[Congressional Record Volume 143, Number 93 (Friday, June 27, 1997)]
[Senate]
[Pages S6794-S6873]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


                    H.R. 2014, AS AMENDED AND PASSED

       Resolved, That the bill from the House of Representatives 
     (H.R. 2014) entitled ``An Act 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.'', 
     do pass with the following amendment:
       Strike out all after the enacting clause and insert:

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE; TABLE OF 
                   CONTENTS.

       (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.--The table of contents for this Act 
     is as follows:
Sec. 1. Short title; amendment of 1986 Code; table of contents.

         TITLE I--CHILD TAX CREDIT AND OTHER FAMILY TAX RELIEF

Sec. 101. Child tax credit.
Sec. 102. Adjustment of minimum tax exemption amounts for taxpayers 
              other than corporations.
Sec. 103. Allowance of credit for employer expenses for child care 
              assistance.
Sec. 104. Expansion of coordinated enforcement efforts of Internal 
              Revenue Service and HHS Office of Child Support 
              Enforcement.
Sec. 105. Adoption expenses.

                     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 interest on education loans.
Sec. 203. Penalty-free withdrawals from individual retirement plans for 
              higher education expenses.

    Subtitle B--Expanded Education Investment Savings Opportunities

                   Part I--Qualified Tuition Programs

Sec. 211. Exclusion from gross income of education distributions from 
              qualified tuition programs.
Sec. 212. Eligible educational institutions permitted to maintain 
              qualified tuition programs; other modifications of 
              qualified State tuition programs.

           Part II--Education Individual Retirement Accounts

Sec. 213. Education individual retirement accounts.

                Subtitle C--Other Education Initiatives

Sec. 221. Extension of exclusion for employer-provided educational 
              assistance.
Sec. 222. Repeal of limitation on qualified 501(c)(3) bonds other than 
              hospital bonds.
Sec. 223. Increase in arbitrage rebate exception for governmental bonds 
              used to finance education facilities.
Sec. 224. 2-percent floor on miscellaneous itemized deductions not to 
              apply to certain continuing education expenses of 
              elementary and secondary school teachers.
Sec. 225. Treatment of cancellation of certain student loans.

              TITLE III--SAVINGS AND INVESTMENT INCENTIVES

                     Subtitle A--Retirement Savings

Sec. 301. Restoration of IRA deduction for certain taxpayers.
Sec. 302. Establishment of nondeductible tax-free individual retirement 
              accounts.
Sec. 303. Distributions from certain plans may be used without penalty 
              to purchase first homes and when unemployed.
Sec. 304. Certain bullion not treated as collectibles.

                       Subtitle B--Capital Gains

Sec. 311. 20 percent maximum capital gains rate for individuals.
Sec. 312. Modifications to exclusion of gain on certain small business 
              stock.
Sec. 313. Rollover of gain from sale of qualified stock.
Sec. 314. Exemption from tax for gain on sale of principal residence.

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

Sec. 401. Cost-of-living adjustments relating to estate and gift tax 
              provisions.
Sec. 402. Family-owned business exclusion.
Sec. 403. Treatment of land subject to a qualified conservation 
              easement.
Sec. 404. 20-year installment payment where estate consists largely of 
              interest in closely held business.
Sec. 405. 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. 406. Extension of treatment of certain rents under section 2032A 
              to lineal descendants.
Sec. 407. Expansion of exception from generation-skipping transfer tax 
              for transfers to individuals with deceased parents.

                          TITLE V--EXTENSIONS

Sec. 501. Research tax credit.
Sec. 502. Contributions of stock to private foundations.
Sec. 503. Work opportunity tax credit.
Sec. 504. Orphan drug tax credit.

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

Sec. 601. Tax incentives for revitalization of the District of 
              Columbia.

                  TITLE VII--MISCELLANEOUS PROVISIONS

            Subtitle A--Provisions Relating to Excise Taxes

Sec. 701. Repeal of tax on diesel fuel used in recreational boats.
Sec. 702. Intercity passenger rail fund.
Sec. 703. Modification of tax treatment of hard cider.
Sec. 704. General revenue portion of highway motor fuels taxes 
              deposited into Highway Trust Fund.
Sec. 705. Rate of tax on certain special fuels determined on basis of 
              Btu equivalency with gasoline.
Sec. 706. Study of feasibility of moving collection point for distilled 
              spirits excise tax.
Sec. 707. Extension and modification of subsidies for alcohol fuels.
Sec. 708. Clarification of authority to use semi-generic designations 
              on wine labels.

    Subtitle B--Provisions Relating to Pensions and Fringe Benefits

Sec. 711. Treatment of multiemployer plans under section 415.
Sec. 712. Technical correction relating to partial termination of 
              pension plans.
Sec. 713. Increase in current liability funding limit.
Sec. 714. Spousal consent required for certain distributions and loans 
              under qualified cash or deferred arrangement.
Sec. 715. Special rules for church plans.
Sec. 716. Repeal of application of unrelated business income tax to 
              ESOPs.
Sec. 717. Diversification in section 401(k) plan investments.

              Subtitle C--Revisions Relating to Disasters

Sec. 721. Treatment of livestock sold on account of weather-related 
              conditions.
Sec. 722. Gain or loss from sale of livestock disregarded for purposes 
              of earned income credit.
Sec. 723. Mortgage financing for residences located in disaster areas.
Sec. 724. Distributions from individual retirement accounts may be used 
              without penalty to replace or repair property damaged in 
              presidentially declared disaster areas.
Sec. 725. Elimination of 10 percent floor for disaster losses.
Sec. 726. Abatement of interest on underpayments by taxpayers in 
              presidentially declared disaster areas.

          Subtitle D--Provisions Relating to Small Businesses

Sec. 731. Waiver of penalty through June 30, 1998, on small businesses 
              failing to make electronic fund transfers of taxes.
Sec. 732. Minimum tax not to apply to farmers' installment sales.
Sec. 733. Increase in deduction for health insurance costs of self-
              employed individuals.
Sec. 734. Sense of the Senate with respect to self-employment tax of 
              limited partners.

                     Subtitle E--Foreign Provisions

                       Part I--General Provisions

Sec. 741. Treatment of computer software as FSC export property.
Sec. 742. Denial of treaty benefits for certain payments through hybrid 
              entities.
Sec. 743. United States property not to include certain assets acquired 
              by dealers in ordinary course of trade or business.
Sec. 744. Exemption for active financing income.
Sec. 745. Treatment of nonresident aliens engaged in international 
              transportation services.

       Part II--Treatment of Passive Foreign Investment Companies

Sec. 751. United States shareholders of controlled foreign corporations 
              not subject to PFIC inclusion.
Sec. 752. Election of mark to market for marketable stock in passive 
              foreign investment company.
Sec. 753. Effective date.

                      Subtitle F--Other Provisions

Sec. 761. Tax-exempt status for certain State worker's compensation act 
              companies.
Sec. 762. Election to continue exception from treatment of publicly 
              traded partnerships as corporations.
Sec. 763. Exclusion from unrelated business taxable income for certain 
              sponsorship payments.
Sec. 764. Associations of holders of timeshare interests to be taxed 
              like other homeowners associations.
Sec. 765. Increased deductibility of business meal expenses for 
              individuals subject to Federal hours of service and 
              seafood processors.
Sec. 766. Deduction in computing adjusted gross income for expenses in 
              connection with service performed by certain officials.
Sec. 767. Increase in standard mileage rate expense deduction for 
              charitable use of passenger automobile.
Sec. 768. Expensing of environmental remediation costs.

[[Page S6795]]

Sec. 769. Combined employment tax reporting demonstration project.
Sec. 770. Increased maximum capital expenditure limit for qualified 
              small issue bonds.
Sec. 771. Extension of credit for electricity produced from certain 
              renewable resources.
Sec. 772. Taxable income limit on percentage depletion not to apply to 
              marginal production.
Sec. 773. Clarification of treatment of certain receivables purchased 
              by cooperative hospital service organizations.
Sec. 774. Exception for bonds guaranteed by Federal Home Loan Bank 
              Board from restriction on Federal guarantee of bonds.
Sec. 775. Increased period for deduction for traveling expenses while 
              working away from home.
Sec. 776. Charitable contribution deduction for certain expenses 
              incurred in support of Native Alaskan subsistence 
              whaling.
Sec. 777. Modification to eligibility criteria for designation of 
              future enterprise zones in Alaska or Hawaii.
Sec. 778. Clarification of de minimis fringe benefit rules to no-charge 
              employee meals.
Sec. 779. Clarification of standard to be used in determining 
              employment tax status of securities brokers.
Sec. 780. Sense of the Senate regarding reform of the Internal Revenue 
              Code of 1986.
Sec. 781. Sense of the Senate regarding tax treatment of stock options.
Sec. 782. Sense of the Senate on estate taxes.
Sec. 783. Qualified games of chance.
Sec. 784. Survivor benefits for public safety officers killed in the 
              line of duty.
Sec. 785. Treatment of certain disability benefits received by former 
              police officers or firefighters.
Sec. 786. Removal of dollar limitation on benefit payments from a 
              defined benefit plan maintained for certain police and 
              fire employees.
Sec. 787. Debate on a reconciliation bill.
Sec. 788. Exclusion from income of severance payment amounts; time 
              periods for carryback and carryforward of unused credits.
Sec. 789. Current refundings of certain tax-exempt bonds.
Sec. 790. Special rule for thrifts which become large banks.
Sec. 791. Sense of the Senate regarding middle-class taxpayers 
              benefiting from tax cuts.
Sec. 792. Averaging of farm income over 3 years.

                          TITLE VIII--REVENUES

                     Subtitle A--Financial Products

Sec. 801. Constructive sales treatment for appreciated financial 
              positions.
Sec. 802. Limitation on exception for investment companies under 
              section 351.
Sec. 803. Gains and losses from certain terminations with respect to 
              property.

        Subtitle B--Corporate Organizations and Reorganizations

Sec. 811. Tax treatment of certain extraordinary dividends.
Sec. 812. Application of section 355 to distributions followed by 
              acquisitions and to intragroup transactions.
Sec. 813. Tax treatment of redemptions involving related corporations.
Sec. 814. Modification of holding period applicable to dividends 
              received deduction.

                 Subtitle C--Other Corporate Provisions

Sec. 821. Registration and other provisions relating to confidential 
              corporate tax shelters.
Sec. 822. Certain preferred stock treated as boot.

                 Subtitle D--Administrative Provisions

Sec. 831. Decrease of threshold for reporting payments to corporations 
              performing services for Federal agencies.
Sec. 832. Disclosure of return information for administration of 
              certain veterans programs.
Sec. 833. Returns of beneficiaries of estates and trusts required to 
              file returns consistent with estate or trust return or to 
              notify Secretary of inconsistency.
Sec. 834. Continuous levy on certain payments.
Sec. 835. Modification of levy exemption.
Sec. 836. Confidentiality and disclosure of returns and return 
              information.

                   Subtitle E--Excise Tax Provisions

Sec. 841. Extension and modification of Airport and Airway Trust Fund 
              taxes.
Sec. 842. Restoration of Leaking Underground Storage Tank Trust Fund 
              taxes.
Sec. 843. Application of communications tax to long-distance prepaid 
              telephone cards.
Sec. 844. Uniform rate of tax on vaccines.
Sec. 845. Credit for tire tax in lieu of exclusion of value of tires in 
              computing price.
Sec. 846. Increase in excise taxes on tobacco products.

         Subtitle F--Provisions Relating to Tax-Exempt Entities

Sec. 851. Expansion of look-thru rule for interest, annuities, 
              royalties, and rents derived by subsidiaries of tax-
              exempt organizations.
Sec. 852. Limitation on increase in basis of property resulting from 
              sale by tax-exempt entity to a related person.
Sec. 853. Termination of exception from rules relating to exempt 
              organizations which provide commercial-type insurance.

                     Subtitle G--Foreign Provisions

Sec. 861. Definition of foreign personal holding company income.
Sec. 862. 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. 863. Holding period requirement for certain foreign taxes.
Sec. 864. Source rules for inventory property.
Sec. 865. Interest on underpayments not reduced by foreign tax credit 
              carrybacks.
Sec. 866. Clarification of period of limitations on claim for credit or 
              refund attributable to foreign tax credit carryforward.
Sec. 867. Modification to foreign tax credit carryback and carryover 
              periods.
Sec. 868. Repeal of exception to alternative minimum foreign tax credit 
              limit.

                  Subtitle H--Other Revenue Provisions

Sec. 871. Termination of suspense accounts for family corporations 
              required to use accrual method of accounting.
Sec. 872. Modification of taxable years to which net operating losses 
              may be carried.
Sec. 873. Expansion of denial of deduction for certain amounts paid in 
              connection with insurance.
Sec. 874. Allocation of basis among properties distributed by 
              partnership.
Sec. 875. Repeal of requirement that inventory be substantially 
              appreciated.
Sec. 876. Limitation on property for which income forecast method may 
              be used.
Sec. 877. Expansion of requirement that involuntarily converted 
              property be replaced with property acquired from an 
              unrelated person.
Sec. 878. Treatment of exception from installment sales rules for sales 
              of property by a manufacturer to a dealer.
Sec. 879. Minimum pension accrued benefit distributable without consent 
              increased to $5,000.
Sec. 880. Election to receive taxable cash compensation in lieu of 
              nontaxable parking benefits.
Sec. 881. Extension of temporary unemployment tax.
Sec. 882. Repeal of excess distribution and excess retirement 
              accumulation tax.
Sec. 883. Limitation on charitable remainder trust eligibility for 
              certain trusts.
Sec. 884. Increase in tax on prohibited transactions.
Sec. 885. Basis recovery rules for annuities over more than one life.

          TITLE IX--FOREIGN-RELATED SIMPLIFICATION PROVISIONS

                     Subtitle A--General Provisions

Sec. 901. Certain individuals exempt from foreign tax credit 
              limitation.
Sec. 902. Exchange rate used in translating foreign taxes.
Sec. 903. Election to use simplified section 904 limitation for 
              alternative minimum tax.
Sec. 904. Treatment of personal transactions by individuals under 
              foreign currency rules.

        Subtitle B--Treatment of Controlled Foreign Corporations

Sec. 911. Gain on certain stock sales by controlled foreign 
              corporations treated as dividends.
Sec. 912. Miscellaneous modifications to subpart F.
Sec. 913. Indirect foreign tax credit allowed for certain lower tier 
              companies.

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

Sec. 921. Repeal of excise tax on transfers to foreign entities; 
              recognition of gain on certain transfers to foreign 
              trusts and estates.

                   Subtitle D--Information Reporting

Sec. 931. Clarification of application of return requirement to foreign 
              partnerships.
Sec. 932. Controlled foreign partnerships subject to information 
              reporting comparable to information reporting for 
              controlled foreign corporations.
Sec. 933. Modifications relating to returns required to be filed by 
              reason of changes in ownership interests in foreign 
              partnership.
Sec. 934. Transfers of property to foreign partnerships subject to 
              information reporting comparable to information reporting 
              for such transfers to foreign corporations.
Sec. 935. Extension of statute of limitation for foreign transfers.
Sec. 936. Increase in filing thresholds for returns as to organization 
              of foreign corporations and acquisitions of stock in such 
              corporations.

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

Sec. 941. Determination of foreign or domestic status of partnerships.

              Subtitle F--Other Simplification Provisions

Sec. 951. Transition rule for certain trusts.
Sec. 952. Repeal of stock and securities safe harbor requirement that 
              principal office be outside the United States.
Sec. 953. Miscellaneous clarifications.

[[Page S6796]]

    TITLE X--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
                               BUSINESSES

             Subtitle A--Provisions Relating to Individuals

Sec. 1001. Basic standard deduction and minimum tax exemption amount 
              for certain dependents.
Sec. 1002. Increase in amount of tax exempt from estimated tax 
              requirements.
Sec. 1003. Treatment of certain reimbursed expenses of rural mail 
              carriers.
Sec. 1004. Treatment of traveling expenses of certain Federal employees 
              engaged in criminal investigations.

        Subtitle B--Provisions Relating to Businesses Generally

Sec. 1011. Modifications to look-back method for long-term contracts.
Sec. 1012. Minimum tax treatment of certain property and casualty 
              insurance companies.
Sec. 1013. Use of estimates of shrinkage for inventory accounting.
Sec. 1014. Qualified lessee construction allowances for short-term 
              leases.

   Subtitle C--Simplification Relating to Electing Large Partnerships

                       Part I--General Provisions

Sec. 1021. Simplified flow-through for electing large partnerships.
Sec. 1022. Simplified audit procedures for electing large partnerships.
Sec. 1023. Due date for furnishing information to partners of electing 
              large partnerships.
Sec. 1024. Returns may be required on magnetic media.
Sec. 1025. Treatment of partnership items of individual retirement 
              accounts.
Sec. 1026. Effective date.

