in place, or they have even fallen behind. It is that central fact 
that leads us to the conclusion that the people under $100,000 a year 
are the people that ought to claim the lion's share of this tax cut.
  Now, our tax cut is a families first tax cut. Let us talk about the 
child credit for a minute. A lot has been made of the fact that in the 
Republican bill families earning $20,000 and $25,000 a year do not get 
the full child credit because we, together, Republicans and Democrats, 
decided to cut these families' taxes by the earned income credit on a 
couple of occasions over the last 10 years, trying to help those hard-
working families do well. Now we are being told that we cannot give 
them the child credit because they are on welfare.
  How dare anyone say that someone is on welfare who goes to work every 
day earning $17,000 and $20,000 and $25,000 a year. They are paying 
taxes. They are paying the Social Security tax. They are paying Federal 
excise taxes, they are paying State taxes, they are paying local taxes, 
they are paying lots of taxes, and they need help. And they above 
everyone need the child credit.
  Now, let us talk about education. What is more important in today's 
world than getting an education? We are in a global economy. We have to 
have highly productive workers. We all know that mental capability is 
the most important thing, the currency of the world economy. And we are 
saying, let us make sure every young person in this country, no matter 
what their income, gets a chance to go to college. The President has 
talked about it now for 5 years.
  Ben Naes lives in my district in Barnhart, MO. He is 21 years old. He 
just came through community college. He is trying now to go to State 
university. If our tax bill had been in place last year, he would have 
gotten an $1,100 tax credit or his family would have so he could go to 
college. Under the Republican bill, he would have gotten about a $700 
credit. More importantly, next year when these bills might be in place, 
he is going on to State university. He could get $600 out of our bill 
to go to State university; under the Republican bill, not a red cent of 
help for Ben Naes. Ben Naes got a 3.9 in community college. He wants to 
be a biochemist. He could be a biochemist and would not come out with a 
mountain of debt if the Democratic bill were in place.
  Mr. Chairman, I remember when I wanted to go to college. My dad was a 
milk truck driver and we did not have a lot of money. And my mother 
took me down to the church that we went to, Third Baptist Church in St. 
Louis and we sat down across from the pastor and we asked if we could 
have a loan from the church. I am old enough, we did not have Pell 
grants, we did not have loans, we did not have tax bills

[[Page H4810]]

that gave credits, and the minister of our church had a little 
scholarship fund and he gave us $500, which helped toward the $1,500 
tuition at my college. Ben Naes maybe can go to the church and get that 
kind of a loan, but he needs more than that to get to the State 
university today. He needs the Democratic tax bill to help him go to 
college.
  Now, let me end by saying this: As my colleagues go to vote on these 
two bills, put out of your mind everything you have heard from every 
lobbyist, put out of your mind everything that you have seen in ads put 
in by special interest groups in the newspapers, put out of your mind 
everything that you have been told by the people who have had the 
ability to approach you in the halls or call you up; put out of your 
mind what people at fundraising events have told you about what should 
happen in this tax bill, and put in your mind the people that you 
represent in your district and remember that the median household 
income in this country is $35,000 a year. Put them in your mind. Put 
Ben Naes in your mind and vote for a tax bill that in good conscience 
helps the hard-working middle-income families of this country. Let us 
pass the Democratic tax bill, the Rangel bill, which is the best bill.
  Mr. ARCHER. Mr. Chairman, I yield myself the balance of my time.
  Mr. Chairman, as I have listened to this debate, I have been struck 
by the philosophical difference that still exists between some in the 
Democrat Party and the rest of us who are trying to change the way 
Washington works.
  As Republicans and some Democrats move forward to balance the budget 
and reduce the tax burden on the American people, we have made our 
governing philosophy clear. We believe that the strength of this great 
Nation lies not with the Government, but with its people. Left to their 
own, without Government interference, red tape or excessive taxation, 
there is no problem that the people cannot solve. We have proved that 
over and over again in our history. We also believe that the great 
social experiment of the last 30 years has led to an unparalleled 
expansion of the Federal Government. It is clear, it is in the books. 
But sadly, it has failed to solve our Nation's most difficult problems, 
whether they be education or drugs, or family breakdown. They have 
gotten worse, not better.
  The Government we inherited along with the bankruptcy on whose brink 
we have been left has overextended its reach and has made promises that 
no government can actually fill. This is, after all, only a government. 
It cannot take the tax dollars that are earned by one citizen, hand 
them to another citizen, and then believe that it has improved the lot 
of either. For 30 years we tried that. It is called tax and spend.
  Mr. Chairman, the time has come to admit that tax and spend has 
failed. It is time to reduce the size of Government to stop wasteful 
Washington spending and give the tax dollars back to the people who 
earn them. It is time we stopped punishing the successful. Instead, we 
must help more Americans so that everyone can become successful, so 
that that ladder of upward mobility is available to all of us. We do 
not stay in one income category in the United States; we take advantage 
of our opportunities.
  My father was broke in 1932. He lost his job. He was in default on 
his home mortgage. He started from scratch on borrowed money. He took 
the risk. He spent the work hours. Yes, he earned, but he came back, 
and ultimately he achieved the American dream of a small businessman, 
yes, a small businessman who was successful.
  When we listen to the economic class warfare in this country, we 
would think everyone stays in the same income category throughout their 
entire life. We would think that people who save for a lifetime for an 
asset and sell it one time in their life, perhaps for $150,000, or 
$200,000 is rich. But they did not have that income in every year. But 
those are the kinds of statistics that distort the rhetoric on these 
tax bills.

                              {time}  1645

  It is time to bring the American people together. It is time to put 
economic class warfare aside. We all share in this opportunity in this 
great country.
  I would like to have heard the debate rhetoric in 1961, when 
President John F. Kennedy proposed the first major reduction in capital 
gains taxes, the first major across-the-board tax relief. How would 
that have disturbed you, I say to my colleagues over here on the 
Democrat side? What would your rhetoric have been to the John F. 
Kennedy tax relief bill that spurred economic growth in this country?
  And he spoke to that to the American people. He did not indulge in 
economic class warfare. He spoke about what is right for the country to 
generate jobs, to generate growth, to generate more opportunity for all 
Americans. It is clear from this debate that the Democrat caucus 
remains a liberal caucus. The overwhelming majority of the Democrat 
party, the party I once belonged to, insists that the Government in 
Washington remains the only solution and represents the best hope of 
how to solve our problems.
  Yes, if we could only spend more money, my friends on the other side 
of the aisle argue, we could make our Nation's problems go away. While 
the world has changed, the Democrat leadership has not. They still 
cling to the notion that an ever-expanding Federal Government, one that 
requires more taxes from its citizens, is the best hope we have to 
solve our problems.
  While the heart of the Democrats may sound as if they are in the 
right place, their fingers surely are in the wrong place, because their 
fingers remain stuck deep in the wallets of middle-income working 
income tax-paying Americans, trying to take from one citizen in order 
to give to another.
  Yet, it is true that this bill is limited to tax relief for middle-
income families who pay income taxes. We will not take away from those 
families and their children to give to families who pay no income tax. 
That is not what this particular bill is all about. Other bills in the 
past have done that. There is time to address those problems. This, as 
President Clinton said when he campaigned in 1992, should be a tax 
relief bill for middle-income Americans who pay income taxes.
  To my friends across the aisle I have a simple message: Let it go, 
let it go, let it go. We have tried your way. For 30 years we raised 
taxes and we increased spending. It is now our turn. It is the turn of 
silent, hard-working Americans who have paid and paid and paid to see 
their earnings redistributed to others.
  And to my friends across the aisle, hear my plea: vote for your 
constituents, not your leadership. Exercise your judgment. Show your 
independence. Do what you know is right. Vote for the taxpayer, and 
vote for the majority Taxpayer Relief Act.
  Mr. CLAY. Mr. Chairman, few issues that we will debate this Congress 
better illustrate the gulf that exists between Democratic and 
Republican priorities for working families. The measure before us 
launches an unprecedented transfer of wealth from the poor and middle 
class to the wealthy. According to the Citizens for Tax Justice, 41 
percent of the tax cuts in this plan go to the top 1 percent of 
taxpayers.
  By contrast, taxpayers with incomes in the lower 40 percent would see 
no benefits, and some would get a tax hike.
  The education related tax credits shortchange lower-income families 
as well. It provides a nonrefundable tax credit equal to half the 
college expenses up to $3,000 a year. The credit will be unavailable to 
most low-income families because it is not refundable. It significantly 
disadvantages students who attend lower tuition institutions such as 
community colleges, because the credit only includes tuition, not 
living expenses.
  The proposal also discriminates against low-income families by 
reducing the amount of tax credit by the amount of any Pell grant 
award.
  By contrast the Democratic alternative tax proposal provides a $1,500 
tax credit that will be accessible to middle income and poor families. 
The credit will be refundable, thus benefiting low- and middle-income 
students, and does not have a Pell grant offset.
  The Democratic alternative allows the credit to be used for all 
college expenses and includes a 20-percent tax credit for the remaining 
years of college.
  The Republican plan has been totally repudiated by the Clinton 
administration. In a letter to Chairman Archer this week, Secretary 
Rubin concluded that education package falls nearly $13 billion short 
of the agreed goal of $35 billion in tax cuts for education directs 
more benefits toward upper-income families while reducing the benefits 
to lower-income families.
  I urge my colleagues to reject this flawed, unjust tax scheme and 
adopt the Democratic alternative plan.