      Part II--Provisions Related to TEFRA Partnership Proceedings

Sec. 1031. Treatment of partnership items in deficiency proceedings.
Sec. 1032. Partnership return to be determinative of audit procedures 
              to be followed.
Sec. 1033. Provisions relating to statute of limitations.
Sec. 1034. Expansion of small partnership exception.
Sec. 1035. Exclusion of partial settlements from 1-year limitation on 
              assessment.
Sec. 1036. Extension of time for filing a request for administrative 
              adjustment.
Sec. 1037. Availability of innocent spouse relief in context of 
              partnership proceedings.
Sec. 1038. Determination of penalties at partnership level.
Sec. 1039. Provisions relating to court jurisdiction, etc.
Sec. 1040. Treatment of premature petitions filed by notice partners or 
              5-percent groups.
Sec. 1041. Bonds in case of appeals from certain proceeding.
Sec. 1042. Suspension of interest where delay in computational 
              adjustment resulting from certain settlements.
Sec. 1043. 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. 1046. Closing of partnership taxable year with respect to deceased 
              partner, etc.

    Subtitle D--Provisions Relating to Real Estate Investment Trusts

Sec. 1051. Clarification of limitation on maximum number of 
              shareholders.
Sec. 1052. De minimis rule for tenant services income.
Sec. 1053. Attribution rules applicable to tenant ownership.
Sec. 1054. Credit for tax paid by REIT on retained capital gains.
Sec. 1055. Repeal of 30-percent gross income requirement.
Sec. 1056. Modification of earnings and profits rules for determining 
              whether REIT has earnings and profits from non-REIT year.
Sec. 1057. Treatment of foreclosure property.
Sec. 1058. Payments under hedging instruments.
Sec. 1059. Excess noncash income.
Sec. 1060. Prohibited transaction safe harbor.
Sec. 1061. Shared appreciation mortgages.
Sec. 1062. Wholly owned subsidiaries.
Sec. 1063. Effective date.

   Subtitle E--Provisions Relating to Regulated Investment Companies

Sec. 1071. Repeal of 30-percent gross income limitation.

                    Subtitle F--Taxpayer Protections

Sec. 1081. Reasonable cause exception for certain penalties.
Sec. 1082. Clarification of period for filing claims for refunds.
Sec. 1083. Repeal of authority to disclose whether prospective juror 
              has been audited.
Sec. 1084. Clarification of statute of limitations.
Sec. 1085. Penalty for unauthorized inspection of tax returns or tax 
              return information.
Sec. 1086. Civil damages for unauthorized inspection of returns and 
              return information; notification of unlawful inspection 
              or disclosure.

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

Sec. 1101. Gifts to charities exempt from gift tax filing requirements.
Sec. 1102. Clarification of waiver of certain rights of recovery.
Sec. 1103. Transitional rule under section 2056A.
Sec. 1104. Treatment for estate tax purposes of short-term obligations 
              held by nonresident aliens.
Sec. 1105. Distributions during first 65 days of taxable year of 
              estate.
Sec. 1106. Separate share rules available to estates.
Sec. 1107. Executor of estate and beneficiaries treated as related 
              persons for disallowance of losses, etc.
Sec. 1108. Treatment of funeral trusts.
Sec. 1109. Adjustments for gifts within 3 years of decedent's death.
Sec. 1110. Clarification of treatment of survivor annuities under 
              qualified terminable interest rules.
Sec. 1111. Treatment under qualified domestic trust rules of forms of 
              ownership which are not trusts.
Sec. 1112. Opportunity to correct certain failures under section 2032A.
Sec. 1113. Authority to waive requirement of United States trustee for 
              qualified domestic trusts.

  TITLE XII--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. 1201. Increase in de minimis limit for after-market alterations 
              for heavy trucks and luxury cars.

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

Sec. 1211. Credit or refund for imported bottled distilled spirits 
              returned to distilled spirits plant.
Sec. 1212. Authority to cancel or credit export bonds without 
              submission of records.
Sec. 1213. Repeal of required maintenance of records on premises of 
              distilled spirits plant.
Sec. 1214. Fermented material from any brewery may be received at a 
              distilled spirits plant.
Sec. 1215. Repeal of requirement for wholesale dealers in liquors to 
              post sign.
Sec. 1216. Refund of tax to wine returned to bond not limited to 
              unmerchantable wine.
Sec. 1217. Use of additional ameliorating material in certain wines.
Sec. 1218. Domestically produced beer may be withdrawn free of tax for 
              use of foreign embassies, legations, etc.
Sec. 1219. Beer may be withdrawn free of tax for destruction.
Sec. 1220. Authority to allow drawback on exported beer without 
              submission of records.
Sec. 1221. Transfer to brewery of beer imported in bulk without payment 
              of tax.
Sec. 1222. Transfer to bonded wine cellars of wine imported in bulk 
              without payment of tax.

                 Part III--Other Excise Tax Provisions

Sec. 1231. Authority to grant exemptions from registration 
              requirements.
Sec. 1232. Repeal of expired provisions.
Sec. 1233. Simplification of imposition of excise tax on arrows.
Sec. 1234. Modifications to retail tax on heavy trucks.
Sec. 1235. Skydiving flights exempt from tax on transportation of 
              persons by air.
Sec. 1236. Allowance or credit of refund for tax-paid aviation fuel 
              purchased by registered producer of aviation fuel.

                 Subtitle B--Tax-Exempt Bond Provisions

Sec. 1241. Repeal of $100,000 limitation on unspent proceeds under 1-
              year exception from rebate.
Sec. 1242. Exception from rebate for earnings on bona fide debt service 
              fund under construction bond rules.
Sec. 1243. Repeal of debt service-based limitation on investment in 
              certain nonpurpose investments.
Sec. 1244. Repeal of expired provisions.
Sec. 1245. Effective date.

                    Subtitle C--Tax Court Procedures

Sec. 1251. Overpayment determinations of tax court.
Sec. 1252. Redetermination of interest pursuant to motion.
Sec. 1253. Application of net worth requirement for awards of 
              litigation costs.
Sec. 1254. Proceedings for determination of employment status.

                      Subtitle D--Other Provisions

Sec. 1261. Extension of due date of first quarter estimated tax payment 
              by private foundations.
Sec. 1262. Clarification of authority to withhold Puerto Rico income 
              taxes from salaries of Federal employees.
Sec. 1263. Certain notices disregarded under provision increasing 
              interest rate on large corporate underpayments.

                   TITLE XIII--PENSION SIMPLIFICATION

Sec. 1301. Matching contributions of self-employed individuals not 
              treated as elective employer contributions.
Sec. 1302. Contributions to IRAs through payroll deductions.
Sec. 1303. Plans not disqualified merely by accepting rollover 
              contributions.
Sec. 1304. Modification of prohibition of assignment or alienation.
Sec. 1305. Elimination of paperwork burdens on plans.
Sec. 1306. Modification of 403(b) exclusion allowance to conform to 415 
              modifications.

[[Page S6797]]

Sec. 1307. New technologies in retirement plans.
Sec. 1308. Extension of moratorium on application of certain 
              nondiscrimination rules to State and local governments.
Sec. 1309. Clarification of certain rules relating to employee stock 
              ownership plans of S corporations.
Sec. 1310. Modification of 10 percent tax for nondeductible 
              contributions.
Sec. 1311. Modification of funding requirements for certain plans.

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

Sec. 1401. Amendments related to Small Business Job Protection Act of 
              1996.
Sec. 1402. Amendments related to Health Insurance Portability and 
              Accountability Act of 1996.
Sec. 1403. Amendments related to Taxpayer Bill of Rights 2.
Sec. 1404. Miscellaneous provisions.

           TITLE XV--CHILDREN'S HEALTH INSURANCE INITIATIVES

Sec. 1501. Establishment of children's health insurance initiatives.
Sec. 1502. Applicability.

                     TITLE XVI--BUDGET ENFORCEMENT

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

Sec. 1601. Amendments to section 201.
Sec. 1602. Amendments to section 202.
Sec. 1603. Amendment to section 300.
Sec. 1604. Amendments to section 301.
Sec. 1605. Amendments to section 302.
Sec. 1606. Amendments to section 303.
Sec. 1607. Amendment to section 305.
Sec. 1608. Amendment to section 308.
Sec. 1609. Amendments to section 311.
Sec. 1610. Amendment to section 312.
Sec. 1611. Adjustments.
Sec. 1612. Amendments to title V.
Sec. 1613. Repeal of title VI.
Sec. 1614. Amendments to section 904.
Sec. 1615. Repeal of sections 905 and 906.
Sec. 1616. Amendments to sections 1022 and 1024.
Sec. 1617. Amendment to section 1026.

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

Sec. 1651. Purpose.
Sec. 1652. General statement and definitions.
Sec. 1653. Enforcing discretionary spending limits.
Sec. 1654. Violent Crime Reduction Trust Fund.
Sec. 1655. Enforcing pay-as-you-go.
Sec. 1656. Reports and orders.
Sec. 1657. Exempt programs and activities.
Sec. 1658. General and special sequestration rules.
Sec. 1659. The baseline.
Sec. 1660. Technical correction.
Sec. 1661. Judicial review.
Sec. 1662. Effective date.
Sec. 1663. Reduction of preexisting balances and exclusion of effects 
              of this Act from paygo scorecard.
         TITLE I--CHILD TAX CREDIT AND OTHER FAMILY TAX RELIEF

     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 with respect to each qualifying child of the 
     taxpayer an amount equal to $500.
       ``(b) Limitations.--
       ``(1) Credit limited to education savings for certain 
     children.--In the case of a qualifying child who has attained 
     the age of 13 as of the close of the calendar year in which 
     the taxable year of the taxpayer begins, the amount of the 
     credit allowed under subsection (a) for such taxable year 
     with respect to such child (after the application of 
     paragraphs (2) and (3)) shall not exceed the excess of--
       ``(A) the aggregate amount contributed by the taxpayer for 
     such taxable year for the benefit of such child to qualified 
     tuition programs (as defined in section 529) and education 
     individual retirement accounts (as defined in section 530), 
     over
       ``(B) the aggregate amount distributed during such taxable 
     year from such programs and accounts (the beneficiary of 
     which is such child) which is subject to tax under section 
     529(f) or 530(c)(3).
       ``(2) Limitation based on adjusted gross income.--
       ``(A) In general.--The $500 amount in subsection (a) 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) $110,000 in the case of a joint return,
       ``(ii) $75,000 in the case of an individual who is not 
     married, and
       ``(iii) $55,000 in the case of a married individual filing 
     a separate return.
     For purposes of this subparagraph, marital status shall be 
     determined under section 7703.
       ``(3) Limitation based on amount of tax.--The aggregate 
     credit allowed by subsection (a) (determined after paragraph 
     (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) 50 percent of the credit allowed for the taxable 
     year under section 32.

     Any reduction in the credit otherwise allowable by subsection 
     (a) by reason of this paragraph shall be allocated pro rata 
     among all qualifying children for purposes of applying 
     paragraph (1).
       ``(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 (age 
     of 18 in the case of taxable years beginning after 2002) 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) Recapture of Credit.--
       ``(1) In general.--If--
       ``(A) during any taxable year any amount is withdrawn from 
     a qualified tuition program or an education individual 
     retirement account maintained for the benefit of a 
     beneficiary and such amount is subject to tax under section 
     529(f) or 530(c)(3), and
       ``(B) the amount of the credit allowed under this section 
     for the prior taxable year was contingent on a contribution 
     being made to such a program or account for the benefit of 
     such beneficiary,

     the taxpayer's tax imposed by this chapter for the taxable 
     year shall be increased by the lesser of the amount described 
     in subparagraph (A) or the credit described in subparagraph 
     (B).
       ``(2) No credits against tax, etc.--Any increase in tax 
     under this subsection shall not be treated as a tax imposed 
     by this chapter for purposes of determining--
       ``(A) the amount of any credit under this subpart or 
     subpart B or D of this part, and
       ``(B) the amount of the minimum tax imposed by section 55.
       ``(f) Other Definitions.--For purposes of this section, the 
     terms `qualified tuition program' and `education individual 
     retirement account' have the meanings given such terms by 
     section 529 and 530, respectively.
       ``(g) Phase-in of Credit.--In the case of taxable years 
     beginning in 1997--
       ``(1) subsection (a)(1) shall be applied by substituting 
     `$250' for `$500', and
       ``(2) subsection (c)(1)(B) shall be applied by substituting 
     `age of 13' for `age of 17'.''.
       (b) 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, 
     1996.

     SEC. 102. ADJUSTMENT OF MINIMUM TAX 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 after december 31, 2000 and 
     before january 1, 2003.--In the case of any calendar year 
     after 2000 and before 2003--
       ``(i) the dollar amount applicable under paragraph (1)(A) 
     for such a calendar year shall be $600 greater than the 
     dollar amount applicable under paragraph (1)(A) for the prior 
     calendar year, and
       ``(ii) the dollar amount applicable under paragraph (1)(B) 
     for such a calendar year shall be $450 greater than the 
     dollar amount applicable under paragraph (1)(B) for the prior 
     calendar year.
       ``(B) Taxable years beginning after december 31, 2002.--In 
     the case of any calendar year after 2002--
       ``(i) the dollar amount applicable under paragraph (1)(A) 
     for such a calendar year shall be $950 greater than the 
     dollar amount applicable under paragraph (1)(A) for the prior 
     calendar year, and
       ``(ii) the dollar amount applicable under paragraph (1)(B) 
     for such a calendar year shall be $700 greater than the 
     dollar amount applicable under paragraph (1)(B) for the prior 
     calendar year.
       ``(C) Application of taxable years.--The dollar amount 
     applicable under this paragraph to any calendar year shall 
     apply to taxable years beginning in such calendar year.
       ``(D) Adjustment.--The Secretary shall reduce the dollar 
     amounts otherwise in effect under this paragraph for any 
     calendar year to

[[Page S6798]]

     the extent necessary to increase Federal revenues by the 
     amount the Secretary estimates Federal revenues will be 
     reduced by reason of allowing distributions from education 
     individual retirement accounts under section 530 to be used 
     for qualified elementary and secondary education expenses 
     described in section 530(b)(2)(A)(ii).''.
       (b) Conforming Amendments.--
       (1) Subparagraph (C) of section 55(d)(1) is amended by 
     striking ``$22,500'' and inserting ``the amount equal to \1/
     2\ the dollar amount applicable under subparagraph (A) for 
     the taxable year''.
       (2) 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, 
     2000.

     SEC. 103. ALLOWANCE OF CREDIT FOR EMPLOYER EXPENSES FOR CHILD 
                   CARE ASSISTANCE.

       (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. 45D. EMPLOYER-PROVIDED CHILD CARE CREDIT.

       ``(a) In General.--For purposes of section 38, the 
     employer-provided child care credit determined under this 
     section for the taxable year is an amount equal to 50 percent 
     of the qualified child care expenditures of the taxpayer for 
     such taxable year.
       ``(b) Dollar Limitation.--The credit allowable under 
     subsection (a) for any taxable year shall not exceed 
     $150,000.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Qualified child care expenditure.--The term 
     `qualified child care expenditure' means any amount paid or 
     incurred--
       ``(A) to acquire, construct, rehabilitate, or expand 
     property--
       ``(i) which is to be used as part of a qualified child care 
     facility of the taxpayer,
       ``(ii) with respect to which a deduction for depreciation 
     (or amortization in lieu of depreciation) is allowable, and
       ``(iii) which does not constitute part of the principal 
     residence (within the meaning of section 1034) of the 
     taxpayer or any employee of the taxpayer,
       ``(B) for the operating costs of a qualified child care 
     facility of the taxpayer, including costs related to the 
     training of employees, to scholarship programs, and to the 
     providing of increased compensation to employees with higher 
     levels of child care training,
       ``(C) under a contract with a qualified child care facility 
     to provide child care services to employees of the taxpayer,
       ``(D) under a contract to provide child care resource and 
     referral services to employees of the taxpayer, or
       ``(E) for the costs of seeking accreditation from a child 
     care credentialing or accreditation entity.
       ``(2) Qualified child care facility.--
       ``(A) In general.--The term `qualified child care facility' 
     means a facility--
       ``(i) the principal use of which is to provide child care 
     assistance, and
       ``(ii) which meets the requirements of all applicable laws 
     and regulations of the State or local government in which it 
     is located, including, but not limited to, the licensing of 
     the facility as a child care facility.
     Clause (i) shall not apply to a facility which is the 
     principal residence (within the meaning of section 1034) of 
     the operator of the facility.
       ``(B) Special rules with respect to a taxpayer.--A facility 
     shall not be treated as a qualified child care facility with 
     respect to a taxpayer unless--
       ``(i) enrollment in the facility is open to employees of 
     the taxpayer during the taxable year,
       ``(ii) the facility is not the principal trade or business 
     of the taxpayer unless at least 30 percent of the enrollees 
     of such facility are dependents of employees of the taxpayer, 
     and
       ``(iii) the use of such facility (or the eligibility to use 
     such facility) does not discriminate in favor of employees of 
     the taxpayer who are highly compensated employees (within the 
     meaning of section 414(q)).
       ``(d) Recapture of Acquisition and Construction Credit.--
       ``(1) In general.--If, as of the close of any taxable year, 
     there is a recapture event with respect to any qualified 
     child care facility of the taxpayer, then the tax of the 
     taxpayer under this chapter for such taxable year shall be 
     increased by an amount equal to the product of--
       ``(A) the applicable recapture percentage, and
       ``(B) the aggregate decrease in the credits allowed under 
     section 38 for all prior taxable years which would have 
     resulted if the qualified child care expenditures of the 
     taxpayer described in subsection (c)(1)(A) with respect to 
     such facility had been zero.
       ``(2) Applicable recapture percentage.--
       ``(A) In general.--For purposes of this subsection, the 
     applicable recapture percentage shall be determined from the 
     following table:

The applicable recapture percentage is:
    Years 1-3....................................................100   
    Year 4........................................................85   
    Year 5........................................................70   
    Year 6........................................................55   
    Year 7........................................................40   
    Year 8........................................................25   
    Years 9 and 10................................................10   
    Years 11 and thereafter........................................0.  
       ``(B) Years.--For purposes of subparagraph (A), year 1 
     shall begin on the first day of the taxable year in which the 
     qualified child care facility is placed in service by the 
     taxpayer.
       ``(3) Recapture event defined.--For purposes of this 
     subsection, the term `recapture event' means--
       ``(A) Cessation of operation.--The cessation of the 
     operation of the facility as a qualified child care facility.
       ``(B) Change in ownership.--
       ``(i) In general.--Except as provided in clause (ii), the 
     disposition of a taxpayer's interest in a qualified child 
     care facility with respect to which the credit described in 
     subsection (a) was allowable.
       ``(ii) Agreement to assume recapture liability.--Clause (i) 
     shall not apply if the person acquiring such interest in the 
     facility agrees in writing to assume the recapture liability 
     of the person disposing of such interest in effect 
     immediately before such disposition. In the event of such an 
     assumption, the person acquiring the interest in the facility 
     shall be treated as the taxpayer for purposes of assessing 
     any recapture liability (computed as if there had been no 
     change in ownership).
       ``(4) Special rules.--
       ``(A) Tax benefit rule.--The tax for the taxable year shall 
     be increased under paragraph (1) only with respect to credits 
     allowed by reason of this section which were used to reduce 
     tax liability. In the case of credits not so used to reduce 
     tax liability, the carryforwards and carrybacks under section 
     39 shall be appropriately adjusted.
       ``(B) No credits against tax.--Any increase in tax under 
     this subsection shall not be treated as a tax imposed by this 
     chapter for purposes of determining the amount of any credit 
     under subpart A, B, or D of this part.
       ``(C) No recapture by reason of casualty loss.--The 
     increase in tax under this subsection shall not apply to a 
     cessation of operation of the facility as a qualified child 
     care facility by reason of a casualty loss to the extent such 
     loss is restored by reconstruction or replacement within a 
     reasonable period established by the Secretary.
       ``(e) Special Rules.--For purposes of this section--
       ``(1) Aggregation rules.--All persons which are treated as 
     a single employer under subsections (a) and (b) of section 52 
     shall be treated as a single taxpayer.
       ``(2) Pass-thru in the case of estates and trusts.--Under 
     regulations prescribed by the Secretary, rules similar to the 
     rules of subsection (d) of section 52 shall apply.
       ``(3) Allocation in the case of partnerships.--In the case 
     of partnerships, the credit shall be allocated among partners 
     under regulations prescribed by the Secretary.
       ``(f) No Double Benefit.--
       ``(1) Reduction in basis.--For purposes of this subtitle--
       ``(A) In general.--If a credit is determined under this 
     section with respect to any property by reason of 
     expenditures described in subsection (c)(1)(A), the basis of 
     such property shall be reduced by the amount of the credit so 
     determined.
       ``(B) Certain dispositions.--If during any taxable year 
     there is a recapture amount determined with respect to any 
     property the basis of which was reduced under subparagraph 
     (A), the basis of such property (immediately before the event 
     resulting in such recapture) shall be increased by an amount 
     equal to such recapture amount. For purposes of the preceding 
     sentence, the term `recapture amount' means any increase in 
     tax (or adjustment in carrybacks or carryovers) determined 
     under subsection (d).
       ``(2) Other deductions and credits.--No deduction or credit 
     shall be allowed under any other provision of this chapter 
     with respect to the amount of the credit determined under 
     this section.
       ``(g) Termination.--This section shall not apply to taxable 
     years beginning after December 31, 1999.''.
       (b) Conforming Amendments.--
       (1) Section 38(b) is amended--
       (A) by striking out ``plus'' at the end of paragraph (11),
       (B) by striking out the period at the end of paragraph 
     (12), and inserting a comma and ``plus'', and
       (C) by adding at the end the following new paragraph:
       ``(13) the employer-provided child care credit determined 
     under section 45D.''.
       (2) 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. 45D. Employer-provided child care credit.''.

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

     SEC. 104. EXPANSION OF COORDINATED ENFORCEMENT EFFORTS OF 
                   INTERNAL REVENUE SERVICE AND HHS OFFICE OF 
                   CHILD SUPPORT ENFORCEMENT.

       (a) State Reporting of Custodial Data.--Section 
     454A(e)(4)(D) of the Social Security Act (42 U.S.C. 
     654(e)(4)(D)) is amended by striking ``the birth date of any 
     child'' and inserting ``the birth date and custodial status 
     of any child''.
       (b) Matching Program by IRS of Custodial Data and Tax 
     Status Information.--
       (1) National directory of new hires.--Section 453(i)(3) of 
     the Social Security Act (42 U.S.C. 653(i)(3)) is amended by 
     striking ``a claim with respect to employment in a tax 
     return'' and inserting ``information which is required on a 
     tax return''.
       (2) Federal case registry of child support orders.--Section 
     453(h) of the such Act (42 U.S.C. 653(h)) is amended by 
     adding at the end the following:

[[Page S6799]]

       ``(3) Administration of federal tax laws.--The Secretary of 
     the Treasury shall have access to the information described 
     in paragraph (2), consisting of the names and social security 
     numbers of the custodial parents linked with the children in 
     the custody of such parents, for the purpose of administering 
     those sections of the Internal Revenue Code of 1986 which 
     grant tax benefits based on support and residence provided 
     dependent children.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 1997.

     SEC. 105. ADOPTION EXPENSES.

       (a) Distributions From Certain Plans May Be Used Without 
     Penalty To Pay Adoption Expenses.--
       (1) In General.--Section 72(t)(2) (relating to exceptions 
     to 10-percent additional tax on early distributions from 
     qualified retirement plans) is amended by adding at the end 
     the following:
       ``(E) Distributions from certain plans for adoption 
     expenses.--Distributions to an individual from an individual 
     retirement plan of so much of the qualified adoption expenses 
     (as defined in section 23(d)(1)) of the individual as does 
     not exceed $2,000.''.
       (2) Conforming Amendment.--Section 72(t)(2)(B) is amended 
     by striking ``or (D)'' and inserting ``, (D) or (E)''.
       (3) Effective Date.--The amendments made by this subsection 
     shall apply to payments and distributions after December 31, 
     1996.
                     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.--
       ``(1) In general.--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.
       ``(2) Special rule for education at community colleges and 
     vocational schools.--In the case of qualified tuition and 
     related expenses for education furnished at a community 
     college or vocational school, paragraph (1) shall be applied 
     by substituting `75 percent' for `50 percent'.
       ``(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) Election required.--
       ``(A) In general.--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.
       ``(B) Credit allowed only for 2 taxable years.--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.
       ``(C) Coordination with exclusions.--An election under this 
     paragraph shall not take effect with respect to an individual 
     for any taxable year if there is in effect for such taxable 
     year an election under section 529(c)(3)(B) or 530(c)(1) (by 
     the taxpayer or any other individual) to exclude from gross 
     income distributions from a qualified tuition program or 
     education individual retirement account used to pay qualified 
     higher education expenses of the individual.
       ``(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) Community college.--The term `community college' 
     means any institution of higher education (as defined in 
     section 1201 of the Higher Education Act of 1965 (20 U.S.C. 
     1141)) that awards an associate's degree.
       ``(5) Vocational school.--The term `vocational school' 
     means a postsecondary vocational institution (as defined in 
     section 481 of such Act (20 U.S.C. 1088)).
       ``(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) 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 credit where no high school degree.--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 not 
     received a high school degree (or its equivalent) before the 
     beginning of such period. This paragraph shall not apply to a 
     student if the student did not receive such degree by reason 
     of enrollment in an early admission program to an eligible 
     educational institution.
       ``(5) 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.
       ``(6) No credit for married individuals filing separate 
     returns.--If the taxpayer is a

[[Page S6800]]

     married individual (within the meaning of section 7703), this 
     section shall apply only if the taxpayer and the taxpayer's 
     spouse file a joint return for the taxable year.
       ``(7) Nonresident aliens.--If the taxpayer is a nonresident 
     alien individual for any portion of the taxable year, this 
     section shall apply only if such individual is treated as a 
     resident alien of the United States for purposes of this 
     chapter by reason of an election under subsection (g) or (h) 
     of section 6013.
       ``(h) Inflation Adjustments.--
       ``(1) Dollar limitation on amount of credit.--
       ``(A) In general.--In the case of a taxable year beginning 
     after 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 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 
     `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.''.
       (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 INTEREST ON EDUCATION LOANS.

       (a) In General.--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. INTEREST ON EDUCATION LOANS.

       ``(a) Allowance of Deduction.--In the case of an 
     individual, there shall be allowed as a deduction for the 
     taxable year an amount equal to the interest paid by the 
     taxpayer during the taxable year on any qualified education 
     loan.
       ``(b) Maximum Deduction.--
       ``(1) In general.--Except as provided in paragraph (2), the 
     deduction allowed by subsection (a) for the taxable year 
     shall not exceed $2,500.
       ``(2) Limitation based on modified adjusted gross income.--
       ``(A) In general.--The amount which would (but for this 
     paragraph) be allowable as a deduction under this section 
     shall be reduced (but not below zero) by the amount 
     determined under paragraph (2).
       ``(B) 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--
       ``(i) 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

       ``(ii) $10,000 ($20,000 in the case of a joint return).
       ``(C) Modified adjusted gross income.--The term `modified 
     adjusted gross income' means adjusted gross income 
     determined--
       ``(i) without regard to this section and sections 135, 911, 
     931, and 933, and
       ``(ii) after application of sections 86, 219, and 469.
     For purposes of sections 86, 135, 219, and 469, adjusted 
     gross income shall be determined without regard to the 
     deduction allowed under this section.

[[Page S6801]]

       ``(c) Dependents Not Eligible for Deduction.--No deduction 
     shall be allowed by this section to an individual for the 
     taxable year if a deduction under section 151 with respect to 
     such individual is allowed to another taxpayer for the 
     taxable year beginning in the calendar year in which such 
     individual's taxable year begins.
       ``(d) Limit on Period Deduction Allowed.--A deduction shall 
     be allowed under this section only with respect to interest 
     paid on any qualified education loan during the first 60 
     months (whether or not consecutive) in which interest 
     payments are required. For purposes of this paragraph, any 
     loan and all refinancings of such loan shall be treated as 1 
     loan.
       ``(e) Definitions.--For purposes of this section--
       ``(1) Qualified education loan.--The term `qualified 
     education loan' means any indebtedness incurred to pay 
     qualified higher education expenses--
       ``(A) which are incurred on behalf of the taxpayer, the 
     taxpayer's spouse, or any dependent of the taxpayer as of the 
     time the indebtedness was incurred,
       ``(B) which are paid or incurred within a reasonable period 
     of time before or after the indebtedness is incurred, and
       ``(C) which are attributable to education furnished during 
     a period during which the recipient was an eligible student.
     Such term includes indebtedness used to refinance 
     indebtedness which qualifies as a qualified education loan. 
     The term `qualified education loan' shall not include any 
     indebtedness owed to a person who is related (within the 
     meaning of section 267(b) or 707(b)(1)) to the taxpayer.
       ``(2) Qualified higher education expenses.--The term 
     `qualified higher education expenses' means 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 day before 
     the date of the enactment of this Act) at an eligible 
     educational institution, reduced by the sum of--
       ``(A) the amount excluded from gross income under section 
     135, 529, or 530 by reason of such expenses, and
       ``(B) the amount of any scholarship, allowance, or payment 
     described in section 25A(g)(2).
     For purposes of the preceding sentence, the term `eligible 
     educational institution' has the same meaning given such term 
     by section 25A(d)(2), except that such term shall also 
     include an institution conducting an internship or residency 
     program leading to a degree or certificate awarded by an 
     institution of higher education, a hospital, or a health care 
     facility which offers postgraduate training.
       ``(3) Eligible student.--The term `eligible student' has 
     the meaning given such term by section 25A(d)(3).
       ``(4) Dependent.--The term `dependent' has the meaning 
     given such term by section 152.
       ``(f) Special Rules.--
       ``(1) Denial of double benefit.--No deduction shall be 
     allowed under this section for any amount for which a 
     deduction is allowable under any other provision of this 
     chapter.
       ``(2) Married couples must file joint return.--If the 
     taxpayer is married at the close of the taxable year, the 
     deduction shall be allowed under subsection (a) only if the 
     taxpayer and the taxpayer's spouse file a joint return for 
     the taxable year.
       ``(3) Marital status.--Marital status shall be determined 
     in accordance with section 7703.
       ``(g) Inflation Adjustments.--
       ``(1) Dollar limitation on amount of credit.--
       ``(A) In general.--In the case of a taxable year beginning 
     after 1998, the $2,500 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.--In the case of a taxable year 
     beginning in a calendar year after 2000, the $40,000 and 
     $80,000 amounts in subsection (b)(2) shall each be increased 
     by the amount the $40,000 and $80,000 amounts under section 
     25A(c)(2) are increased for taxable years beginning in such 
     calendar year.''.
       (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
     Other Deductions.--Subsection (a) of section 62 is amended by 
     inserting after paragraph (16) the following new paragraph:
       ``(17) Interest on education loans.--The deduction allowed 
     by section 221.''.
       (c) Reporting Requirement.--
       (1) In general.--Section 6050S(a)(2) (relating to returns 
     relating to higher education tuition and related expenses) is 
     amended to read as follows:
       ``(2) which is engaged in a trade or business and which, in 
     the course of such trade or business--
       ``(A) makes payments during any calendar year to any 
     individual which constitutes reimbursements or refunds (or 
     similar amounts) of qualified tuition and related expenses of 
     such individual, or
       ``(B) except as provided in regulations, receives from any 
     individual interest aggregating $600 or more for any calendar 
     year on 1 or more qualified education loans,''.
       (2) Information.--Section 6050S(b)(2) is amended--
       (A) by inserting ``or interest'' after ``payments'' in 
     subparagraph (A), and
       (B) in subparagraph (C), by striking ``and'' at the end of 
     clause (i), by inserting ``and'' at the end of clause (ii), 
     and by inserting after clause (ii) the following:
       ``(iii) aggregate amount of interest received for the 
     calendar year from such individual,''.
       (3) Definition.--Section 6050S(e) is amended by inserting 
     ``, and except as provided in regulations, the term 
     `qualified education loan' has the meaning given such term by 
     section 221(e)(1)'' after ``section 25A''.
       (d) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 221. Interest on education loans.
``Sec. 222. Cross reference.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to any qualified education loan (as defined in 
     section 221(e)(1) of the Internal Revenue Code of 1986, as 
     added by this section) incurred on, before, or after the date 
     of the enactment of this Act, but only with respect to--
       (1) any loan interest payment due after December 31, 1996, 
     and
       (2) the portion of the 60-month period referred to in 
     section 221(d) of the Internal Revenue Code of 1986 (as added 
     by this section) after December 31, 1996.

     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)) 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.
    Subtitle B--Expanded Education Investment Savings Opportunities

                   PART I--QUALIFIED TUITION PROGRAMS

     SEC. 211. EXCLUSION FROM GROSS INCOME OF EDUCATION 
                   DISTRIBUTIONS FROM QUALIFIED TUITION PROGRAMS.

       (a) In General.--Subparagraph (B) of section 529(c)(3) 
     (relating to distributions) is amended to read as follows:
       ``(B) Distributions for qualified higher education 
     expenses.--If a distributee elects the application of this 
     subparagraph for any taxable year--
       ``(i) no amount shall be includible in gross income by 
     reason of a distribution which consists of providing a 
     benefit to the distributee which, if paid for by the 
     distributee, would constitute payment of a qualified higher 
     education expense, and
       ``(ii) the amount which (but for the election) would be 
     includible in gross income by reason of any other 
     distribution shall not be so includible in an amount which 
     bears the same ratio to the amount which would be so 
     includible as the amount of the qualified higher education 
     expenses of the distributee bears to the amount of the 
     distribution.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 1997, for 
     education furnished in academic periods beginning after such 
     date.

     SEC. 212. 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

[[Page S6802]]

     (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) 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.--
       (A) In general.--Subsection (b) of section 529 is amended 
     by adding at the end the following new paragraph:
       ``(8) 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 attains 
     age 30.
       ``(ii) The date on which the designated beneficiary 
     dies.''.
       (B) Rollovers.--Section 529(c)(3) is amended by adding at 
     the end the following:
       ``(E) Rollovers to ira plus accounts at age 30.--
     Subparagraph (A) shall not apply to any distribution to the 
     designated beneficiary required under subsection (b)(8) by 
     reason of the beneficiary attaining age 30 to the extent the 
     beneficiary, within 60 days of the distribution, transfers 
     such distribution to an IRA Plus account established on the 
     individual's behalf.''.
       (C) Conforming amendments.--
       (i) Section 408(a)(1) is amended by striking ``or 
     403(b)(8)'' and inserting ``403(b)(8), or 529(c)(3)(E)''.
       (ii) Subparagraph (A) of section 4973(b)(1) is amended by 
     striking ``or 408(b)(3)'' and inserting ``408(b)(3), or 
     529(c)(3)(E)''.
       (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 shall not be 
     treated as a taxable gift.''.
       (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 the sum 
     of $2,000 plus the amount of the credit allowable under 
     section 25A for 1 qualifying child.''.
       (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.--In the case of a qualified tuition 
     program not maintained by a State or any agency or 
     instrumentality thereof, the tax imposed by this chapter for 
     any taxable year on any taxpayer who receives a payment or 
     distribution from such 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) made to a beneficiary (or to the estate of the 
     designated beneficiary) on or after the death of the 
     designated beneficiary,
       ``(B) attributable to the designated beneficiary's being 
     disabled (within the meaning of section 72(m)(7)), or
       ``(C) made on account of a scholarship, allowance, or 
     payment described in section 25A(g)(2) 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 any 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 individual retirement 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 Qualified Tuition 
     Program and Education Individual Retirement 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 sum of $2,000 plus the amount of the 
     credit allowed under section 25A for such beneficiary for 
     such taxable year.
       ``(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 individual retirement 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 individual retirement 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) Clarification of Taxation of Distributions.--
     Subparagraph (A) of section 529(c)(3) is amended to read as 
     follows:
       ``(A) In general.--Any distribution from a qualified 
     tuition program--
       ``(i) shall be includible in the gross income of the 
     distributee to the extent allocable to income under the 
     program, and
       ``(ii) shall not be includible in gross income to the 
     extent allocable to the investment in the contract.
     For purposes of the preceding sentence, rules similar to the 
     rules of section 72(e)(3) shall apply.''.
       (h) 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

[[Page S6803]]

     place it appears and inserting ``qualified tuition program''.
       (3)(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''.
       (4)(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.''.
       (5)(A) Section 529(d) is amended to read as follows:
       ``(d) Reports.--Each officer or employee having control of 
     the qualified tuition program or their designee shall make 
     such reports regarding such program to the Secretary and to 
     designated beneficiaries 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) 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 529(d) (relating to qualified tuition 
     programs).''.
       (C) The section heading for section 6693 is amended by 
     striking ``INDIVIDUAL RETIREMENT'' and inserting ``CERTAIN 
     TAX-FAVORED''.
       (D) 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''.
       (i) 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) Coordination with education savings bonds.--The 
     amendment made by subsection (e) shall apply to taxable years 
     beginning after December 31, 1997.
       (4) 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.
       (5) Reporting.--The amendments made by subsection (g) shall 
     apply after June 16, 1997.

           PART II--EDUCATION INDIVIDUAL RETIREMENT ACCOUNTS

     SEC. 213. EDUCATION INDIVIDUAL RETIREMENT 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 INDIVIDUAL RETIREMENT ACCOUNTS.

       ``(a) General Rule.--An education individual retirement 
     account shall be exempt from taxation under this subtitle. 
     Notwithstanding the preceding sentence, the education 
     individual retirement 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 individual retirement account.--The term 
     `education individual retirement account' means a trust 
     created or organized in the United States exclusively for the 
     purpose of paying the qualified 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) except in the case of rollover contributions, if 
     such contribution would result in aggregate contributions for 
     the taxable year exceeding the sum of--

       ``(I) $2,000, plus
       ``(II) the amount of the credit allowable under section 25A 
     for the taxable year for 1 qualifying child.

       ``(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) Upon the death of the account holder, any balance in 
     the account will be distributed as required under section 
     529(b)(8) (as if such account were a qualified tuition 
     program).
       ``(F) The account becomes an IRA Plus as of the date the 
     account holder attains age 30 (and meets all requirements for 
     an IRA Plus on and after such date), unless the account 
     holder elects to have sections 529(b)(8) apply as of such 
     date (as if such account were a qualified tuition program).
       ``(2) Qualified education expenses.--
       ``(A) In general.--The term `qualified education expenses' 
     means--
       ``(i) qualified higher education expenses (as defined in 
     section 529(e)(3), and
       ``(ii) in the case of taxable years beginning after 
     December 31, 2000, qualified elementary and secondary 
     education expenses (as defined in paragraph (5)).
       ``(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).
       ``(4) Account holder.--The term `account holder' means the 
     individual for whose benefit the education individual 
     retirement account is established.
       ``(5) Qualified elementary and secondary education 
     expenses.--
       ``(A) In general.--The term `qualified elementary and 
     secondary education expenses' means tuition, fees, tutoring, 
     special needs services, books, supplies, equipment, 
     transportation, and supplementary expenses required for the 
     enrollment or attendance at a public, private, or sectarian 
     school of any dependent of the taxpayer with respect to whom 
     the taxpayer is allowed a deduction under section 151.
       ``(B) Special rule for homeschooling.--Such term shall 
     include expenses described in subparagraph (A) required for 
     education provided for homeschooling if the requirements of 
     any applicable State or local law are met with respect to 
     such education.
       ``(C) School.--The term `school' means any school which 
     provides elementary education or secondary education (through 
     grade 12), as determined under State law.
       ``(c) Tax Treatment of Distributions.--
       ``(1) In general.--Any amount paid or distributed shall be 
     includible in gross income to the extent required by section 
     529(c)(3) (determined as if such account were a qualified 
     tuition program and as if qualified higher education expenses 
     include qualified education expenses).
       ``(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 
     individual retirement account in the same manner as such tax 
     applies to qualified tuition programs (as defined in section 
     529), except that section 529(f) shall be applied by 
     reference to qualified education expenses.
       ``(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 individual retirement 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 
     individual retirement account to the extent that the amount 
     received is paid into another education individual retirement 
     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 individual retirement 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 individual retirement 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 individual 
     retirement 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.

[[Page S6804]]

     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 individual retirement 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 individual retirement 
     accounts.--An individual for whose benefit an education 
     individual retirement 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 Individual 
     Retirement Accounts.--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 (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) Section 530(g) (relating to education individual 
     retirement accounts).''.
       (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 individual retirement 
     accounts)''.
       (2) Subparagraph (C) of section 135(c)(2), as added by the 
     preceding section, is amended by inserting ``, or to an 
     education individual retirement 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 individual retirement accounts.''.
       (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.--Section 127 (relating to 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 amendments 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 December 31, 1996.

     SEC. 222. REPEAL OF LIMITATION ON QUALIFIED 501(C)(3) BONDS 
                   OTHER THAN HOSPITAL BONDS.

       Section 145(b) (relating to qualified 501(c)(3) bond) is 
     amended by adding at the end the following new paragraph:
       ``(5) Termination of limitation.--This subsection shall not 
     apply with respect to bonds issued after the date of the 
     enactment of this paragraph to finance capital expenditures 
     incurred after such date.''.

     SEC. 223. INCREASE IN ARBITRAGE REBATE EXCEPTION FOR 
                   GOVERNMENTAL BONDS USED TO FINANCE EDUCATION 
                   FACILITIES.

       (a) In General.--Section 148(f)(4)(D) (relating to 
     exception for governmental units issuing $5,000,000 or less 
     of bonds) is amended by adding at the end the following new 
     clause:
       ``(vii) Increase in exception for bonds financing public 
     school capital expenditures.--Each of the $5,000,000 amounts 
     in the preceding provisions of this subparagraph shall be 
     increased by the lesser of $5,000,000 or so much of the 
     aggregate face amount of the bonds as are attributable to 
     financing the construction (within the meaning of 
     subparagraph (C)(iv)) of public school facilities.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after December 31, 1997.

     SEC. 224. 2-PERCENT FLOOR ON MISCELLANEOUS ITEMIZED 
                   DEDUCTIONS NOT TO APPLY TO CERTAIN CONTINUING 
                   EDUCATION EXPENSES OF ELEMENTARY AND SECONDARY 
                   SCHOOL TEACHERS.

       (a) In General.--Section 67(b) (defining miscellaneous 
     itemized deductions) is amended by striking ``and'' at the 
     end of paragraph (11), by striking the period at the end of 
     paragraph (12) and inserting ``, and'', and by adding at the 
     end the following:
       ``(13) any deduction allowable for the qualified 
     professional development expenses of an eligible teacher.''.
       (b) Definitions.--Section 67 is amended by adding at the 
     end the following new subsection:
       ``(g) Qualified Professional Development Expenses of 
     Eligible Teachers.--For purposes of subsection (b)(13)--
       ``(1) Qualified professional development expenses.--
       ``(A) In general.--The term `qualified professional 
     development expenses' means expenses--
       ``(i) for tuition, fees, books, supplies, equipment, and 
     transportation required for the enrollment or attendance of 
     an individual in a qualified course of instruction, and
       ``(ii) with respect to which a deduction is allowable under 
     section 162 (determined without regard to this section).
       ``(B) Qualified course of instruction.--The term `qualified 
     course of instruction' means a course of instruction which--
       ``(i) is at an institution of higher education (as defined 
     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 
     subsection), and
       ``(ii) is part of a program of professional development 
     which is approved and certified by the appropriate local 
     educational agency as directly related to--

       ``(I) an increase in the individual's knowledge of content 
     areas the individual is required to teach,
       ``(II) the improvement of the individual's capacity to 
     teach students to the standards of the local educational 
     agency, or
       ``(III) the improvement of the individual's capacity to use 
     learning technology in teaching.

       ``(C) Local educational agency.--The term `local 
     educational agency' has the meaning given such term by 
     section 14101 of the Elementary and Secondary Education Act 
     of 1965, as so in effect.
       ``(2) Eligible teacher.--
       ``(A) In general.--The term `eligible teacher' means an 
     individual who--
       ``(i) is a kindergarten through grade 12 teacher in an 
     elementary or secondary school, and
       ``(ii) has completed at least 2 academic years as a teacher 
     described in subparagraph (A) before the qualified 
     professional development expenses of the individual have been 
     incurred.
       ``(B) Elementary or secondary school.--The terms 
     `elementary school' and `secondary school' have the meanings 
     given such terms by section 14101 of the Elementary and 
     Secondary Education Act of 1965 (20 U.S.C. 8801), as so in 
     effect.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 225. TREATMENT OF CANCELLATION OF CERTAIN STUDENT LOANS.

       (a) 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.''.
       (b) Certain 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).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to discharges of indebtedness after the date of 
     the enactment of this Act.

[[Page S6805]]

              TITLE III--SAVINGS AND INVESTMENT INCENTIVES
                     Subtitle A--Retirement Savings

     SEC. 301. RESTORATION OF IRA DEDUCTION FOR CERTAIN TAXPAYERS.

       (a) Increase in Income Limits Applicable to Active 
     Participants.--
       (1) In general.--Subparagraph (B) of section 219(g)(3) 
     (relating to applicable dollar amount) is amended to read as 
     follows:
       ``(B) Applicable dollar amount.--The term `applicable 
     dollar amount' means the following:
       ``(i) In the case of a taxpayer filing a joint return:

The applicable dollar amount is::
  1998 or 1999.............................................$50,000 ....

  2000 or 2001.............................................$60,000 ....

  2002 or 2003.............................................$70,000 ....

  2004 and thereafter......................................$80,000.....

       ``(ii) In the case of any other taxpayer (other than a 
     married individual filing a separate return):

The applicable dollar amount is::
  1998 or 1999.............................................$30,000 ....

  2000 or 2001.............................................$35,000 ....

  2002 or 2003.............................................$40,000 ....

  2004 and thereafter......................................$50,000.....

       ``(iii) In the case of a married individual filing a 
     separate return, zero.''.
       (2) Increase in phase-out range for joint returns.--Clause 
     (ii) of section 219(g)(2)(A) is amended by inserting 
     ``($20,000 in the case of a joint return for a taxable year 
     beginning after December 31, 2003)''.
       (b) Limitations for Active Participation Not Based on 
     Spouse's Participation.--Paragraph (1) of section 219(g) 
     (relating to limitation on deduction for active participants 
     in certain pension plans) is amended by striking ``or the 
     individual's spouse''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 302. ESTABLISHMENT OF NONDEDUCTIBLE TAX-FREE INDIVIDUAL 
                   RETIREMENT ACCOUNTS.

       (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. IRA PLUS ACCOUNTS.

       ``(a) General Rule.--Except as provided in this section, an 
     IRA Plus account shall be treated for purposes of this title 
     in the same manner as an individual retirement plan.
       ``(b) IRA Plus Account.--For purposes of this title, the 
     term `IRA Plus account' means an individual retirement plan 
     (as defined in section 7701(a)(37)) which is designated (in 
     such manner as the Secretary may prescribe) at the time of 
     establishment of the plan as an IRA Plus account. 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 IRA Plus account.
       ``(2) Contribution limit.--The aggregate amount of 
     contributions for any taxable year to all IRA Plus accounts 
     maintained for the benefit of an individual shall not exceed 
     the excess (if any) of--
       ``(A) the maximum amount allowable as a deduction under 
     section 219 with respect to such individual for such taxable 
     year (computed without regard to subsection (g) of such 
     section), over
       ``(B) the amount so allowed.
       ``(3) Contributions permitted after age 70\1/2\.--
     Contributions to an IRA Plus account 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 IRA Plus account.
       ``(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) Rollover contributions.--
       ``(A) In general.--No rollover contribution may be made to 
     an IRA Plus account 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 IRA Plus account shall not be includible 
     in gross income.
       ``(B) Nonqualified distributions.--In applying section 72 
     to any distribution from an IRA Plus account which is not a 
     qualified distribution, such distribution shall be treated as 
     made from contributions to the IRA Plus account to the extent 
     that such distribution, when added to all previous 
     distributions from the IRA Plus account, does not exceed the 
     aggregate amount of contributions to the IRA Plus account. 
     For purposes of the preceding sentence, all IRA Plus accounts 
     maintained for the benefit of an individual shall be treated 
     as 1 account.
       ``(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 special purpose distribution.
       ``(B) Certain distributions within 5 years.--A payment or 
     distribution shall not be treated as a qualified distribution 
     under subparagraph (A) 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 IRA Plus account (or such individual's 
     spouse made a contribution to an IRA Plus account) 
     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 IRA plus account.
       ``(3) Rollovers.--
       ``(A) In general.--Any distribution which is transferred in 
     a qualified rollover contribution to an IRA Plus account 
     shall not be included in gross income.
       ``(B) Income inclusion for rollovers from non-plus 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, 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 payment or distribution is made.

       ``(ii) Distributions to which subparagraph applies.--This 
     subparagraph shall apply to a distribution from an individual 
     retirement plan (other than an IRA Plus account) maintained 
     for the benefit of an individual to an IRA Plus account 
     maintained for the benefit of such individual if such 
     distribution would be a qualified rollover contribution were 
     such individual retirement plan an IRA Plus account. Clause 
     (i)(II) shall only apply to distributions before January 1, 
     1999.
       ``(iii) Conversions.--The conversion of an individual 
     retirement plan (other than an IRA Plus account) to an IRA 
     Plus account shall be treated for purposes of this 
     subparagraph as a distribution from such plan to such IRA 
     Plus account.
       ``(C) Additional reporting requirements.--The Secretary 
     shall require that trustees of IRA Plus accounts, 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) Coordination with individual retirement accounts.--
     Section 408(d)(2) shall not apply to IRA Plus accounts.
       ``(5) Qualified special purpose distribution.--For purposes 
     of this section, the term `qualified special purpose 
     distribution' means any distribution to which subparagraph 
     (D) or (F) of section 72(t)(2) applies.
       ``(e) Qualified Rollover Contribution.--For purposes of 
     this section, the term `qualified rollover contribution' 
     means a rollover contribution to an IRA Plus account from 
     another such account, or from an individual retirement plan, 
     but only if such rollover contribution meets the requirements 
     of section 408(d)(3). For purposes of section 408(d)(3)(B), 
     there shall be disregarded any qualified rollover 
     contribution from an individual retirement plan (other than 
     an IRA Plus account) to an IRA Plus account.''.
       (b) Excess Contributions.--
       (1) Section 4973 is amended by adding at the end the 
     following new subsection:
       ``(f) Excess Contributions to IRA Plus Accounts.--For 
     purposes of this section, in the case of IRA Plus accounts, 
     the term `excess contributions' means the amount by which the 
     amount contributed for the taxable year to such accounts 
     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 IRA Plus account shall not be treated as an 
     individual retirement plan.''.
       (c) Spousal IRA.--Clause (ii) of section 219(c)(1)(B) is 
     amended to read as follows:
       ``(ii) the compensation includible in the gross income of 
     such individual's spouse for the taxable year reduced by--

       ``(I) the amount allowed as a deduction under subsection 
     (a) to such spouse for such taxable year, and
       ``(II) the amount of any contribution on behalf of such 
     spouse to an IRA Plus account under section 408A for such 
     taxable year.''.

       (d) 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) Section 4973(b) is amended by striking the last 
     sentence.

[[Page S6806]]

       (e) Conforming 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. IRA Plus accounts.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 303. DISTRIBUTIONS FROM CERTAIN PLANS MAY BE USED 
                   WITHOUT PENALTY TO PURCHASE FIRST HOMES AND 
                   WHEN UNEMPLOYED.