[[Page H4811]]

  Mr. DOYLE. Mr. Chairman, I am in strong support of the Democratic 
substitute. My constituents in western Pennsylvania and I believe that 
the budget deficit is one of the most important issues facing our 
country. Consequently, it is absolutely crucial that this 
reconciliation legislation provides for a budget which is brought into 
balance and then stays in balance. Unfortunately, this Republican 
revenue bill, which has been crafted by Chairman Archer, is riddled 
with gimmicks, back loaded tax expenditures, and false assumptions 
which will explode the deficit after 2002. The Democratic alternative, 
on the other hand, will provide tax relief for middle-class families 
that can really use it and is still compatible with real, long-term 
deficit reduction.
  The Republican estate tax provisions are a prime example of the 
short-sighted nature of their plan. Like the Democratic alternative, 
the archer bill doubles the estate tax exemption from $600,000 to $1 
million. However, the chairman's plan implements this change over the 
course of an entire decade. In doing so, Chairman Archer is able to 
mask the real costs of his proposal, which will not be felt until well 
after 2002.
  Because the Democratic estate tax provisions are more clearly 
focused, the costs are manageable and affordable, even when fully 
implemented. As a result, the Democratic alternative provides for 
nearly immediate reform of estate taxes. Rather than waiting until 
2007, the small business people and farmers, who desperately need 
estate tax relief, would be able to utilize the $1 million exemption 
next year. This nearly immediate phase-in could help thousands more 
family owned businesses than the Archer plan.
  In addition, I believe that we can spur economic growth and empower 
millions of middle-class investors by reducing the capital gains tax 
rates in an economically conservative manner. However, the Archer 
capital gains plan is not only socially inequitable, it is fiscally 
irresponsible. In fact, it is timed to provide a fleeting increase in 
revenues, which helps bring the budget into balance in 2002. But then, 
in the following years, the costs of this program sky rocket.
  This gimmick is part of the chairman's proposal to index capital 
gains for inflation after 2002. In order to qualify for the indexing on 
assets held before 2001 investors will have to pay between $10 and $12 
billion in taxes, as part of a one time mark-to-market levy. With the 
help of this one time infusion, the Archer capital gains plan will 
actually result in an overall revenue increase of $2.7 billion from 
1997 to 2002. However, in the 5 years following the 2002 target date, 
the capital gains provisions will cost $37.5 billion, and they will 
continue to increase steadily for years to come.
  I am troubled by these tax cuts which will explode in the out years 
because, for some time, I have subscribed to the view that we should 
balance the budget first, and then consider tax cuts. However, this 
bipartisan budget agreement demands that tax cuts be enacted this year. 
I recognize this compromise is perhaps our best chance to balance the 
budget, and I do not wish to risk scuttling the process by fighting 
such a substantial component. I believe it is crucial that we all work 
within the defined parameters, so I will support prudent, responsible 
tax relief for middle-class families which adheres to the budget 
agreement.
  The Democratic substitute provides such relief. Because it abides by 
the budget accord, it advances capital gains tax cuts, estate tax 
relief, and a per-child tax credit. But, it is a stronger measure than 
the Archer plan in that it goes further in helping middle-class 
families cope with the costs of owning a home and paying for their 
kids' college education. Similarly, it contains initiatives not 
included in the Republican plan which I strongly support, such as 
incentives for environmental cleanups, economic development, and local 
school construction.
  However, the biggest difference is the fact that the alternative is 
more economically responsible and fair. It does not lay the groundwork 
for decades more of mounting debt, and it gives relief to the working, 
middle-class families who have been struggling to get by. While over 71 
percent of the benefits in the alternative go to families earning under 
$100,000 a year, these same families receive only around one-third of 
the benefits under the Republican plan, when fully phased-in. In light 
of this, I think it is safe to say that this Democratic substitute is 
the real middle-class tax cut.
  The Archer tax proposal would cause the deficit to behave like a 
rubber ball that is dropped from high in the air. Rather than hitting 
the ground with a dull thud, the Archer cuts will cause the deficit to 
bounce right back, out of control once again. It seems to me that if 
the leadership were serious about holding the deficit down, they would 
include strict deficit enforcement provisions that go beyond an 
exentison of the pay-as-you-go requirements. As a cosponsor of the 
Budget Enforcement Act, a bill that would lock in deficit reduction, I 
have been working with Members from both sides of the aisle to have 
this measure attached to this reconciliation legislation. The 
Republican leadership has said that the Budget Enforcement Act will be 
brought to the floor next month. While I am disappointed they would not 
allow us to offer it as an amendment to there conciliation legislation, 
I am pleased it will be considered. However, the Rules Committee 
chairman has indicated that the bill may be altered before coming to 
the floor. I believe it would be a grave mistake for the leadership to 
weaken the Budget Enforcement Act in any way.
  Given the structure of the Archer plan a return to deficit spending 
appears nearly inevitable, and if we allow the deficit to bounce up 
again after 2002, we will have accomplished nothing. Actually, we will 
have done something worse than nothing. We will have cynically brought 
the budget into check for one passing moment just to reap political 
rewards.
  Mr. Chairman, this would be unconscionable. We must balance the 
budget and keep it balanced. If we are going to have tax relief, we 
must be fiscally responsible and we must target those truly in need of 
relief. The Democratic alternative meets these criteria. The Archer 
plan does not. I urge my colleagues make a vote for the long-term 
economic health of this country and support the Democratic substitute.
  Mr. POSHARD. Mr. Chairman, I rise today in opposition to this bill 
and in support of the substitute offered by my Democratic colleagues. I 
have worked hard for many years toward the goal of a balanced Federal 
budget, because I felt I owed that to my constituents, and to all hard 
working American taxpayers and their children. And while I am proud of 
this Congress and the administration for beginning the balancing 
process by working together and making some of the tough choices we are 
all going to be required to make, I will not blindly support whatever 
reconciliation bill comes to the floor, simply because it carries the 
label of a balanced budget agreement.
  As I have said, I believe that balancing the budget is our obligation 
to working families and the children who eventually must bear the 
financial burdens of the choices we make today. But a balanced budget 
is not worth supporting if, in the final analysis, it actually hurts 
the people we claim to have been working for all along. The tax package 
before us today ignores those to whom I feel we owe a duty, and it 
rewards those who are least in need of relief. Why work so hard to 
balance our budget, to finally arrive at a place where we can afford to 
offer tax cuts, only to have the vast majority of cuts go to the 
wealthiest 20 percent of Americans? This not why I have toiled for so 
many years, promoting fiscal responsibility, supporting a balanced 
budget amendment, opposing wasteful spending. No, Mr. Speaker, I have 
worked in pursuit of a different goal: to provide security, stability, 
and relief to the most vulnerable among us.
  The balanced budget plan crafted by President Clinton and 
congressional leaders called for a fair distribution of tax cuts, and I 
voted in support of that agreement. If I thought that mandate was 
carried out in the bill before us, I would vote for it as well. 
Unfortunately, somewhere along the way, fairness and equity have fallen 
by the wayside, and we are left with a dramatically uneven plan which 
not only prematurely provides our wealthiest citizens, with the 
benefits of a balanced budget, it also deprives low-income and middle-
class citizens--the same people who will be forced to bear much of the 
burden associated with new spending cuts--of similar benefits. This 
plan is unjust and unjustifiable, and I urge my colleagues to oppose 
the Republican bill and vote instead for the Democratic substitute. No 
plan is perfect, and we all recognize how much work remains to be done 
in conference and beyond. But that should not be an excuse for 
complacency today. We have an opportunity to send a better bill to the 
conferees, and that is what I plan to do by supporting the substitute.
  Only half of America's children would be covered under the highly 
touted child tax credits in the Republican tax bill. A shocking 49.9 
percent of children nationwide would be completely ineligible for the 
$500 child credit under the House plan because the credit would not be 
available to many moderate- and low-income families. In contrast, the 
child credit in the Democratic substitute would cover 71 percent of 
American children, including 91 percent of those children whose 
families' incomes are in the lowest 20 percent. Likewise, the education 
credits, the capital gains cuts and the alternative minimum tax 
provisions in the Democratic substitute are the ones that truly live up 
to the promises of the budget agreement.
  We must also think about the years beyond 2002 and take care to 
ensure that what we do now in the name of short-term gain does not 
cause new hardships in the decades to follow. Too many of the 
Republican tax cuts are poised to explode in the 5 years after balance 
is reached, erasing whatever benefits we may