       (a) First Homes.--
       (1) In general.--Paragraph (2) of section 72(t) (relating 
     to exceptions to 10-percent additional tax on early 
     distributions from qualified retirement plans), as amended by 
     section 203, is amended by adding at the end the following 
     new subparagraph:
       ``(F) Distributions from certain plans for first home 
     purchases.--Distributions to an individual from an individual 
     retirement plan which are qualified first-time homebuyer 
     distributions (as defined in paragraph (8)). Distributions 
     shall not be taken into account under the preceding sentence 
     if such distributions are described in subparagraph (A), (C), 
     (D), or (E) or to the extent paragraph (1) does not apply to 
     such distributions by reason of subparagraph (B).''.
       (2) Definitions.--Section 72(t), as amended by section 203, 
     is amended by adding at the end the following new paragraphs:
       ``(8) Qualified first-time homebuyer distributions.--For 
     purposes of paragraph (2)(F)--
       ``(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 120th 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 
     paragraph) 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.''.
       (b) Penalty-Free Distributions for Certain Unemployed 
     Individuals.--Subparagraph (D) of section 72(t)(2) is 
     amended--
       (1) in clause (i), by inserting ``and'' at the end of 
     subclause (I), by striking ``, and'' at the end of subclause 
     (II) and inserting a period, and by striking subclause (III), 
     and
       (2) by striking ``for health insurance premiums'' in the 
     heading thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments and distributions in taxable years 
     beginning after December 31, 1997.

     SEC. 304. CERTAIN BULLION NOT TREATED AS COLLECTIBLES.

       (a) In General.--Paragraph (3) of section 408(m) (relating 
     to exception for certain coins) is amended to read as 
     follows:
       ``(3) Exception for certain coins and bullion.--For 
     purposes of this subsection, the term `collectible' shall not 
     include--
       ``(A) any coin which is--
       ``(i) a gold coin described in paragraph (7), (8), (9), or 
     (10) of section 5112(a) of title 31, United States Code,
       ``(ii) a silver coin described in section 5112(e) of title 
     31, United States Code,
       ``(iii) a platinum coin described in section 5112(k) of 
     title 31, United States Code, or
       ``(iv) a coin issued under the laws of any State, or
       ``(B) any gold, silver, platinum, or palladium bullion of a 
     fineness equal to or exceeding the minimum fineness required 
     for metals which may be delivered in satisfaction of a 
     regulated futures contract subject to regulation by the 
     Commodity Futures Trading Commission under the Commodity 
     Exchange Act,
     if such bullion is in the physical possession of a trustee 
     described under subsection (a) of this section.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.
                       Subtitle B--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) 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, plus
       ``(B) 24 percent of the lesser of--
       ``(i) the unrecaptured section 1250 gain, or
       ``(ii) the amount of taxable income in excess of the sum of 
     the amount on which tax is determined under subparagraph (A) 
     plus the net capital gain determined without regard to 
     unrecaptured section 1250 gain, plus
       ``(C) 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 subparagraphs (A) and (B), plus
       ``(D) 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
       ``(E) 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 (D).
       ``(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) 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, and
       ``(B) unrecaptured section 1250 gain.
       ``(4) Collectibles gain.--For purposes of paragraph (3)--
       ``(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) 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.
       ``(5) Unrecaptured section 1250 gain.--For purposes of this 
     subsection, the term `unrecaptured 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, 
     unrecaptured section 1250 gain shall be determined by taking 
     into account only the gain properly taken into account for 
     the portion of the taxable year after May 6, 1997.
       ``(6) 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,

[[Page S6807]]

       ``(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 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 excess of the net capital gain over the sum of the 
     collectibles gain (as defined in section 1(h)(4)) and the 
     pre-effective date gain (as defined in section 1(h)(6)), plus
       ``(B) 24 percent of the lesser of--
       ``(i) the unrecaptured section 1250 gain (as defined in 
     section 1(h)(5)), or
       ``(ii) the amount of taxable excess in excess of the sum 
     of--

       ``(I) the adjusted net capital gain, plus
       ``(II) the amount on which a tax is determined under 
     subparagraph (A), plus

       ``(C) 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
       ``(D) 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 (C).''.
       (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 unrecaptured 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.

     SEC. 312. MODIFICATIONS TO EXCLUSION OF GAIN ON CERTAIN SMALL 
                   BUSINESS STOCK.

       (a) Exclusion Available to Corporations.--
       (1) In general.--Subsection (a) of section 1202 is amended 
     by striking ``In the case of a taxpayer other than a 
     corporation, gross'' and inserting ``Gross''.
       (2) Technical amendment.--Subsection (c) of section 1202 is 
     amended by adding at the end the following new paragraph:
       ``(4) Stock held among members of controlled group not 
     eligible.--Stock of a member of a parent-subsidiary 
     controlled group (as defined in subsection (c)(3)) shall not 
     be treated as qualified small business stock while held by 
     another member of such group.''.
       (b) Repeal of Minimum Tax Preference.--
       (1) Subsection (a) of section 57 is amended by striking 
     paragraph (7).
       (2) Subclause (II) of section 53(d)(1)(B)(ii) is amended by 
     striking ``, (5), and (7)'' and inserting ``and (5)''.
       (c) Stock of Larger Businesses Eligible for Reduced 
     Rates.--Paragraph (1) of section 1202(d) is amended by 
     striking ``$50,000,000'' each place it appears and inserting 
     ``$100,000,000''.
       (d) Repeal of Per-Issuer Limitation.--Section 1202 is 
     amended by striking subsection (b).
       (e) Other Modifications.--
       (1) Repeal of working capital limitation.--Paragraph (6) of 
     section 1202(e) is amended--
       (A) by striking ``2 years'' in subparagraph (B) and 
     inserting ``5 years'', and
       (B) by striking the last sentence.
       (2) Exception from redemption rules where business 
     purpose.--Paragraph (3) of section 1202(c) is amended by 
     adding at the end the following new subparagraph:
       ``(D) Waiver where business purpose.--A purchase of stock 
     by the issuing corporation shall be disregarded for purposes 
     of subparagraph (B) if the issuing corporation establishes 
     that there was a business purpose for such purchase and one 
     of the principal purposes of the purchase was not to avoid 
     the limitations of this section.''.
       (f) Conforming Amendments.--
       (1) Subsection (c) of section 1202 is amended by striking 
     ``subsections (f) and (h)'' and inserting ``subsections (e) 
     and (g)''.
       (2) Paragraph (2) of section 1202(c) is amended--
       (A) by striking ``subsection (e)'' each place it appears 
     and inserting ``subsection (d)'', and
       (B) by striking ``subsection (e)(4)'' in subparagraph 
     (B)(ii) and inserting ``subsection (d)(4)''.
       (3) Paragraph (1) of section 1202(e) is amended by striking 
     ``subsection (c)(2)'' and inserting ``subsection (b)(2)''.
       (4) Paragraph (1) of section 1202(g) is amended to read as 
     follows:
       ``(1) In general.--If any amount included in gross income 
     by reason of holding an interest in a pass-thru entity meets 
     the requirements of paragraph (2), such amount shall be 
     treated as gain from the sale or exchange of any qualified 
     small business stock held for more than 5 years.''.
       (5) Section 1202, as amended by the preceding provisions of 
     this section, is amended by redesignating subsections (c) 
     through (k) as subsections (b) through (j), respectively.
       (6) So much of paragraph (2) of section 172(d) as precedes 
     subparagraph (A) thereof is amended to read as follows:
       ``(2) Capital gains and losses.--In the case of any 
     taxpayer--''.
       (g) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to stock issued 
     after August 10, 1993.
       (2) Subsections (a) and (c).--The amendments made by 
     subsections (a) and (c) shall apply to stock issued after the 
     date of the enactment of this Act.

     SEC. 313. ROLLOVER OF GAIN FROM SALE OF QUALIFIED STOCK.

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

     ``SEC. 1045. ROLLOVER OF GAIN FROM QUALIFIED SMALL BUSINESS 
                   STOCK TO ANOTHER QUALIFIED SMALL BUSINESS 
                   STOCK.

       ``(a) Nonrecognition of Gain.--In the case of any sale of 
     qualified small business stock with respect to which the 
     taxpayer elects the application of this section, eligible 
     gain from such sale shall be recognized only to the extent 
     that the amount realized on such sale exceeds--
       ``(1) the cost of any qualified small business stock 
     purchased by the taxpayer during the 60-day period beginning 
     on the date of such sale, reduced by
       ``(2) any portion of such cost previously taken into 
     account under this section.
     This section shall not apply to any gain which is treated as 
     ordinary income for purposes of this title.
       ``(b) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified small business stock.--The term `qualified 
     small business stock' has the meaning given such term by 
     section 1202(b).
       ``(2) Eligible gain.--The term `eligible gain' means any 
     gain from the sale or exchange of qualified small business 
     stock held for more than 5 years.
       ``(3) Purchase.--A taxpayer shall be treated as having 
     purchased any property if, but for paragraph (4), the 
     unadjusted basis of such property in the hands of the 
     taxpayer would be its cost (within the meaning of section 
     1012).
       ``(4) Basis adjustments.--If gain from any sale is not 
     recognized by reason of subsection (a), such gain shall be 
     applied to reduce (in the order acquired) the basis for 
     determining gain or loss of any qualified small business 
     stock which is purchased by the taxpayer during the 60-day 
     period described in subsection (a).
       ``(c) Special Rules for Treatment of Replacement Stock.--
       ``(1) Holding period for accrued gain.--For purposes of 
     this chapter, gain from the disposition of any replacement 
     qualified small business stock shall be treated as gain from 
     the sale or exchange of qualified small business stock held 
     more than 5 years to the extent that the amount of such gain 
     does not exceed the amount of the reduction in the basis of 
     such stock by reason of subsection (b)(4).
       ``(2) Tacking of holding period for purposes of deferral.--
     Solely for purposes of applying this section, if any 
     replacement qualified small business stock is disposed of 
     before the taxpayer has held such stock for more than 5 
     years, gain from such stock shall be treated eligible gain 
     for purposes of subsection (a).
       ``(3) Replacement qualified small business stock.--For 
     purposes of this subsection, the term `replacement qualified 
     small business stock' means any qualified small business 
     stock the basis of which was reduced under subsection 
     (b)(4).''.
       (b) Conforming Amendments.--
       (1) Section 1016(a)(23) is amended--
       (A) by striking ``or 1044'' and inserting ``, 1044, or 
     1045'', and
       (B) by striking ``or 1044(d)'' and inserting ``, 1044(d), 
     or 1045(b)(4)''.
       (2) The table of sections for part III of subchapter O of 
     chapter 1 is amended by adding at the end the following new 
     item:

``Sec. 1045. Rollover of gain from qualified small business stock to 
              another qualified small business stock.''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to stock issued 
     after August 10, 1993.
       (2) Stock held by a corporation.--In the case of stock held 
     by a corporation, the amendments made by this section shall 
     apply to stock issued after the date of the enactment of this 
     Act.

     SEC. 314. 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) In general.--The amount of gain excluded from gross 
     income under subsection (a) with respect to any sale or 
     exchange shall not exceed $250,000.
       ``(2) $500,000 limitation for certain joint returns.--
     Paragraph (1) shall be applied by substituting `$500,000' for 
     `$250,000' if--

[[Page S6808]]

       ``(A) a husband and wife make a joint return for the 
     taxable year of the sale or exchange of the property,
       ``(B) either spouse meets the ownership requirements of 
     subsection (a) with respect to such property,
       ``(C) both spouses meet the use requirements of subsection 
     (a) with respect to such property, and
       ``(D) neither spouse is ineligible for the benefits of 
     subsection (a) with respect to such property by reason of 
     paragraph (3).
       ``(3) 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) 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)(3) shall not apply; but the amount of gain excluded from 
     gross income under subsection (a) with respect to such sale 
     or 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 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)(3), and
       ``(B) such sale or exchange is by reason of a change in 
     place of employment, health, or, to the extent provided in 
     regulations, unforeseen circumstances.
       ``(d) Special Rules.--
       ``(1) 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 owned such 
     property before death.
       ``(2) Property owned by spouse or former spouse.--For 
     purposes of this section--
       ``(A) Property transferred to individual from spouse or 
     former spouse.--In the case of an individual holding property 
     transferred to such individual in a transaction described in 
     section 1041(a), the period such individual owns such 
     property shall include the period the transferor owned the 
     property.
       ``(B) Property used by former spouse pursuant to divorce 
     decree, etc.--Solely for purposes of this section, an 
     individual shall be treated as using property as such 
     individual's principal residence during any period of 
     ownership while such individual's spouse or former spouse is 
     granted use of the property under a divorce or separation 
     instrument (as defined in section 71(b)(2)).
       ``(3) Tenant-stockholder in cooperative housing 
     corporation.--For purposes of this section, if the taxpayer 
     holds stock as a tenant-stockholder (as defined in section 
     216) in a cooperative housing corporation (as defined in such 
     section), then--
       ``(A) the holding requirements of subsection (a) shall be 
     applied to the holding of such stock, and
       ``(B) the use requirements of subsection (a) shall be 
     applied to the house or apartment which the taxpayer was 
     entitled to occupy as such stockholder.
       ``(4) Involuntary conversions.--
       ``(A) In general.--For purposes of this section, the 
     destruction, theft, seizure, requisition, or condemnation of 
     property shall be treated as the sale of such property.
       ``(B) Application of section 1033.--In applying section 
     1033 (relating to involuntary conversions), the amount 
     realized from the sale or exchange of property shall be 
     treated as being the amount determined without regard to this 
     section, reduced by the amount of gain not included in gross 
     income pursuant to this section.
       ``(C) Property acquired after involuntary conversion.--If 
     the basis of the property sold or exchanged is determined (in 
     whole or in part) under section 1033(b) (relating to basis of 
     property acquired through involuntary conversion), then the 
     holding and use by the taxpayer of the converted property 
     shall be treated 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 May 6, 1997, 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.
       ``(8) Sales of remainder interests.--For purposes of this 
     section--
       ``(A) In general.--At the election of the taxpayer, 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 remainder interest in such residence, but this 
     section shall not apply to any other 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 section) 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) Exception From Reporting.--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) 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) if the Secretary requires the inclusion on the 
     return under subsection (a) of information as to whether 
     there is federally subsidized mortgage financing assistance 
     with respect to the mortgage on residences, that there is no 
     such assistance with respect to the mortgage on such 
     residence, and
       ``(iii) the full amount of the gain on such sale or 
     exchange is excludable from gross income under section 121.
     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.''.
       (d) 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 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:

[[Page S6809]]

       ``(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)(A) Subsection (d) of section 1250 is amended by 
     striking paragraph (7) and by redesignating paragraphs (9) 
     and (10) as paragraphs (7) and (8), respectively.
       (B) Subsection (e) of section 1250 is amended by striking 
     paragraph (3).
       (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.
     TITLE IV--ESTATE, GIFT, AND GENERATION-SKIPPING TAX PROVISIONS

     SEC. 401. 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 estat  
                                                of decedeThe applicable
                                                   exclusion amount is:
      1998...................................................$ 625,000 
      1999...................................................$ 640,000 
      2000...................................................$ 660,000 
      2001...................................................$ 675,000 
      2002...................................................$ 725,000 
      2003...................................................$ 750,000 
      2004...................................................$ 800,000 
      2005...................................................$ 900,000 
      2006 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 2006, 
     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 2005' 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''.
       (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. 402. 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) $1,000,000.
       ``(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 executor elects the application of this section 
     and files the agreement referred to in subsection (h),

[[Page S6810]]

       ``(C) 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
       ``(D) 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), plus
       ``(ii) the amount (if more than de minimis) of other 
     transfers from the decedent to the decedent's spouse (at the 
     time of the transfer) within 10 years of the date of the 
     decedent's death, plus
       ``(iii) the amount of other gifts (not included under 
     clause (i) or (ii)) from the decedent within 3 years of such 
     date, other than gifts to members of the decedent's family 
     otherwise excluded under section 2503(b), over
       ``(B) the sum of the amounts described in clauses (i), 
     (ii), and (iii) of subparagraph (A) which are otherwise 
     includible in the gross estate.
     For purposes of the preceding sentence, the Secretary may 
     provide that de minimis gifts to persons other than members 
     of the decedent's family shall not be taken into account.
       ``(d) Adjusted Value of the Qualified Family-Owned Business 
     Interests.--For purposes of this section, the adjusted value 
     of any qualified family-owned business interest is the value 
     of such interest for purposes of this chapter (determined 
     without regard to this section), reduced by the excess of--
       ``(1) any amount deductible under paragraph (3) or (4) of 
     section 2053(a), over
       ``(2) the sum of--
       ``(A) any indebtedness on any qualified residence of the 
     decedent the interest on which is deductible under section 
     163(h)(3), plus
       ``(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 subparagraph (A) or 
     (B), 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)),
       ``(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)), which produce, or are held 
     for the production of, income of which is described in 
     section 543(a) or in section 954(c)(1) (determined without 
     regard to subparagraph (A) thereof and 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 (i)(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

[[Page S6811]]

     requires that at least 1 trustee of the trust be an 
     individual citizen of the United States or a domestic 
     corporation.
       ``(h) Agreement.--The agreement referred to in this 
     subsection is a written agreement signed by each person in 
     being who has an interest (whether or not in possession) in 
     any property designated in such agreement consenting to the 
     application of subsection (f) with respect to such property.
       ``(i) 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) Paragraphs (1) and (3) of section 2032A(d) (relating 
     to election; agreement).
       ``(I) Section 2032A(e)(10) (relating to community 
     property).
       ``(J) Section 2032A(e)(14) (relating to treatment of 
     replacement property acquired in section 1031 or 1033 
     transactions).
       ``(K) Section 2032A(f) (relating to statute of 
     limitations).
       ``(L) Section 6166(b)(3) (relating to farmhouses and 
     certain other structures taken into account).
       ``(M) Subparagraphs (B), (C), and (D) of section 6166(g)(1) 
     (relating to acceleration of payment).
       ``(N) Section 6324B (relating to special lien for 
     additional estate tax).''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter A of chapter 11 is amended by inserting after 
     the item relating to section 2033 the following new item:

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

     SEC. 403. TREATMENT OF LAND SUBJECT TO A QUALIFIED 
                   CONSERVATION EASEMENT.