[[Page H4812]]

have realized and creating the likelihood of additional cuts in the 
very programs upon which our neediest citizens depend. My conscience 
will not allow me to force such burdens on our children and 
grandchildren, and I have not waited patiently and worked diligently 
for so long to achieve balance, only to see it disappear in a cloud of 
smoke in just a few short years.
  Mr. Chairman, the process of balancing the budget requires us all to 
make difficult choices, and I have made yet another today. I will 
support the Democratic substitute tax bill because I believe it is the 
right thing to do for my constituents, for our children, and for all 
hard-working Americans who have already been asked to sacrifice so 
much. The substitute provides a fair alternative, it lives up to the 
promises made in the budget agreement, it does not sacrifice long-term 
stability for short-term gain, and it is a plan that we can be proud to 
present to the American people.
  Ms. EDDIE BERNICE JOHNSON of Texas. Mr. Chairman, the tax plan 
presented by my Republican colleagues ventures far from the best 
interest of the average American citizen. However, the Democratic 
alternative runs parallel to the needs of middle income families.
  Mr. Chairman, the Republican tax plan is designed to benefit those 
who are in the least need of a break. Analysis shows that 50 percent of 
the benefits from the bill will benefit the wealthiest 5 percent of 
American citizens. The Democrats propose an alternative plan that 
citizens for tax justice estimates will deliver three-fourths of tax 
benefits to middle- and lower-income Americans. The bill will give a 
tax break to those individuals who own and sell stock bonds, leaving 
the average middle- to low-income American without tax relief.
  The Democratic alternative will give the tax break to homeowners, 
small business owners, and farmers, those who need it most. In 
addition, the alternative will give some form of tax break to every 
middle- to low-income working family. The Republican tax bill, however, 
denies a $500 tax break to 15 million families by not extending breaks 
to those who qualify under the earned income tax credit [EITC].
  The future of America rests on the education of our children. I am 
sure both Republicans and Democrats alike will agree to this statement. 
The Republicans respond by giving a narrow $1,500 hope scholarship to 
the few attending certain colleges. Of course this will only apply to 
those attending private expensive colleges. Colleges that low-income 
Americans cannot afford. In contrast, the Democratic alternative will 
give scholarships to students of working families attending community 
colleges.
  The Republican tax plan does not answer the Nation's plea for higher 
educational opportunity for all its children when their plan gives the 
wealthiest individuals $16,000 within a 4-year span. This is more than 
the amount given to lower-income families through a Pell grant. The 
message from such actions is that the education of the few is more 
important than the education of lower income children. We do not agree. 
The education of all children is vital to the growth and development of 
our country. Therefore the Democratic alternative plan will concentrate 
most of its resources toward the education of children from families 
with limited incomes that are struggling to pay for college.
  The conclusion is clear. Reject the Republican tax plan just for the 
wealthy and support the Democratic alternative plan that includes hard-
working average Americans. Are we a government just for the rich or a 
government for all of its people?
  Mr. POMEROY. Mr. Chairman, Republicans and Democrats have agreed on a 
bipartisan budget plan that includes $85 billion in net tax relief over 
the next 5 years and $250 billion over the next 10 years. There is no 
disagreement between the parties over the amount of tax cuts to be 
provided. However, there is a sharp difference of opinion over how 
those resources should be allocated.
  I believe there are two important principles that Congress should 
follow in delivering tax relief for American families: First tax cuts 
should not explode the deficit in future years which would increase the 
debt and tax burden on our children, and second, the majority of the 
tax cut benefits should flow to those who need it most, working and 
middle-income families. In my view, the Democratic alternative to the 
Ways and Means tax bill far better upholds these principles.
  Mr. Chairman, the Ways and Means bill loses sight of the most 
important objective of the bipartisan budget agreement--a sustainable 
balanced budget. Although the revenue loss in this bill is nearly 
within the 10-year limits established by the budget agreement, it 
contains several provisions that will trigger exploding revenue loss in 
future years and throw the budget out of balance. For instance, the 
revenue loss from the back-loaded IRA provision that allows wealthy 
individuals to shelter their income from taxation grows at 73 percent 
per year. The revenue loss from the repeal of the alternative minimum 
tax [AMT] that ensures that America's large corporations pay their fair 
share of taxes grows at 49 percent per year. As a result of these 
provisions and others, the cost of this bill over the second 10 years 
skyrockets to $650-$750 billion and endangers the future fiscal health 
of our Nation.
  Second, given the limited resources that are available to cut taxes 
while still balancing the budget, I believe it is critical that those 
resources be targeted to those who need it most--working and middle-
income families. The Democratic alternative is far superior to the Ways 
and Means bill in this regard. The committee bill provides two-thirds 
of the tax benefits to the top 20 percent of income earners whereas the 
alternative give two-thirds of the tax benefit to families on the 
bottom 80 percent of the income scale.
  Mr. Chairman, the alternative tax bill is also superior to the 
committee bill in delivering estate and capital gains tax relief to 
family farmers and small business. The committee bill slowly increases 
the estate tax exemption from the current $600,000 to $1 million over 
the next 10 years. The alternative, on the other hand, raises the 
exemption to $1 million on January 1 next year for family-owned farms 
and businesses. The committee bill would reduce the capital gains tax 
from 28 to 20 percent whereas the alternative reduces the tax rate to 
18 percent without exploding the deficit by limiting the rate reduction 
to farm, business, and real estate assets.
  In summary, Mr. Chairman, the Democratic tax alternative delivers tax 
relief to those who need it while better protecting the prospects for a 
sustainable balanced budget over the long-term. I sincerely hope the 
tax bill that emerges from the House-Senate conference committee will 
fulfill these objective so that it can be enacted with strong 
bipartisan support.
  Ms. WATERS. Mr. Chairman, I rise today in support of the Democratic 
alternative tax bill. The Democratic Caucus finally came to the 
realization that Republican style tax-relief for the rich is not the 
kind of tax relief that should be adopted by this Congress.
  Not all tax relief is bad. But, Republican style tax relief is 
immoral. The Republican tax plan benefits the rich plain and simple. 
The Democratic Caucus has finally defined, shaped and organized 
sensible tax relief for the people who need it and deserve it--the low-
wage and middle-income workers of America.
  The Republicans denied tax cuts to the poorest, hardest working 
Americans. Waitresses, drug store clerks, janitors, maids, busboys, 
hospital attendants, garment workers, receptionists, aides, elevator 
operators, farm workers, dishwashers, department store clerks, and bank 
tellers--these hardest-working, poorest-paid Americans are the ones who 
really deserve a tax break. What is in the Republican tax plan for 
them? Nothing, nothing, and nothing.
  In the Democratic alternative, nearly three-quarters of the tax 
benefits go to middle- and lower-income families making less than 
$58,000 a year. The Republicans give the majority of their tax breaks 
to the wealthiest 5 percent of Americans--those making an average of 
$250,000 a year.
  The Democratic family tax credit covers 20 million more low-income 
children than the Republican plan. The Republicans want to deny the 
family credit to 28 million children from families making less than 
$20,000 per year.
  The Democratic alternative would also stimulate economic investment 
in economically distressed urban communities across the country--
including my own district--by honoring the commitment made as part of 
the budget agreement to authorize a second round of the Empowerment 
Zone and Enterprise Community Program.
  The Democratic alternative values working families over increasing 
corporate profits and tax breaks for the wealthy. I urge my colleagues 
to help working America. Support the Democratic plan.
  The CHAIRMAN pro tempore (Mr. LaTourette). All time has expired.
  The question is on the amendment in the nature of a substitute 
offered by the gentleman from New York [Mr. Rangel].
  The question was taken; and the Chairman pro tempore announced that 
the noes appeared to have it.


                             Recorded Vote

  Mr. RANGEL. Mr. Chairman, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 197, 
noes 235, not voting 3, as follows:

                             [Roll No. 243]

                               AYES--197

     Abercrombie
     Ackerman
     Allen
     Andrews
     Baesler
     Baldacci
     Barcia
     Barrett (WI)
     Becerra
     Bentsen
     Berman
     Berry
     Bishop
     Blagojevich
     Blumenauer
     Bonior
     Borski
     Boswell
     Boucher
     Boyd
     Brown (CA)
     Brown (FL)
     Brown (OH)
     Capps
     Cardin
     Carson
     Clay
     Clayton
     Clement
     Clyburn
     Condit
     Conyers
     Costello

[[Page H4813]]


     Coyne
     Cramer
     Cummings
     Danner
     Davis (FL)
     Davis (IL)
     DeGette
     Delahunt
     DeLauro
     Dellums
     Dicks
     Dingell
     Dixon
     Doggett
     Dooley
     Doyle
     Edwards
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Fazio
     Filner
     Flake
     Foglietta
     Ford
     Frank (MA)
     Frost
     Furse
     Gejdenson
     Gephardt
     Gonzalez
     Goode
     Gordon
     Green
     Gutierrez
     Hall (OH)
     Hamilton
     Harman
     Hastings (FL)
     Hefner
     Hilliard
     Hinchey
     Hinojosa
     Holden
     Hooley
     Hoyer
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson (WI)
     Johnson, E. B.
     Kanjorski
     Kaptur
     Kennedy (MA)
     Kennedy (RI)
     Kennelly
     Kildee
     Kilpatrick
     Kind (WI)
     Kleczka
     Klink
     Kucinich
     LaFalce
     Lampson
     Lantos
     Levin
     Lewis (GA)
     Lofgren
     Lowey
     Luther
     Maloney (CT)
     Maloney (NY)
     Manton
     Markey
     Martinez
     Mascara
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McDermott
     McGovern
     McHale
     McIntyre
     McKinney
     McNulty
     Meek
     Menendez
     Millender-McDonald
     Miller (CA)
     Minge
     Mink
     Moakley
     Mollohan
     Nadler
     Neal
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Peterson (MN)
     Pickett
     Pomeroy
     Poshard
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rivers
     Rodriguez
     Roemer
     Rothman
     Roybal-Allard
     Rush
     Sabo
     Sanchez
     Sanders
     Sandlin
     Sawyer
     Schumer
     Scott
     Serrano
     Sherman
     Sisisky
     Skaggs
     Skelton
     Slaughter
     Smith, Adam
     Snyder
     Spratt
     Stabenow
     Stark
     Stenholm
     Stokes
     Strickland
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson
     Thurman
     Tierney
     Torres
     Towns
     Turner
     Velazquez
     Vento
     Waters
     Watt (NC)
     Waxman
     Wexler
     Weygand
     Wise
     Woolsey
     Wynn

                               NOES--235

     Aderholt
     Archer
     Armey
     Bachus
     Baker
     Ballenger
     Barr
     Barrett (NE)
     Bartlett
     Barton
     Bass
     Bateman
     Bereuter
     Bilbray
     Bilirakis
     Bliley
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bono
     Brady
     Bryant
     Bunning
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Campbell
     Canady
     Cannon
     Castle
     Chabot
     Chambliss
     Chenoweth
     Christensen
     Coble
     Coburn
     Collins
     Combest
     Cook
     Cooksey
     Cox
     Crane
     Crapo
     Cubin
     Cunningham
     Davis (VA)
     Deal
     DeFazio
     DeLay
     Deutsch
     Diaz-Balart
     Dickey
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Ehrlich
     Emerson
     English
     Ensign
     Everett
     Ewing
     Fawell
     Foley
     Forbes
     Fowler
     Fox
     Franks (NJ)
     Frelinghuysen
     Gallegly
     Ganske
     Gekas
     Gibbons
     Gilchrest
     Gillmor
     Gilman
     Gingrich
     Goodlatte
     Goodling
     Goss
     Graham
     Granger
     Greenwood
     Gutknecht
     Hall (TX)
     Hansen
     Hastert
     Hastings (WA)
     Hayworth
     Hefley
     Herger
     Hill
     Hilleary
     Hobson
     Hoekstra
     Horn
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hutchinson
     Hyde
     Inglis
     Istook
     Jenkins
     Johnson (CT)
     Johnson, Sam
     Jones
     Kasich
     Kelly
     Kim
     King (NY)
     Kingston
     Klug
     Knollenberg
     Kolbe
     LaHood
     Largent
     Latham
     LaTourette
     Lazio
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     Lipinski
     Livingston
     LoBiondo
     Lucas
     Manzullo
     McCollum
     McCrery
     McDade
     McHugh
     McInnis
     McIntosh
     McKeon
     Metcalf
     Mica
     Miller (FL)
     Molinari
     Moran (KS)
     Moran (VA)
     Morella
     Murtha
     Myrick
     Nethercutt
     Neumann
     Ney
     Northup
     Norwood
     Nussle
     Oxley
     Packard
     Pappas
     Parker
     Paul
     Paxon
     Pease
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Quinn
     Radanovich
     Ramstad
     Redmond
     Regula
     Riggs
     Riley
     Rogan
     Rogers
     Rohrabacher
     Ros-Lehtinen
     Roukema
     Royce
     Ryun
     Salmon
     Sanford
     Saxton
     Scarborough
     Schaefer, Dan
     Schaffer, Bob
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Shimkus
     Shuster
     Skeen
     Smith (MI)
     Smith (NJ)
     Smith (OR)
     Smith (TX)
     Smith, Linda
     Snowbarger
     Solomon
     Souder
     Spence
     Stearns
     Stump
     Sununu
     Talent
     Tauzin
     Taylor (NC)
     Thomas
     Thornberry
     Thune
     Tiahrt
     Traficant
     Upton
     Visclosky
     Walsh
     Wamp
     Watkins
     Watts (OK)
     Weldon (FL)
     Weldon (PA)
     Weller
     White
     Whitfield
     Wicker
     Wolf
     Young (AK)
     Young (FL)