       (a) Estate Tax With Respect to Land Subject to a Qualified 
     Conservation Easement.--Section 2031 (relating to the 
     definition of gross estate) is amended by redesignating 
     subsection (c) as subsection (d) and by inserting after 
     subsection (b) the following new subsection:
       ``(c) Estate Tax With Respect to Land Subject to a 
     Qualified Conservation Easement.--
       ``(1) In general.--If the executor makes the election 
     described in paragraph (4), then, except as otherwise 
     provided in this subsection, there shall be excluded from the 
     gross estate the lesser of--
       ``(A) the applicable percentage of the value of land 
     subject to a qualified conservation easement, reduced by the 
     amount of any deduction under section 2055(f) with respect to 
     such land, or
       ``(B) the excess (if any) of--
       ``(i) $1,000,000, over
       ``(ii) the exclusion allowed with respect to the qualified 
     family-owned business interests of the decedent under section 
     2033A.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the term `applicable percentage' means 40 percent 
     reduced (but not below zero) by 2 percentage points for each 
     percentage point (or fraction thereof) by which the value of 
     the qualified conservation easement is less than 30 percent 
     of the value of the land (determined without regard to the 
     value of such easement and reduced by the value of any 
     retained development right (as defined in paragraph (4)).
       ``(3) Treatment of certain indebtedness.--
       ``(A) In general.--The exclusion provided in paragraph (1) 
     shall not apply to the extent that the land is debt-financed 
     property.
       ``(B) Definitions.--For purposes of this paragraph--
       ``(i) Debt-financed property.--The term `debt-financed 
     property' means any property with respect to which there is 
     an acquisition indebtedness (as defined in clause (ii)) on 
     the date of the decedent's death.
       ``(ii) Acquisition indebtedness.--The term `acquisition 
     indebtedness' means, with respect to debt-financed property, 
     the unpaid amount of--

       ``(I) the indebtedness incurred by the donor in acquiring 
     such property,
       ``(II) the indebtedness incurred before the acquisition of 
     such property if such indebtedness would not have been 
     incurred but for such acquisition,
       ``(III) the indebtedness incurred after the acquisition of 
     such property if such indebtedness would not have been 
     incurred but for such acquisition and the incurrence of such 
     indebtedness was reasonably foreseeable at the time of such 
     acquisition, and
       ``(IV) the extension, renewal, or refinancing of an 
     acquisition indebtedness.

       ``(4) Treatment of retained development right.--
       ``(A) In general.--Paragraph (1) shall not apply to the 
     value of any development right retained by the donor in the 
     conveyance of a qualified conservation easement.
       ``(B) Termination of retained development right.--If every 
     person in being who has an interest (whether or not in 
     possession) in the land executes an agreement to extinguish 
     permanently some or all of any development rights (as defined 
     in subparagraph (D)) retained by the donor on or before the 
     date for filing the return of the tax imposed by section 
     2001, then any tax imposed by section 2001 shall be reduced 
     accordingly. Such agreement shall be filed with the return of 
     the tax imposed by section 2001. The agreement shall be in 
     such form as the Secretary shall prescribe.
       ``(C) Additional tax.--Any failure to implement the 
     agreement described in subparagraph (B) not later than the 
     earlier of--
       ``(i) the date which is 2 years after the date of the 
     decedent's death, or
       ``(ii) the date of the sale of such land subject to the 
     qualified conservation easement,
     shall result in the imposition of an additional tax in the 
     amount of the tax which would have been due on the retained 
     development rights subject to such agreement. Such additional 
     tax shall be due and payable on the last day of the 6th month 
     following such date.
       ``(D) Development right defined.--For purposes of this 
     paragraph, the term `development right' means any right to 
     use the land subject to the qualified conservation easement 
     in which such right is retained for any commercial purpose 
     which is not subordinate to and directly supportive of the 
     use of such land as a farm for farming purposes (within the 
     meaning of section 6420(c)).
       ``(4) Election.--The election under this subsection shall 
     be made on the return of the tax imposed by section 2001. 
     Such an election, once made, shall be irrevocable.
       ``(5) Calculation of estate tax due.--An executor making 
     the election described in paragraph (4) shall, for purposes 
     of calculating the amount of tax imposed by section 2001, 
     include the value of any development right (as defined in 
     paragraph (3)) retained by the donor in the conveyance of 
     such qualified conservation easement. The computation of tax 
     on any retained development right prescribed in this 
     paragraph shall be done in such manner and on such forms as 
     the Secretary shall prescribe.
       ``(6) Definitions.--For purposes of this subsection--
       ``(A) Land subject to a qualified conservation easement.--
     The term `land subject to a qualified conservation easement' 
     means land--
       ``(i) which is located--

       ``(I) in or within 25 miles of an area which, on the date 
     of the decedent's death, is a metropolitan area (as defined 
     by the Office of Management and Budget),
       ``(II) in or within 25 miles of an area which, on the date 
     of the decedent's death, is a national park or wilderness 
     area designated as part of the National Wilderness 
     Preservation System (unless it is determined by the Secretary 
     that land in or within 25 miles of such a park or wilderness 
     area is not under significant development pressure), or
       ``(III) in or within 10 miles of an area which, on the date 
     of the decedent's death, is an Urban National Forest (as 
     designated by the Forest Service),

       ``(ii) which was owned by the decedent or a member of the 
     decedent's family at all times during the 3-year period 
     ending on the date of the decedent's death, and
       ``(iii) with respect to which a qualified conservation 
     easement has been made by the decedent or a member of the 
     decedent's family.
       ``(B) Qualified conservation easement.--The term `qualified 
     conservation easement' means a qualified conservation 
     contribution (as defined in section 170(h)(1)) of a qualified 
     real property interest (as defined in section 170(h)(2)(C)), 
     except that clause (iv) of section 170(h)(4)(A) shall not 
     apply, and the restriction on the use of such interest 
     described in section 170(h)(2)(C) shall include a prohibition 
     on commercial recreational activity.
       ``(C) Member of family.--The term `member of the decedent's 
     family' means any member of the family (as defined in section 
     2032A(e)(2)) of the decedent.
       ``(7) Application of this section to interests in 
     partnerships, corporations, and trusts.--This section shall 
     apply to an interest in a partnership, corporation, or trust 
     if at least 30 percent of the entity is owned (directly or 
     indirectly) by the decedent, as determined under the rules 
     described in section 2033A(e)(3).''.
       (b) Carryover Basis.--Section 1014(a) (relating to basis of 
     property acquired from a decedent), as amended by section 
     502(b), is amended by striking the period at the end of 
     paragraph (4) and inserting ``, or'' and by adding at the end 
     the following new paragraph:
       ``(5) to the extent of the applicability of the exclusion 
     described in section 2031(c), the basis in the hands of the 
     decedent.''.
       (c) Qualified Conservation Contribution Is Not a 
     Disposition.--Subsection (c) of section 2032A (relating to 
     alternative valuation method) is amended by adding at the end 
     the following new paragraph:
       ``(8) Qualified conservation contribution is not a 
     disposition.--A qualified conservation contribution (as 
     defined in section 170(h)) by gift or otherwise shall not be 
     deemed a disposition under subsection (c)(1)(A).''.
       (d) Qualified Conservation Contribution Where Surface and 
     Mineral Rights are Separated.--Section 170(h)(5)(B)(ii) 
     (relating to special rule) is amended to read as follows:

[[Page S6812]]

       ``(ii) Special rule.--With respect to any contribution of 
     property in which the ownership of the surface estate and 
     mineral interests has been and remains separated, 
     subparagraph (A) shall be treated as met if the probability 
     of surface mining occurring on such property is so remote as 
     to be negligible.''.
       (e) Effective Dates.--
       (1) Exclusion.--The amendments made by subsections (a) and 
     (b) shall apply to estates of decedents dying after December 
     31, 1997.
       (2) Easements.--The amendments made by subsections (c) and 
     (d) shall apply to easements granted after December 31, 1997.

     SEC. 404. 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. 405. 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. 406. 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. 407. 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 V--EXTENSIONS

     SEC. 501. 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 ``May 31, 
     1999'', and
       (2) by striking in the last sentence ``during the first 11 
     months of such taxable year.'' and inserting ``during the 35-
     month period beginning with the first month of such year. The 
     35 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 ``May 31, 1999''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after May 31, 1997.

     SEC. 502. 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 ``May 31, 1999''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to contributions made after May 31, 1997.

     SEC. 503. WORK OPPORTUNITY TAX CREDIT.

       (a) Extension.--Subparagraph (B) of section 51(c)(4) 
     (relating to termination) is amended by striking ``September 
     30, 1997'' and inserting ``May 31, 1999''.
       (b) 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.''.
       (c) Qualified SSI Recipients Treated as Members of Targeted 
     Groups.--
       (1) In general.--Section 51(d)(1) (relating to members of 
     targeted groups) 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) a qualified SSI recipient.''.
       (2) Qualified ssi recipients.--Section 51(d) is amended by 
     redesignating paragraphs (9), (10), and (11) as paragraphs 
     (10), (11), and (12), respectively, and by inserting after 
     paragraph (8) the following new paragraph:
       ``(9) Qualified ssi recipient.--The term `qualified SSI 
     recipient' means any individual who is certified by the 
     designated local agency as receiving supplemental security 
     income benefits under title XVI of the Social Security Act

[[Page S6813]]

     (including supplemental security income benefits of the type 
     described in section 1616 of such Act or section 212 of 
     Public Law 93-66) for any month ending within the 60-day 
     period ending on the hiring date.''.
       (d) 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.''.
       (e) Effective date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after September 30, 1997.

     SEC. 504. 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.
  TITLE VI--INCENTIVES FOR REVITALIZATION OF THE DISTRICT OF COLUMBIA

     SEC. 601. 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 the Revitalization of the District of 
                                Columbia

``Sec. 1400.  First-time homebuyer credit for District of Columbia.
``Sec. 1400A. Credit for equity investments in and loans to District of 
              Columbia businesses.
``Sec. 1400B. Zero percent capital gains rate.
``Sec. 1400C. Trust Fund for DC schools.

     ``SEC. 1400. FIRST-TIME HOMEBUYER CREDIT FOR DISTRICT OF 
                   COLUMBIA.

       ``(a) Allowance of Credit.--In the case of an individual 
     who is a first-time homebuyer of a principal residence in the 
     District of Columbia during any taxable year, there shall be 
     allowed as a credit against the tax imposed by this chapter 
     for the taxable year an amount equal to so much of the 
     purchase price of the residence as does not exceed $5,000.
       ``(b) First-Time Homebuyer.--For purposes of this section--
       ``(1) In general.--The term `first-time homebuyer' has the 
     same meaning as when used in section 72(t)(8)(D)(i), except 
     that `principal residence in the District of Columbia during 
     the 1-year period' shall be substituted for `principal 
     residence during the 2-year period' in subclause (I) thereof.
       ``(2) One-time only.--If an individual is treated as a 
     first-time homebuyer with respect to any principal residence, 
     such individual may not be treated as a first-time homebuyer 
     with respect to any other principal residence.
       ``(3) Principal residence.--The term `principal residence' 
     has the same meaning as when used in section 121.
       ``(4) Date of acquisition.--The term `date of acquisition' 
     has the same meaning as when used in section 72t(8)(D)(iii).
       ``(c) Carryover of Credit.--If the credit allowable under 
     subsection (a) exceeds the limitation imposed by section 
     26(a) for such taxable year reduced by the sum of the credits 
     allowable under subpart A of part IV of subchapter A (other 
     than this section and section 25), such excess shall be 
     carried to the succeeding taxable year and added to the 
     credit allowable under subsection (a) for such taxable year.
       ``(d) Special Rules.--For purposes of this section--
       ``(1) Allocation of dollar limitation.--
       ``(A) Married individuals filing jointly.--In the case of a 
     husband and wife who file a joint return, the $5,000 
     limitation under subsection (a) shall apply to the joint 
     return.
       ``(B) Married individuals filing separately.--In the case 
     of a married individual filing a separate return, subsection 
     (a) shall be applied by substituting `$2,500' for `$5,000'.
       ``(C) Other taxpayers.--If 2 or more individuals who are 
     not married purchase a principal residence, the amount of the 
     credit allowed under subsection (a) shall be allocated among 
     such individuals in such manner as the Secretary may 
     prescribe, except that the total amount of the credits 
     allowed to all such individuals shall not exceed $5,000.
       ``(2) Purchase.--The term `purchase' means any acquisition, 
     but only if--
       ``(A) the property is not acquired from a person whose 
     relationship to the person acquiring it would result in the 
     disallowance of losses under section 267 or 707(b) (but, in 
     applying section 267 (b) and (c) for purposes of this 
     section, paragraph (4) of section 267(c) shall be treated as 
     providing that the family of an individual shall include only 
     his spouse, ancestors, and lineal descendants), and
       ``(B) the basis of the property in the hands of the person 
     acquiring it is not determined--
       ``(i) in whole or in part by reference to the adjusted 
     basis of such property in the hands of the person from whom 
     acquired, or
       ``(ii) under section 1014(a) (relating to property acquired 
     from a decedent).
       ``(3) Purchase price.--The term `purchase price' means the 
     adjusted basis of the principal residence on the date of 
     acquisition.
       ``(d) Reporting.--If the Secretary requires information 
     reporting under section 6045 to verify the eligibility of 
     taxpayers for the credit allowable by this section, the 
     exception provided by section 6045(e)(5) shall not apply.
       ``(e) Credit Treated as Nonrefundable Personal Credit.--For 
     purposes of this title, the credit allowed by this section 
     shall be treated as a credit allowable under subpart A of 
     part IV of subchapter A of this chapter.

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

       ``(a) General Rule.--For purposes of section 38, the DC 
     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.--

[[Page S6814]]

       ``(1) In general.--The amount of the DC 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 $60,000,000.
       ``(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 a targeted area, and
       ``(B) whether such business is within a targeted area.
       ``(4) Targeted area.--For purposes of paragraph (3), the 
     term `targeted area' means--
       ``(A) any census tract located in the District of Columbia 
     which is part of an enterprise community designated under 
     subchapter U before the date of the enactment of this 
     subchapter, and
       ``(B) any other census tract which is located in the 
     District of Columbia and which has a poverty rate of not less 
     than 35 percent.
       ``(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. 1400B. ZERO PERCENT CAPITAL GAINS RATE.

       ``(a) Exclusion.--
       ``(1) In general.--Gross income shall not include qualified 
     capital gain from the sale or exchange of any DC asset held 
     for more than 5 years.
       ``(2) Special 10 percent rate for dc assets acquired in 
     1998.--
       ``(A) In general.--In the case of any DC asset acquired 
     during calendar year 1998--
       ``(i) paragraph (1) shall not apply to any qualified 
     capital gain from the sale or exchange of such asset, and
       ``(ii) the qualified capital gain described in clause (i) 
     shall be treated as adjusted net capital gain described in 
     section 1(h)(1)(D) for the taxable year of the sale or 
     exchange (and the amount under section 1(h)(1)(D)(i) for such 
     taxable year shall be increased by the amount of such gain).
       ``(B) Special rule.--For purposes of subparagraph (A), any 
     DC asset the basis of which is determined in whole or in part 
     by reference to the basis of an asset to which subparagraph 
     (A) applies shall be treated as a DC asset acquired during 
     calendar year 1998.
       ``(b) DC Asset.--For purposes of this section--
       ``(1) In general.--The term `DC asset' means--
       ``(A) any DC business stock,
       ``(B) any DC partnership interest, and
       ``(C) any DC business property.
       ``(2) DC business stock.--
       ``(A) In general.--The term `DC 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 business (or, in the case of a new 
     corporation, such corporation was being organized for 
     purposes of being a DC business), and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such stock, such corporation qualified as a DC 
     business.
       ``(B) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this paragraph.
       ``(3) DC partnership interest.--The term `DC 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 business (or, in the case of a new 
     partnership, such partnership was being organized for 
     purposes of being a DC business), and
       ``(C) during substantially all of the taxpayer's holding 
     period for such interest, such partnership qualified as a DC 
     business.
     A rule similar to the rule of paragraph (2)(B) shall apply 
     for purposes of this paragraph.
       ``(4) DC business property.--
       ``(A) In general.--The term `DC 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 District of 
     Columbia 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 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 asset' includes any property which would be a DC 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 asset in the 
     hands of a prior holder.
       ``(7) 5-year safe harbor.--If any property ceases to be a 
     DC 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 Business.--For purposes of this section, the term 
     `DC business' means any entity which is an enterprise zone 
     business (as defined in section 1397B), determined--
       ``(1) by treating the District of Columbia as an 
     empowerment zone and as if no other area is an empowerment 
     zone or enterprise community, and
       ``(2) without regard to subsections (b)(6) and (c)(5) of 
     section 1397B.
       ``(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 not qualified.--The term `qualified 
     capital gain' shall not include any gain attributable to 
     periods before January 1, 1998.
       ``(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 
     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 
     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 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 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 
     business, and
       ``(2) any gain attributable to periods before January 1, 
     1998.