                             NOT VOTING--3

     Meehan
     Schiff
     Yates

                              {time}  1710

  Messrs. PEASE, YOUNG of Alaska, SHADEGG, and Mrs. SMITH of Washington 
changed their vote from ``aye'' to ``no.''
  Mr. DELAHUNT and Mr. DOGGETT changed their vote from ``no'' to 
``aye.''
  So the amendment in the nature of a substitute was rejected.
  The result of the vote was announced as above recorded.
  The CHAIRMAN pro tempore (Mr. LaTourette). Under the rule, the 
Committee rises.
  Accordingly, the Committee rose; and the Speaker pro tempore (Mr. 
LaHood) having assumed the chair, Mr. LaTourette, Chairman pro tempore 
of the Committee of the Whole House on the State of the Union, reported 
that that Committee, having had under consideration the bill (H.R. 
2014) to provide for reconciliation pursuant to subsections (b)(2) and 
(d) of section 105 of the concurrent resolution on the budget for 
fiscal year 1998, pursuant to House Resolution 174, he reported the 
bill, as amended pursuant to that rule, back to the House.
  The SPEAKER pro tempore. Under the rule, the previous question is 
ordered and the amendment is agreed to.
  The question is on the engrossment and third reading of the bill.
  The bill was ordered to be engrossed and read a third time, and was 
read the third time.


        Motion to Recommit Offered by Mr. Peterson of Minnesota

  Mr. PETERSON of Minnesota. Mr. Speaker, I offer a motion to recommit.
  The SPEAKER pro tempore. Is the gentleman opposed to the bill?
  Mr. PETERSON of Minnesota. I am opposed to the bill in its current 
form, Mr. Speaker.
  The SPEAKER pro tempore. The Clerk will report the motion to 
recommit.
  The Clerk read as follows:
       Mr. Peterson of Minnesota moves to recommit the bill H.R. 
     2014 to the Committee on the Budget with instructions to 
     report the same back to the House forthwith with the 
     following amendments:
       Strike subsection (c) of section 1 and titles I, II, III, 
     IV, V, VI, VII, VIII, IX, XI, XII, XIII, XIV, and XV.
       Redesignate title X (relating to revenues), and each of the 
     sections contained therein, as title I, and sections of title 
     I, as appropriate.
       Add at the end of the bill the following new title:

                    TITLE II--ADDITIONAL PROVISIONS

     SEC. 201. ADDITIONAL PROVISIONS.

       It is the sense of the House of Representatives that 
     additional provisions should be added to the Internal Revenue 
     Code of 1986 so that:
       (1) Capital gains reductions.--
       (A) Reduction in capital gains tax for noncorporate 
     taxpayers.--Effective as of May 7, 1997, there is excluded 
     from gross income of noncorporate taxpayers the following 
     percentages of capital gains from the sale or exchange of 
     assets:
       (i) 10 percent for assets held at least 1 year.
       (ii) 20 percent for assets held at least 2 years.
       (iii) 30 percent for assets held at least 3 years.
       (iv) 40 percent for assets held at least 4 years.
       (v) 50 percent for assets held five or more years.
       (B) Gains on sale of principal residence.--Up to $250,000 
     in gain realized on the sale or exchange of a principal 
     residence is excluded from taxation.
       (2) Estate and gift taxes.--
       (A) Amounts excluded by unified credit.--The unified credit 
     allowed to the estate of every decedent is increased, 
     resulting in the following amounts being excluded from the 
     estate tax:
       (i) $700,000 in the case of decedents dying in 1998.
       (ii) $800,000 in the case of decedents dying in 1999.
       (iii) $850,000 in the case of decedents dying in 2000.
       (iv) $900,000 in the case of decedents dying in 2001.
       (v) $1,000,000 in the case of decedents dying in 2002.
       (vi) $1,100,000 in the case of decedents dying in 2003.
       (vii) $1,200,000 in the case of decedents dying in 2004 and 
     thereafter.
       (B) Family farms and businesses.--In addition to 
     subparagraph (A), family farms and businesses are allowed to 
     exclude from the gross estate up to $1,000,000, beginning in 
     calendar year 1998.
       (3) Child tax credit.--There is allowed against the income 
     tax of an individual a nonrefundable credit for dependents 
     under age 17 in the following amounts:
       (A) $300 in taxable years beginning in 1997, 1998, and 
     1999, and
       (B) $500 thereafter.

     The credit is phased out for taxpayers whose adjusted gross 
     income is between $60,000 and $75,000.
       (4) Tax reductions related to educational expenses.--There 
     is allowed against the income tax of an individual--
       (A) a credit of $1,500 per year for up to two years for 
     higher education expenses, which credit--
       (i) beginning with adjusted gross income of $50,000 
     ($80,000 in the case of a joint return),

[[Page H4814]]

     is phased out ratably over a range of $20,000; and
       (ii) is phased in by substituting--
       (I) `$1,100' for `$1,500' in taxable years beginning in 
     1997, 1998, and 1999, and
       (II) `$1,200' for `$1,500' in the taxable year beginning in 
     2000; and
       (B) a deduction of $10,000 ($5,000 in 1997 and 1998) for 
     higher education fees and tuition, which amount is phased out 
     ratably over a range of $20,000, beginning with adjusted 
     gross income of $50,000 ($80,000 in the case of a joint 
     return).

  Mr. PETERSON of Minnesota (during the reading). Mr. Speaker, I ask 
unanimous consent that the motion to recommit be considered as read and 
printed in the Record.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Minnesota?
  There was no objection.

                              {time}  1715

  Mr. PETERSON of Minnesota. Mr. Speaker, I offer a motion to recommit, 
on behalf of my colleagues in the Blue Dog Coalition, that provides tax 
relief to mainstream America, small businesses, farmers, and working 
families, and does all of that in a fiscally responsible way.
  First of all, I want to thank our leadership for allowing us to offer 
this. I also want to thank my Blue Dog colleagues for their hard work 
and determination in developing this alternative tax bill. And finally, 
I want to thank the gentleman from New York [Mr. Rangel] and his staff 
for all of their assistance.
  First of all, Mr. Speaker, we are going to hear about a chart that I 
just received when I walked in from Joint Tax that says we are $4.7 
billion over in the first 5 years. This is the first I have seen of 
this. We do not agree with this, and we cannot really respond because 
we do not know the basis for these numbers. Clearly, this can fit 
within the $85 billion. It also says we are at $230 billion over the 10 
years. So I just want to make that clear, and this will fit within the 
terms of the budget agreement.
  A lot of Democrats in this body, Mr. Speaker, support tax cuts, and 
we always have, just as President Clinton has supported tax relief for 
American families. But if we are going to provide tax relief and 
balance the budget at the same time, tax relief must be well-
constructed and targeted to working families and it must not bust the 
budget.
  Mr. Speaker, the tax bill before us today is deficient in many 
respects and should be defeated. It is overly complicated. It is not 
targeted. It may send the budget deficit up once again outside the 10-
year budget window.
  The capital gains provisions in this bill are overly complicated. It 
will be difficult to use in the real world, and the indexation of 
capital gains will require so much record keeping that it is going to 
cause taxpayers out there a real problem to use. And this is probably 
going to cause us more fiscal problems in the future because of 
indexation.
  The children's tax credit is more costly than we need to do because 
it includes families going up to $110,000 income. The estate tax relief 
income in this bill is phased in over too long a period and is less 
than many of us on both sides of the aisle want to do. And the 
backloaded IRAs in the committee bill are a bad idea that cost over $13 
billion in 10 years and explode the deficit out into the future.
  The alternative minimum tax provisions in the committee bill that 
will cost $40 billion over 10 years are also troublesome to many of us 
and, like other provisions in this bill, are likely to send the deficit 
up in the future.
  What we did in this motion is really very simple. We are recommending 
that the Committee on Ways and Means develop a better, fairer tax bill 
that rewards the people who make our country work. Small businesses 
create 85 percent of the new jobs in this country, farmers and the 
working people that work on those farms and small businesses.
  This bill contains a capital gains tax provision that is simple, that 
provides for capital gains relief like the old way we did it, that 
rewards long-term investment, economic growth, and job development. Our 
capital gains provision is simple. It provides for an exclusion from 
income of 10 percent per year, up to 50 percent at 5 years. So you get 
10 percent; at 5 years you get a 50-percent exclusion from income.
  The motion also contains immediate estate tax relief for small 
businesses and farmers. An exemption for closely held businesses and 
ranches and family farms is immediately increased to $1 million next 
year. It also increases the unified credit to $1 million in 2002 and 
$1.2 million in 2004, the first increase in this unified credit since 
1976.
  My motion to recommit also includes a family tax credit that provides 
a $500 credit for children under 17 because we believe that this will 
strengthen families, and this is phased out between $60,000 and $75,000 
of income, not $110,000 like the committee bill.
  The motion also includes the President's $1,500 HOPE scholarship, 
$10,000 tuition tax deductions, tax breaks that the President proposed.
  It is that simple: Real capital gains relief that rewards long-term 
investment, immediate estate tax relief, a family tax credit, and 
education tax breaks for American families, real sustained immediate 
tax relief for American families, farms, and businesses.
  Mr. Speaker, we provide these tax breaks without breaking the bank 
because we do not backload our provisions. This motion will not explode 
the deficit. This motion is responsible tax policy. And what is more, 
this motion provides more capital gains relief, more estate tax relief, 
a better, more family-friendly children's tax cut, and the important 
education tax breaks that most of us support.
  Mr. Speaker, if this motion passes the Committee on Ways and Means, 
then the Committee on the Budget, can quickly return to the floor with 
a better tax bill, a tax bill that reflects our values, that is fair, 
that is good for families, good for farms, good for small businesses.
  Mr. Speaker, I urge my colleagues to support this motion to recommit.
  Mr. GINGRICH. Mr. Speaker, I rise in opposition to the motion to 
recommit.
  The SPEAKER pro tempore (Mr. LaHood). The gentleman from Georgia [Mr. 
Gingrich], the Speaker, is recognized for 5 minutes.
  Mr. GINGRICH. Mr. Speaker, let me begin, if I might, with the comment 
by my friend over there who referred to the recent Presidential 
message, asking ``Is that a veto?'' Because I think one of the things 
that makes today so exciting is that in fact this is a bill that the 
President is going to sign; that in fact yesterday the President sent 
up a letter supporting the bill that came up yesterday.
  I am not sure whether our friend who had that comment voted with the 
President yesterday or voted against him. But the fact is, there is a 
bipartisan effort to balance the budget, to save Medicare, and to cut 
taxes.
  This is a hard, difficult thing. It has involved much rhetoric, much 
negotiating, and it does not come easily, and yet it is very, very 
important for the American people on three levels. It is very important 
for rebuilding their trust in the institutions of government. It is 
very important for the future of their country's economy. And it is 
very important, at a personal level, for individuals to have a chance 
to have a little more take-home pay, a little more money for their 
children, a little more money to go to college or vocational-technical 
school, a little better chance to keep their family farm or family 
business, a little better chance to invest and create jobs and save.
  These are not small things. And the fact is, we have worked with the 
President. It is our full expectation, as the White House said again, I 
think as recently as this morning, that when the negotiations are done 
both of these bills will be signed. That is very good for the American 
people.
  Now my friend, the gentleman from Minnesota [Mr. Peterson] offered a 
motion to recommit, and that certainly is a process that is legitimate. 
We frankly cannot comment on the detail because the version we had 
earlier has been changed so much, so I do not want to spend a lot of 
time. I understand that we go through these exercises.
  I would point out that that motion, if we understand it based on the 
material we got 4 minutes ago, does increase the deficit in 1998 by $7 
billion, does increase the deficit in 1999 by $11 billion. Over 5 
years, it is our best estimate, having only looked at it for 4 minutes, 
that it is a $50 billion tax cut, not an $85 billion tax cut. But the 
truth is, we do not fully know because this was a

[[Page H4815]]

political gesture offered for political reasons so that my friend could 
vote for something a little different.
  What I can report is that the Farm Bureau, having looked at all of 
our efforts, is endorsing the Archer bill. I can report that the 
National Federation of Independent Business, the leading small business 
group in America, having looked at the opportunities, is endorsing the 
Taxpayer Relief Act that the gentleman from Texas [Mr. Archer] has 
offered.
  I can report that again and again groups that care about children, 
groups that care about families, groups that care about personal take-
home pay, groups that care about small business, groups that care about 
family farms, groups that care about saving and investment and job 
creation have endorsed the Archer bill.
  Why have they done that? Because it is a bill that was designed 
seriously with serious study, that evolved over a period of time, that 
was accurately scored, that was out in the open, that everybody had a 
chance to see, that did not change in the last 5 minutes before a vote.
  So I would say to all of my colleagues, the only legitimate serious 
vote on the motion to recommit is ``no'' because the fact is, no one 
knows what is in the motion to recommit. No one knows how it would 
score. No one knows the implications. It is a nice, brief political 
publicity gesture. And then we should all vote ``yes''.
  I would say even to my friends on the left who find it hard, if they 
voted for the 1993 tax increase, this is their chance to do a little 
bit to return some of it back to the American people.
  Let me just say that for too many years this city raised taxes, 
increased spending, created a big deficit, and did not care about the 
future. It took care of this year's political needs at the expense of 
our children's future. The leadership from the gentleman from Ohio [Mr. 
Kasich] and the gentleman from Texas [Mr. Archer] and from so many 
people working with President Clinton, we have pulled together a real 
effort to balance the budget, to save Medicare, to cut taxes, and to 
give our children and our country a better future. That is why we 
should all vote ``yes'' on final passage.
  The SPEAKER pro tempore. Without objection, the previous question is 
ordered on the motion to recommit.
  There was no objection.
  The SPEAKER pro tempore. The question is on the motion to recommit.
  The question was taken; and the Speaker pro tempore announced that 
the noes appeared to have it.