     ``SEC. 1400C. TRUST FUND FOR DC SCHOOLS.

       ``(a) Creation of Fund.--There is established in the 
     Treasury of the United States a trust fund to be known as the 
     `Trust Fund for DC Schools', consisting of such amounts as 
     may be appropriated or credited to the Fund as provided in 
     this section.
       ``(b) Transfer to Trust Fund of Amounts Equivalent to 
     Certain Taxes.--
       ``(1) In general.--There are hereby appropriated to the 
     Trust Fund for DC Schools amounts equivalent to the 
     applicable percentage of revenues received in the Treasury 
     from income taxes imposed by this chapter for any taxable 
     year beginning after December 31, 1997, and before January 1, 
     2008, on individual taxpayers who are residents of the 
     District of Columbia as of the last day of such taxable year.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the term `applicable percentage' means the percentage 
     which the Secretary determines necessary to result in 
     $5,000,000 being appropriated to the Trust Fund under 
     paragraph (1) for each of the calendar years 1998 through 
     2007.
       ``(3) Transfer of amounts.--The amounts appropriated by 
     paragraph (1) shall be transferred at least monthly from the 
     general fund of the Treasury to the Trust Fund for DC Schools 
     on the basis of estimates made by the Secretary of the 
     amounts referred to in such paragraph. Proper adjustments 
     shall be made in the amounts subsequently transferred to the 
     extent prior estimates were in excess of or less than the 
     amounts required to be transferred.
       ``(c) Expenditures From Fund.--
       ``(1) In general.--Amounts in the Trust Fund for DC Schools 
     are hereby appropriated, and

[[Page S6815]]

     shall be available without fiscal year limitation, for 
     payment by the Secretary of debt service on qualified DC 
     school bonds.
       ``(2) Qualified dc school bonds.--The term `qualified DC 
     school bonds' means bonds which--
       ``(A) are issued after March 31, 1998, by the District of 
     Columbia to finance the construction, rehabilitation, and 
     repair of schools under the jurisdiction of the government of 
     the District of Columbia, and
       ``(B) are certified by the District of Columbia Control 
     Board as meeting the requirements of subparagraph (A) after 
     giving 60 days notice of any proposed certification to the 
     Subcommittees on the District of Columbia of the Committees 
     on Appropriations of the House of Representatives and the 
     Senate.
       ``(d) Report.--It shall be the duty of the Secretary to 
     hold the Trust Fund for DC Schools and to report to the 
     Congress each year on the financial condition and the results 
     of the operations of such Fund during the preceding fiscal 
     year and on its expected condition and operations during the 
     next fiscal year. Such report shall be printed as a House 
     document of the session of the Congress to which the report 
     is made.
       ``(e) Investment.--
       ``(1) In general.--It shall be the duty of the Secretary to 
     invest such portion of the Trust Fund for DC Schools as is 
     not, in the Secretary's judgment, required to meet current 
     withdrawals. Such investments may be made only in interest-
     bearing obligations of the United States. For such purpose, 
     such obligations may be acquired--
       ``(A) on original issue at the issue price, or
       ``(B) by purchase of outstanding obligations at the market 
     price.
       ``(2) Sale of obligations.--Any obligation acquired by the 
     Trust Fund for DC Schools may be sold by the Secretary at the 
     market price.
       ``(3) Interest on certain proceeds.--The interest on, and 
     the proceeds from the sale or redemption of, any obligations 
     held in the Trust Fund for DC Schools shall be credited to 
     and form a part of the Trust Fund for DC Schools.''.
       (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 investment credit determined under section 
     1400A(a).''.
       (2) Subsection (d) of section 39 is amended by adding at 
     the end the following new paragraph:
       ``(8) No carryback of dc 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 
     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 1400A 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 investment credit determined under section 
     1400A(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 the Revitalization of the District of 
              Columbia.''.
       (d) Effective Date.--This section shall take effect on the 
     date of the enactment of this Act.
                  TITLE VII--MISCELLANEOUS PROVISIONS
            Subtitle A--Provisions Relating to Excise Taxes

     SEC. 701. 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).
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1998.

     SEC. 702. INTERCITY PASSENGER RAIL FUND.

       (a) Establishment of Fund.--The Internal Revenue Code of 
     1986 is amended by adding at the end the following new 
     subtitle:
              ``Subtitle L--Intercity Passenger Rail Fund
``Sec. 9901. Intercity passenger rail fund.

     ``SEC. 9901. INTERCITY PASSENGER RAIL FUND.

       ``(a) Creation of Fund.--There is established in the 
     Treasury of the United States a fund to be known as the 
     `Intercity Passenger Rail Fund', consisting of such amounts 
     as may be appropriated to the Fund as provided in this 
     section.
       ``(b) Transfer to Intercity Passenger Rail Fund of Amounts 
     Equivalent to Certain Taxes.--
       ``(1) In general.--There are hereby appropriated to the 
     Intercity Passenger Rail Fund amounts equivalent to the net 
     revenues received in the Treasury from the applicable portion 
     of the taxes imposed by sections 4041, 4042, 4081, and 4091 
     after September 30, 1997, and before April 16, 2001.
       ``(2) Applicable portion.--For purposes of paragraph (1), 
     the term `applicable portion' means the lesser of--
       ``(A) 0.5 cent multiplied by the number of gallons on which 
     the taxes described in paragraph (1) are imposed, or
       ``(B) the portion of such taxes not otherwise appropriated 
     to a trust fund under subchapter A of chapter 98.
       ``(3) Net revenues.--For purposes of paragraph (1), the 
     term `net revenues' means the amount estimated by the 
     Secretary based on the excess of--
       ``(A) the applicable portion of the taxes received in the 
     Treasury under sections 4041, 4042, 4081, and 4091, over
       ``(B) the decrease in the tax imposed by chapter 1 
     resulting from the applicable portion of the taxes imposed by 
     sections 4041, 4042, 4081, and 4091.
       ``(4) Transfer of amounts.--The amounts appropriated by 
     paragraph (1) shall be transferred at least monthly from the 
     general fund of the Treasury to the Intercity Passenger Rail 
     Fund on the basis of estimates made by the Secretary of the 
     amounts referred to in such paragraph. Proper adjustments 
     shall be made in the amounts subsequently transferred to the 
     extent prior estimates were in excess of or less than the 
     amounts required to be transferred.
       ``(c) Expenditures From Fund.--
       ``(1) In general.--In addition to any amounts appropriated 
     from the general fund of the Treasury of the United States 
     for fiscal years 1998 through 2001 to enable the Secretary of 
     Transportation to make grants to the National Railroad 
     Passenger Corporation, amounts in the Intercity Passenger 
     Rail Fund shall be available, as provided by appropriation 
     Acts, to finance qualified expenses of--
       ``(A) the National Railroad Passenger Corporation, and
       ``(B) each non-Amtrak State, to the extent determined under 
     paragraph (3).
     The amount available for any fiscal year under the preceding 
     sentence shall be the amount dedicated to such Fund for such 
     fiscal year (and no other amount) and shall remain available 
     until expended.
       ``(2) Maximum amount of funds to non-amtrak states.--Each 
     non-Amtrak State shall receive under this subsection an 
     amount equal to the lesser of--
       ``(A) the State's qualified expenses for the fiscal year, 
     or
       ``(B) the product of--
       ``(i) \1/12\ of 1 percent of the aggregate amounts 
     appropriated from the Intercity Passenger Rail Fund for such 
     fiscal year under paragraph (1), and
       ``(ii) the number of months such State is a non-Amtrak 
     State in such fiscal year.
     If the amount determined under subparagraph (B) exceeds the 
     amount under subparagraph (A) for any fiscal year, the amount 
     under subparagraph (B) for the following fiscal year shall be 
     increased by the amount of such excess.
       ``(3) Transfers from fund for certain repayments and 
     credits.--
       ``(A) In general.--The Secretary shall pay from time to 
     time from the Intercity Passenger Rail Fund into the general 
     fund of the Treasury amounts equivalent to--
       ``(i) the amounts paid before October 1, 2001, under--

       ``(I) section 6420 (relating to amounts paid in respect of 
     gasoline used on farms),
       ``(II) section 6421 (relating to amounts paid in respect of 
     gasoline used for certain nonhighway purposes or by local 
     transit systems), and
       ``(III) section 6427 (relating to fuels not used for 
     taxable purposes),

     on the basis of claims filed for periods ending before April 
     16, 2001, and
       ``(ii) the credits allowed under section 34 (relating to 
     credit for certain uses of gasoline and special fuels) with 
     respect to gasoline and special fuels used before April 16, 
     2001.
     The amounts payable from the Intercity Passenger Rail Fund 
     under this subparagraph shall be determined by taking into 
     account only amounts transferred to such Fund.
       ``(B) Transfers based on estimates.--Transfers under 
     subparagraph (A) shall be made on the basis of estimates by 
     the Secretary, and proper adjustments shall be made in 
     amounts subsequently transferred to the extent prior 
     estimates were in excess or less than the amounts required to 
     be transferred.
       ``(d) Definitions.--For purposes of this section--
       ``(1) Qualified expenses.--The term `qualified expenses' 
     means expenses incurred after September 30, 1997, and before 
     April 16, 2001--
       ``(A) for--
       ``(i) in the case of the National Railroad Passenger 
     Corporation--

       ``(I) the acquisition of equipment, rolling stock, and 
     other capital improvements, the upgrading of maintenance 
     facilities, and the maintenance of existing equipment, in 
     intercity passenger rail service, and
       ``(II) the payment of interest and principal on obligations 
     incurred for such acquisition, upgrading, and maintenance, 
     and

       ``(ii) in the case of a non-Amtrak State--

       ``(I) the acquisition of equipment, rolling stock, and 
     other capital improvements, the upgrading of maintenance 
     facilities, and the maintenance of existing equipment, in 
     intercity passenger rail or bus service,
       ``(II) the purchase of intercity passenger rail services 
     from the National Railroad Passenger Corporation,
       ``(III) capital expenditures related to rail operations for 
     Class II or Class III rail carriers in the State,
       ``(IV) any project that is eligible to receive funding 
     under section 5309, 5310, or 5311 of title 49, United States 
     Code,
       ``(V) any project that is eligible to receive funding under 
     section 130 of title 23, United States Code,
       ``(VI) the upgrading and maintenance of intercity primary 
     and rural air service facilities, and the purchase of 
     intercity air service between primary and rural airports and 
     regional hubs, and
       ``(VII) the payment of interest and principal on 
     obligations incurred for such acquisition, upgrading, 
     maintenance, and purchase, and

[[Page S6816]]

       ``(B) certified by the Secretary of Transportation as 
     meeting the requirements of subparagraph (A).
       ``(2) Non-Amtrak state.--The term `non-Amtrak State' means 
     any State which does not receive intercity passenger rail 
     service from the National Railroad Passenger Corporation.
       ``(e) Tax Treatment of Fund Expenditures.--With respect to 
     any payment of qualified expenses described in subsection 
     (d)(1)(A)(i) from the Intercity Passenger Rail Fund during 
     any taxable year to a taxpayer--
       ``(1) such payment shall not be included in the gross 
     income of the taxpayer for such taxable year,
       ``(2) no deduction shall be allowed to the taxpayer with 
     respect to any amount paid or incurred which is attributable 
     to such payment, and
       ``(3) the basis of any property shall be reduced by the 
     portion of the cost of such property which is attributable to 
     such payment.
       ``(f) Report.--It shall be the duty of the Secretary to 
     hold the Intercity Passenger Rail Fund and to report to the 
     Congress each year on the financial condition and the results 
     of the operations of such Fund during the preceding fiscal 
     year and on its expected condition and operations during the 
     next fiscal year. Such report shall be printed as a House 
     document of the session of the Congress to which the report 
     is made.
       ``(g) Investment.--
       ``(1) In general.--It shall be the duty of the Secretary to 
     invest such portion of the Intercity Passenger Rail Fund as 
     is not, in the Secretary's judgment, required to meet current 
     withdrawals. Such investments may be made only in interest-
     bearing obligations of the United States. For such purpose, 
     such obligations may be acquired--
       ``(A) on original issue at the issue price, or
       ``(B) by purchase of outstanding obligations at the market 
     price.
       ``(2) Sale of obligations.--Any obligation acquired by the 
     Intercity Passenger Rail Fund may be sold by the Secretary at 
     the market price.
       ``(3) Interest on certain proceeds.--The interest on, and 
     the proceeds from the sale or redemption of, any obligations 
     held in the Intercity Passenger Rail Fund shall be credited 
     to the general fund of the Treasury of the United States.
       ``(h) Termination.--The Secretary shall determine and 
     retain, not later than October 1, 2001, the amount in the 
     Intercity Passenger Rail Fund necessary to pay any 
     outstanding qualified expenses, and shall transfer any amount 
     not so retained to the general fund of the Treasury.''.
       (b) Conforming Amendment.--The table of subtitles for such 
     Code is amended by adding at the end the following new item:

``Subtitle L. Intercity Passenger Rail Fund.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to taxes imposed after September 30, 
     1997.
       (d) Budgetary Treatment of Amounts Deposited Into Intercity 
     Passenger Rail Fund.--Pursuant to section 207 of such H. Con. 
     Res. 84, of the total revenues raised by this Act, amounts 
     equal to the amounts deposited into the Intercity Passenger 
     Rail Fund for each fiscal year are hereby dedicated to 
     finance such Fund.

     SEC. 703. MODIFICATION OF TAX TREATMENT OF HARD CIDER.

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

     SEC. 704. GENERAL REVENUE PORTION OF HIGHWAY MOTOR FUELS 
                   TAXES DEPOSITED INTO HIGHWAY TRUST FUND.

       (a) In General.--Paragraph (4) of section 9503(b) is 
     amended by striking ``and'' at the end of subparagraph (A), 
     and by striking subparagraph (B) and inserting the following 
     new subparagraphs:
       ``(B) there shall not be taken into account the taxes 
     imposed by sections 4041 and 4081 to the extent attributable 
     to--
       ``(i) the Leaking Underground Storage Tank Trust Fund 
     financing rate, or
       ``(ii) fuel used in a train,
       ``(C) in the case of fuels used as described in paragraph 
     (4)(D), (5)(B), or (6)(D) of subsection (c), there shall not 
     be taken into account--
       ``(i) in the case of gasoline and special motor fuels, so 
     much of the rate of tax as exceeds 11.5 cents per gallon, and
       ``(ii) in the case of diesel fuel, so much of the rate of 
     tax as exceeds 17.5 cents per gallon, and
       ``(D) there shall not be taken into account so much of the 
     rate of the taxes received in the Treasury after June 30, 
     2000, as exceeds the excess of 4.3 cents per gallon over the 
     portion (if any) of such rate as is taken into account in 
     determining the amount appropriated to the Intercity 
     Passenger Rail Fund under section 9901.''.
       (b) Limitation on Expenditures.--Subsection (c) of section 
     9503 is amended by adding at the end the following new 
     paragraph:
       ``(7) Limitation on expenditures.--Notwithstanding any 
     other provision of law, in calculating amounts under section 
     157(a) of title 23, United States Code, and sections 1013(c), 
     1015(a), and 1015(b) of the Intermodal Surface Transportation 
     Efficiency Act of 1991 (Public Law 102-240; 105 Stat. 1914), 
     deposits in the Highway Trust Fund resulting from the 
     amendments made by the Revenue Reconciliation Act of 1997 
     shall not be taken into account.''.
       (c) Technical Amendments.--
       (1) Section 9503 is amended by striking subsection (f).
       (2) Paragraphs (4)(D), (5)(B), and (6)(D) of section 
     9503(c) are each amended by striking ``attributable to the 
     Highway Trust Fund financing rate'' and inserting 
     ``attributable to taxes taken into account in determining 
     transfers under subparagraph (C) of subsection (b)(4)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxes received in the Treasury after September 
     30, 1997.

     SEC. 705. RATE OF TAX ON CERTAIN SPECIAL FUELS DETERMINED ON 
                   BASIS OF BTU EQUIVALENCY WITH GASOLINE.

       (a) Special Motor Fuels.--Paragraph (2) of section 4041(a) 
     (relating to special motor fuels) is amended to read as 
     follows:
       ``(2) Special motor fuels.--
       ``(A) In general.--There is hereby imposed a tax on benzol, 
     benzene, naphtha, liquefied petroleum gas, casing head and 
     natural gasoline, or any other liquid (other than kerosene, 
     gas oil, or fuel oil, or any product taxable under section 
     4081)--
       ``(i) sold by any person to an owner, lessee, or other 
     operator of a motor vehicle or motorboat for use as a fuel in 
     such motor vehicle or motorboat, or
       ``(ii) used by any person as a fuel in a motor vehicle or 
     motorboat unless there was a taxable sale of such liquid 
     under clause (i).
       ``(B) Rate of tax.--The rate of the tax imposed by this 
     paragraph shall be--
       ``(i) except as otherwise provided in this subparagraph, 
     the rate of tax specified in section 4081(a)(2)(A)(i) which 
     is in effect at the time of such sale or use,
       ``(ii) 13.6 cents per gallon in the case of liquefied 
     petroleum gas, and
       ``(iii) 11.9 cents per gallon in the case of liquefied 
     natural gas.
     In the case of any sale or use after September 30, 1999, 
     clause (ii) shall be applied by substituting `3.2 cents' for 
     `13.6 cents', and clause (iii) shall be applied by 
     substituting `2.8 cents' for `11.9 cents'.''.
       (b) Methanol Fuel Produced From Natural Gas.--
       (1) In general.--Subparagraph (A) of section 4041(m)(1) is 
     amended by striking clause (i) and inserting the following 
     new clause:
       ``(i) after September 30, 1997, and before October 1, 
     1999--

       ``(I) in the case of fuel none of the alcohol in which 
     consists of ethanol, 9.15 cents per gallon, and
       ``(II) in any other case, 11.3 cents per gallon, and''.