                             Recorded Vote

  Ms. PETERSON of Minnesota. Mr. Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 164, 
noes 268, not voting 3, as follows:

                             [Roll No. 244]

                               AYES--164

     Abercrombie
     Ackerman
     Allen
     Andrews
     Baesler
     Baldacci
     Barcia
     Bentsen
     Berman
     Berry
     Bishop
     Blagojevich
     Blumenauer
     Boswell
     Boucher
     Boyd
     Brown (CA)
     Brown (OH)
     Capps
     Cardin
     Carson
     Clay
     Clayton
     Clement
     Clyburn
     Condit
     Conyers
     Costello
     Coyne
     Cramer
     Cummings
     Danner
     Davis (FL)
     Davis (IL)
     DeGette
     Delahunt
     Deutsch
     Dicks
     Dingell
     Dixon
     Doggett
     Dooley
     Doyle
     Edwards
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Fazio
     Filner
     Flake
     Ford
     Frost
     Furse
     Gejdenson
     Gonzalez
     Goode
     Green
     Hall (OH)
     Hall (TX)
     Hamilton
     Harman
     Hastings (FL)
     Hefner
     Hilliard
     Hinchey
     Hinojosa
     Holden
     Hooley
     Hoyer
     Jackson-Lee (TX)
     Jefferson
     John
     Johnson (WI)
     Johnson, E. B.
     Kaptur
     Kennedy (MA)
     Kennelly
     Kildee
     Kind (WI)
     Kleczka
     Klink
     LaFalce
     Lampson
     Lantos
     Levin
     Lofgren
     Lowey
     Luther
     Maloney (CT)
     Maloney (NY)
     Manton
     Markey
     Martinez
     Mascara
     Matsui
     McCarthy (MO)
     McCarthy (NY)
     McDermott
     McHale
     McIntyre
     McKinney
     McNulty
     Menendez
     Millender-McDonald
     Minge
     Mink
     Moakley
     Mollohan
     Nadler
     Neal
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Peterson (MN)
     Pickett
     Pomeroy
     Poshard
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rodriguez
     Roemer
     Rothman
     Rush
     Sabo
     Sanchez
     Sandlin
     Sawyer
     Schumer
     Serrano
     Sisisky
     Skaggs
     Skelton
     Slaughter
     Smith, Adam
     Snyder
     Spratt
     Stabenow
     Stenholm
     Stokes
     Stupak
     Tanner
     Tauscher
     Taylor (MS)
     Thompson
     Thurman
     Towns
     Turner
     Vento
     Watt (NC)
     Wexler
     Weygand
     Wise
     Woolsey
     Wynn

                               NOES--268

     Aderholt
     Archer
     Armey
     Bachus
     Baker
     Ballenger
     Barr
     Barrett (NE)
     Barrett (WI)
     Bartlett
     Barton
     Bass
     Bateman
     Becerra
     Bereuter
     Bilbray
     Bilirakis
     Bliley
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bonior
     Bono
     Borski
     Brady
     Brown (FL)
     Bryant
     Bunning
     Burr
     Burton
     Buyer
     Callahan
     Calvert
     Camp
     Campbell
     Canady
     Cannon
     Castle
     Chabot
     Chambliss
     Chenoweth
     Christensen
     Coble
     Coburn
     Collins
     Combest
     Cook
     Cooksey
     Cox
     Crane
     Crapo
     Cubin
     Cunningham
     Davis (VA)
     Deal
     DeFazio
     DeLauro
     DeLay
     Dellums
     Diaz-Balart
     Dickey
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Ehrlich
     Emerson
     English
     Ensign
     Everett
     Ewing
     Fawell
     Foglietta
     Foley
     Forbes
     Fowler
     Fox
     Frank (MA)
     Franks (NJ)
     Frelinghuysen
     Gallegly
     Ganske
     Gekas
     Gephardt
     Gibbons
     Gilchrest
     Gillmor
     Gilman
     Gingrich
     Goodlatte
     Goodling
     Gordon
     Goss
     Graham
     Granger
     Greenwood
     Gutierrez
     Gutknecht
     Hansen
     Hastert
     Hastings (WA)
     Hayworth
     Hefley
     Herger
     Hill
     Hilleary
     Hobson
     Hoekstra
     Horn
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hutchinson
     Hyde
     Inglis
     Istook
     Jackson (IL)
     Jenkins
     Johnson (CT)
     Johnson, Sam
     Jones
     Kanjorski
     Kasich
     Kelly
     Kennedy (RI)
     Kilpatrick
     Kim
     King (NY)
     Kingston
     Klug
     Knollenberg
     Kolbe
     Kucinich
     LaHood
     Largent
     Latham
     LaTourette
     Lazio
     Leach
     Lewis (CA)
     Lewis (GA)
     Lewis (KY)
     Linder
     Lipinski
     Livingston
     LoBiondo
     Lucas
     Manzullo
     McCollum
     McCrery
     McDade
     McGovern
     McHugh
     McInnis
     McIntosh
     McKeon
     Meek
     Metcalf
     Mica
     Miller (CA)
     Miller (FL)
     Molinari
     Moran (KS)
     Moran (VA)
     Morella
     Murtha
     Myrick
     Nethercutt
     Neumann
     Ney
     Northup
     Norwood
     Nussle
     Oxley
     Packard
     Pappas
     Parker
     Paul
     Paxon
     Payne
     Pease
     Pelosi
     Peterson (PA)
     Petri
     Pickering
     Pitts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Quinn
     Radanovich
     Ramstad
     Redmond
     Regula
     Riggs
     Riley
     Rivers
     Rogan
     Rogers
     Rohrabacher
     Ros-Lehtinen
     Roukema
     Roybal-Allard
     Royce
     Ryun
     Salmon
     Sanders
     Sanford
     Saxton
     Scarborough
     Schaefer, Dan
     Schaffer, Bob
     Scott
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherman
     Shimkus
     Shuster
     Skeen
     Smith (MI)
     Smith (NJ)
     Smith (OR)
     Smith (TX)
     Smith, Linda
     Snowbarger
     Solomon
     Souder
     Spence
     Stark
     Stearns
     Strickland
     Stump
     Sununu
     Talent
     Tauzin
     Taylor (NC)
     Thomas
     Thornberry
     Thune
     Tiahrt
     Tierney
     Torres
     Traficant
     Upton
     Velazquez
     Visclosky
     Walsh
     Wamp
     Waters
     Watkins
     Watts (OK)
     Waxman
     Weldon (FL)
     Weldon (PA)
     Weller
     White
     Whitfield
     Wicker
     Wolf
     Young (AK)
     Young (FL)

                             NOT VOTING--3

     Meehan
     Schiff
     Yates

                              {time}  1742

  Mr. DELLUMS and Mr. KENNEDY of Rhode Island changed their vote from 
``aye'' to ``no.''
  Mr. NADLER and Mr. MOLLOHAN changed their vote from ``no'' to 
``aye.''
  So the motion to recommit was rejected.
  The result of the vote was announced as above recorded.
  The SPEAKER pro tempore (Mr. LaHood). The question is on the final 
passage of the bill.
  The question was taken; and the Speaker pro tempore announced that 
the ayes appeared to have it.


                             Recorded Vote

  Mr. ARCHER. Mr. Speaker, I demand a recorded vote.
  A recorded vote was ordered.
  The vote was taken by electronic device, and there were--ayes 253, 
noes 179, not voting 3, as follows:

                             [Roll No. 245]

                               AYES--253

     Aderholt
     Archer
     Armey
     Bachus
     Baesler
     Baker
     Ballenger
     Barr
     Barrett (NE)
     Bartlett
     Barton
     Bass
     Bateman
     Bereuter
     Bilbray
     Bilirakis
     Bliley
     Blunt
     Boehlert
     Boehner
     Bonilla
     Bono
     Boswell
     Brady
     Bryant
     Bunning
     Burr
     Burton
     Buyer
     Callahan

[[Page H4816]]


     Calvert
     Camp
     Canady
     Cannon
     Castle
     Chabot
     Chambliss
     Chenoweth
     Christensen
     Clement
     Coble
     Coburn
     Collins
     Combest
     Condit
     Cook
     Cooksey
     Cox
     Cramer
     Crane
     Crapo
     Cubin
     Cunningham
     Danner
     Davis (VA)
     Deal
     DeLay
     Diaz-Balart
     Dickey
     Dicks
     Dooley
     Doolittle
     Dreier
     Duncan
     Dunn
     Ehlers
     Ehrlich
     Emerson
     English
     Ensign
     Everett
     Ewing
     Fawell
     Foley
     Forbes
     Fowler
     Fox
     Franks (NJ)
     Frelinghuysen
     Gallegly
     Ganske
     Gekas
     Gibbons
     Gilchrest
     Gillmor
     Gilman
     Gingrich
     Goode
     Goodlatte
     Goodling
     Gordon
     Goss
     Graham
     Granger
     Greenwood
     Gutknecht
     Hall (TX)
     Hansen
     Harman
     Hastert
     Hastings (WA)
     Hayworth
     Hefley
     Herger
     Hill
     Hilleary
     Hobson
     Hoekstra
     Horn
     Hostettler
     Houghton
     Hulshof
     Hunter
     Hutchinson
     Hyde
     Inglis
     Istook
     Jenkins
     John
     Johnson (CT)
     Johnson, Sam
     Jones
     Kasich
     Kelly
     Kim
     King (NY)
     Kingston
     Klug
     Knollenberg
     Kolbe
     LaHood
     Largent
     Latham
     LaTourette
     Lazio
     Leach
     Lewis (CA)
     Lewis (KY)
     Linder
     Lipinski
     Livingston
     LoBiondo
     Lucas
     Maloney (CT)
     Manzullo
     McCarthy (NY)
     McCollum
     McCrery
     McDade
     McHugh
     McInnis
     McIntosh
     McIntyre
     McKeon
     Metcalf
     Mica
     Miller (FL)
     Molinari
     Moran (KS)
     Morella
     Myrick
     Nethercutt
     Neumann
     Ney
     Northup
     Norwood
     Nussle
     Oxley
     Packard
     Pappas
     Parker
     Paul
     Paxon
     Pease
     Peterson (PA)
     Petri
     Pickering
     Pickett
     Pitts
     Pombo
     Porter
     Portman
     Pryce (OH)
     Quinn
     Radanovich
     Ramstad
     Redmond
     Regula
     Riggs
     Riley
     Roemer
     Rogan
     Rogers
     Rohrabacher
     Ros-Lehtinen
     Roukema
     Royce
     Ryun
     Salmon
     Sanchez
     Sandlin
     Sanford
     Saxton
     Scarborough
     Schaefer, Dan
     Schaffer, Bob
     Sensenbrenner
     Sessions
     Shadegg
     Shaw
     Shays
     Sherman
     Shimkus
     Shuster
     Sisisky
     Skeen
     Skelton
     Smith (MI)
     Smith (NJ)
     Smith (OR)
     Smith (TX)
     Smith, Linda
     Snowbarger
     Solomon
     Souder
     Spence
     Stearns
     Stump
     Sununu
     Talent
     Tauzin
     Taylor (MS)
     Taylor (NC)
     Thomas
     Thornberry
     Thune
     Tiahrt
     Traficant
     Turner
     Upton
     Walsh
     Wamp
     Watkins
     Watts (OK)
     Weldon (FL)
     Weldon (PA)
     Weller
     White
     Whitfield
     Wicker
     Wolf
     Young (AK)
     Young (FL)

                               NOES--179

     Abercrombie
     Ackerman
     Allen
     Andrews
     Baldacci
     Barcia
     Barrett (WI)
     Becerra
     Bentsen
     Berman
     Berry
     Bishop
     Blagojevich
     Blumenauer
     Bonior
     Borski
     Boucher
     Boyd
     Brown (CA)
     Brown (FL)
     Brown (OH)
     Campbell
     Capps
     Cardin
     Carson
     Clay
     Clayton
     Clyburn
     Conyers
     Costello
     Coyne
     Cummings
     Davis (FL)
     Davis (IL)
     DeFazio
     DeGette
     Delahunt
     DeLauro
     Dellums
     Deutsch
     Dingell
     Dixon
     Doggett
     Doyle
     Edwards
     Engel
     Eshoo
     Etheridge
     Evans
     Farr
     Fattah
     Fazio
     Filner
     Flake
     Foglietta
     Ford
     Frank (MA)
     Frost
     Furse
     Gejdenson
     Gephardt
     Gonzalez
     Green
     Gutierrez
     Hall (OH)
     Hamilton
     Hastings (FL)
     Hefner
     Hilliard
     Hinchey
     Hinojosa
     Holden
     Hooley
     Hoyer
     Jackson (IL)
     Jackson-Lee (TX)
     Jefferson
     Johnson (WI)
     Johnson, E.B.
     Kanjorski
     Kaptur
     Kennedy (MA)
     Kennedy (RI)
     Kennelly
     Kildee
     Kilpatrick
     Kind (WI)
     Kleczka
     Klink
     Kucinich
     LaFalce
     Lampson
     Lantos
     Levin
     Lewis (GA)
     Lofgren
     Lowey
     Luther
     Maloney (NY)
     Manton
     Markey
     Martinez
     Mascara
     Matsui
     McCarthy (MO)
     McDermott
     McGovern
     McHale
     McKinney
     McNulty
     Meek
     Menendez
     Millender-McDonald
     Miller (CA)
     Minge
     Mink
     Moakley
     Mollohan
     Moran (VA)
     Murtha
     Nadler
     Neal
     Oberstar
     Obey
     Olver
     Ortiz
     Owens
     Pallone
     Pascrell
     Pastor
     Payne
     Pelosi
     Peterson (MN)
     Pomeroy
     Poshard
     Price (NC)
     Rahall
     Rangel
     Reyes
     Rivers
     Rodriguez
     Rothman
     Roybal-Allard
     Rush
     Sabo
     Sanders
     Sawyer
     Schumer
     Scott
     Serrano
     Skaggs
     Slaughter
     Smith, Adam
     Snyder
     Spratt
     Stabenow
     Stark
     Stenholm
     Stokes
     Strickland
     Stupak
     Tanner
     Tauscher
     Thompson
     Thurman
     Tierney
     Torres
     Towns
     Velazquez
     Vento
     Visclosky
     Waters
     Watt (NC)
     Waxman
     Wexler
     Weygand
     Wise
     Woolsey
     Wynn

                             NOT VOTING--3

     Meehan
     Schiff
     Yates

                              {time}  1800

  The Clerk announced the following pair:
  On this vote:

       Mr. Schiff for, with Mr. Yates against.

  Mr. SHERMAN changed his vote from ``no'' to ``aye.''
  So the bill was passed.
  The result of the vote was announced as above recorded.
  A motion to reconsider was laid on the table.

                          ____________________