       (c) Effective Date.--The amendments made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 706. STUDY OF FEASIBILITY OF MOVING COLLECTION POINT FOR 
                   DISTILLED SPIRITS EXCISE TAX.

       (a) In General.--The Secretary of the Treasury or his 
     delegate shall conduct a study of options for changing the 
     event on which the tax imposed by section 5001 of the 
     Internal Revenue Code of 1986 is determined. One such option 
     which shall be studied is determining such tax on removal 
     from registered wholesale warehouses. In studying each such 
     option, such Secretary shall focus on administrative issues 
     including--
       (1) tax compliance,
       (2) the number of taxpayers required to pay the tax,
       (3) the types of financial responsibility requirements that 
     might be required, and
       (4) special requirements regarding segregation of nontax-
     paid distilled spirits from other products.
     Such study shall review the effects of each such option on 
     the Department of the Treasury (including staffing and other 
     demands on budgetary resources) and the change in the period 
     between the time such tax is currently paid and the time such 
     tax would be paid under each such option.
       (b) Report.--The report of such study shall be submitted to 
     the Committee on Finance of the Senate and the Committee on 
     Ways and Means of the House of Representatives not later than 
     January 31, 1998.

     SEC. 707. EXTENSION AND MODIFICATION OF SUBSIDIES FOR ALCOHOL 
                   FUELS.

       (a) Extensions.--
       (1) Alcohol fuels credit.--Subsection (e) of section 40 is 
     amended--
       (A) by striking ``December 31, 2000'' and inserting 
     ``December 31, 2007'', and
       (B) by striking ``January 1, 2001'' and inserting ``January 
     1, 2007''.
       (2) Excise taxes.--
       (A) Section 4041(b)(2)(C) is amended by striking ``October 
     1, 2000'' and inserting ``October 1, 2007''.
       (B) Sections 4041(k)(3), 4081(c)(8), 4091(c)(5), and 
     6427(f)(4) are each amended by striking ``September 30, 
     2000'' and inserting ``September 30, 2007''.
       (b) Modification.--
       (1) In general.--Subsection (h) of section 40 is amended to 
     read as follows:
       ``(h) Reduced Credit for Ethanol Blenders.--
       ``(1) In general.--In the case of any alcohol mixture 
     credit or alcohol credit with respect to any alcohol which is 
     ethanol--
       ``(A) subsections (b)(1)(A) and (b)(2)(A) shall be applied 
     by substituting `the blender amount' for `60 cents';

[[Page S6817]]

       ``(B) subsection (b)(3) shall be applied by substituting 
     `the low-proof blender amount' for `45 cents' and `the 
     blender amount' for `60 cents'; and
       ``(C) subparagraphs (A) and (B) of subsection (d)(3) shall 
     be applied by substituting `the blender amount' for `60 
     cents' and `the low-proof blender amount' for `45 cents'.
       ``(2) Amounts.--For purposes of paragraph (1), the blender 
     amount and the low-proof blender amount shall be determined 
     in accordance with the following table:


 
 In the case of any sale or use   The blender amount     The low-proof
      during calendar year:               is:         blender amount is:
 
  2000 or 2001                       53 cents.......    39.26 cents
  2003 or 2004                       52 cents.......    38.52 cents
  2005 or thereafter............     51 cents.......    37.78 cents.''.
 

       (2) Subparagraph (A) of section 4041(b)(2) is amended by 
     striking ``5.4 cents'' and inserting ``the applicable blender 
     rate'' and by adding at the end the following flush sentence:
     ``For purposes of clause (i), the applicable blender rate is 
     \1/10\ of the blender amount applicable under section 
     40(h)(2) for the calendar year in which the sale or use 
     occurs.''.
       (3) Paragraphs (4)(A) and (5) of section 4081(c) are each 
     amended by striking ``5.4 cents'' each place it appears and 
     inserting ``the applicable blender rate (as defined in 
     section 4041(b)(2)(A))''.
       (4) Paragraph (1) of section 4091(c) is amended by striking 
     ``13.4 cents'' each place it appears and inserting ``the 
     applicable blender amount'' and by adding at the end the 
     following new sentence: ``For purposes of this paragraph, the 
     term `applicable blender amount' means 13.3 cents in the case 
     of any sale or use during 2001 or 2002, 13.2 cents in the 
     case of any sale or use during 2003 or 2004, and 13.1 cents 
     in the case of any sale or use during 2005 or thereafter.''.
       (c) Effective Date.--
       (1) Subsection (a).--The amendments made by subsection (a) 
     shall take effect on the date of the enactment of this Act.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall take effect on January 1, 2001.

     SEC. 708. CLARIFICATION OF AUTHORITY TO USE SEMI-GENERIC 
                   DESIGNATIONS ON WINE LABELS.

       (a) In General.--Section 5388 (relating to designation of 
     wines) is amended by adding at the end the following new 
     subsection:
       ``(c) Use of Semi-Generic Designations.--A name of 
     geographic significance, which is also the designation of a 
     class or type of wine, shall be deemed to have become semi-
     generic only if so found by the Secretary. Semi-generic 
     designations may be used to designate wines of an origin 
     other than that indicated by such name only if--
       ``(1) there appears in direct conjunction therewith an 
     appropriate appellation of origin disclosing the true place 
     of origin of the wine, and
       ``(2) the wine so designated conforms to the standard of 
     identity, if any, for such wine contained in the regulations 
     in this section or, if there be no such standard, to the 
     trade understanding of such class or type.
     Examples of semi-generic names which are also type 
     designations for grape wines are Angelica, Burgundy, Claret, 
     Chablis, Champagne, Chianti, Malaga, Marsala, Madeira, 
     Moselle, Port, Rhine Wine (syn. Hock), Sauterne, Haut 
     Sauterne, Sherry, Tokay.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.
    Subtitle B--Provisions Relating to Pensions and Fringe Benefits

     SEC. 711. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 415.

       (a) In General.--Section 415(b)(11) is amended--
       (1) by inserting ``or a multiemployer plan (as defined in 
     section 414(f))'' after ``section 414(d))'', and
       (2) by inserting ``and multiemployer'' after 
     ``governmental'' in the heading thereof.
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1997.

     SEC. 712. TECHNICAL CORRECTION RELATING TO PARTIAL 
                   TERMINATION OF PENSION PLANS.

       (a) In General.--So much of section 552 of the Tax Reform 
     Act of 1984 (Public Law 98-369) as precedes subparagraph (A) 
     of paragraph (1) is amended to read as follows:
       ``For purposes of interpreting or applying section 
     411(d)(3) of the Internal Revenue Code of 1986 (relating to 
     minimum vesting standards in the case of partial 
     termination), any other provision of Federal law, and any 
     provision of any plan or trust which directly or indirectly 
     incorporates, or is determined by reference to, such section 
     411(d)(3), a partial termination shall not have occurred 
     based in whole or in part on a decline in plan participation 
     if--
       ``(1) the decline in plan participation--''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the provisions of section 
     552 of the Tax Reform Act of 1984.

     SEC. 713. INCREASE IN CURRENT LIABILITY FUNDING LIMIT.

       (a) Amendment to 1986 Code.--Section 412(c)(7) (relating to 
     full-funding limitation) is amended--
       (A) by striking ``150 percent'' in subparagraph (A)(i)(I) 
     and inserting ``the applicable percentage'', and
       (B) by adding at the end the following:
       ``(F) Applicable percentage.--For purposes of subparagraph 
     (A)(i)(I), the applicable percentage shall be determined in 
     accordance with the following table:

The applicable percentage is-- beginning in--
  1999 or 2000.................................................155 ....

  2001 or 2002.................................................160 ....

  2003 or 2004.................................................165 ....

  2005 and succeeding years.................................170.''.....

       (b) Amendment to ERISA.--Section 302(c)(7) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1082(c)(7)) 
     is amended--
       (A) by striking ``150 percent'' in subparagraph (A)(i)(I) 
     and inserting ``the applicable percentage'', and
       (B) by adding at the end the following:
       ``(F) Applicable percentage.--For purposes of subparagraph 
     (A)(i)(I), the applicable percentage shall be determined in 
     accordance with the following table:

The applicable percentage is-- beginning in--
  1999 or 2000.................................................155 ....

  2001 or 2002.................................................160 ....

  2003 or 2004.................................................165 ....

  2005 and succeeding years.................................170.''.....

       (c) Special Amortization Rule.--
       (1) Code amendment.--Section 412(b)(2) is amended by 
     striking ``and'' at the end of subparagraph (C), by striking 
     the period at the end of subparagraph (D) and inserting ``, 
     and'', and by inserting after subparagraph (D) the following:
       ``(E) the amount necessary to amortize in equal annual 
     installments (until fully amortized) over a period of 20 
     years the contributions which would be required to be made 
     under the plan but for the provisions of subsection 
     (c)(7)(A)(i)(I).''.
       (2) ERISA amendment.--Section 302(b)(2) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1082(b)(2)) 
     is amended by striking ``and'' at the end of subparagraph 
     (C), by striking the period at the end of subparagraph (D) 
     and inserting ``, and'', and by inserting after subparagraph 
     (D) the following:
       ``(E) the amount necessary to amortize in equal annual 
     installments (until fully amortized) over a period of 20 
     years the contributions which would be required to be made 
     under the plan but for the provisions of subsection 
     (c)(7)(A)(i)(I).''.
       (3) Conforming amendments.--
       (A) Section 412(c)(7)(D) is amended by adding ``and'' at 
     the end of clause (i), by striking ``, and'' at the end of 
     clause (ii) and inserting a period, and by striking clause 
     (iii).
       (B) Section 302(c)(7)(D) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1082(c)(7)(D)) is amended by 
     adding ``and'' at the end of clause (i), by striking ``, 
     and'' at the end of clause (ii) and inserting a period, and 
     by striking clause (iii).
       (4) Effective dates.--
       (A) In general.--The amendments made by this subsection 
     shall apply to plan years beginning after December 31, 1998.
       (B) Special rule for 1999.--In the case of a plan's first 
     year beginning in 1999, there shall be added to the amount 
     required to be amortized under section 412(b)(2)(E) of the 
     Internal Revenue Code of 1986 and section 302(b)(2)(E) of the 
     Employee Retirement Income Security Act of 1974 (as added by 
     paragraphs (1) and (2)) over the 20-year period beginning 
     with such year, the unamortized balance (as of the close of 
     the preceding plan year) of any amount required to be 
     amortized under section 412(c)(7)(D)(iii) of such Code and 
     section 302(c)(7)(D)(iii) of such Act (as repealed by 
     paragraph (3)) for plan years beginning before 1999.

     SEC. 714. SPOUSAL CONSENT REQUIRED FOR CERTAIN DISTRIBUTIONS 
                   AND LOANS UNDER QUALIFIED CASH OR DEFERRED 
                   ARRANGEMENT.

       (a) In General.--Section 401(k) is amended by adding at the 
     end the following new paragraph:
       ``(13) Spousal consent required.--
       ``(A) In general.--An arrangement shall not be treated as a 
     qualified cash or deferred arrangement unless--
       ``(i) a distribution under the plan of which such 
     arrangement is a part, or
       ``(ii) a loan all or part of which is secured by the 
     participant's interest in the plan of which such arrangement 
     is a part,
     may not be made without the written consent of the spouse.
       ``(B) Exceptions.--Subparagraph (A) shall not apply--
       ``(i) to distributions described in section 402(c)(4)(A) or 
     411(a)(11), or
       ``(ii) in any case described in section 417(a)(2) (relating 
     to cases where spouse cannot be located).
       ``(C) Other rules.--The Secretary shall prescribe rules 
     similar to the rules under section 417 for the form and 
     timing of any consent required by this paragraph.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to plan years beginning after December 31, 1998.
       (2) Plan amendments.--A plan shall not be treated as 
     failing to meet the requirements of section 411(d)(6) of the 
     Internal Revenue Code of 1986 or section 204(g) of the 
     Employee Retirement Income Security Act of 1974 merely 
     because it is amended to meet the requirements of section 
     401(k)(4)(13) of such Code (as added by subsection (a)).

     SEC. 715. SPECIAL RULES FOR CHURCH PLANS.

       (a) In General.--Section 414(e)(5) relating to special 
     rules for chaplains and self-employed ministers is amended--
       (1) by striking ``not eligible to participate'' in 
     subparagraph (C) and inserting ``not otherwise 
     participating'', and
       (2) by adding at the end the following new subparagraph:
       ``(E) Exclusion.--In the case of a contribution to a church 
     plan made on behalf of a minister described in subparagraph 
     (A)(i)(II), such contribution shall not be included in the 
     gross income of the minister to the extent that such 
     contribution would not be so included if the minister was an 
     employee of a church.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1997.

[[Page S6818]]

     SEC. 716. REPEAL OF APPLICATION OF UNRELATED BUSINESS INCOME 
                   TAX TO ESOPS.

       (a) In General.--Section 512(e) is amended--
       (1) by striking ``described in section 1361(c)(7)'' in 
     paragraph (1) and inserting ``described in section 501(c)(3) 
     and exempt from taxation under section 501(a)'', and
       (2) by inserting ``Charitable Organizations Holding Stock 
     in'' after ``Applicable to'' in the heading.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 717. DIVERSIFICATION IN SECTION 401(K) PLAN INVESTMENTS.

       (a) Limitations on Investment in Employer Securities and 
     Employer Real Property by Cash or Deferred Arrangements.--
     Section 407(d)(3) of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1107(d)(3)) is amended by adding at 
     the end the following:
       ``(D)(i) The term `eligible individual account plan' does 
     not include that portion of an individual account plan that 
     consists of elective deferrals (as defined in section 
     402(g)(3) of the Internal Revenue Code of 1986) pursuant to a 
     qualified cash or deferred arrangement as defined in section 
     401(k) of the Internal Revenue Code of 1986 (and earnings 
     allocable thereto), if such elective deferrals (or earnings 
     allocable thereto) are required to be invested in qualifying 
     employer securities or qualifying employer real property or 
     both pursuant to the documents and instruments governing the 
     plan or at the direction of a person other than the 
     participant on whose behalf such elective deferrals are made 
     to the plan (or the participant's beneficiary).
       ``(ii) For purposes of subsection (a), such portion shall 
     be treated as a separate plan.
       ``(iii) This subparagraph shall not apply to an individual 
     account plan if the fair market value of the assets of all 
     individual account plans maintained by the employer equals 
     not more than 10 percent of the fair market value of the 
     assets of all pension plans maintained by the employer.
       ``(iv) This subparagraph shall not apply to an individual 
     account plan that is an employee stock ownership plan as 
     defined in section 409(a) or 4975(e)(7) of the Internal 
     Revenue Code.
       ``(v) This subparagraph shall not apply to an individual 
     account plan if not more than 1 percent of an employees 
     eligible compensation deposited to the plan as an elective 
     deferral (as so defined) is required to be invested in the 
     qualifying employer securities.''.
       (b) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to employer securities and employer real property 
     acquired after the beginning of the first plan year beginning 
     after the 90th day after the date of enactment of this Act.
       (2) Special rule for certain acquisitions.--Employer 
     securities and employer real property acquired pursuant to a 
     binding written contract to acquire such securities and real 
     property in effect on the date of enactment of this Act and 
     at all times thereafter, shall be treated as acquired 
     immediately before such date.
              Subtitle C--Revisions Relating to Disasters

     SEC. 721. 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. 722. GAIN OR LOSS FROM SALE OF LIVESTOCK DISREGARDED FOR 
                   PURPOSES OF EARNED INCOME CREDIT.

       (a) In General.--Section 32(i)(2)(D) (relating to 
     disqualified income) is amended by inserting ``determined 
     without regard to gain or loss from the sale of livestock 
     described in section 1231(b)(3),'' after ``taxable year,''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1995.

     SEC. 723. 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 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 Revenue Reconciliation 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, 
     1999.''.

     SEC. 724. DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT ACCOUNTS 
                   MAY BE USED WITHOUT PENALTY TO REPLACE OR 
                   REPAIR PROPERTY DAMAGED IN PRESIDENTIALLY 
                   DECLARED DISASTER AREAS.

       (a) In General.--Section 72(t)(2) (relating to exceptions 
     to 10-percent additional tax on early distributions), as 
     amended by sections 203 and 303, is amended by adding at the 
     end the following new subparagraph:
       ``(G) Distributions for disaster-related expenses.--
     Distributions from an individual retirement plan which are 
     qualified disaster-related distributions.''.
       (b) Qualified Disaster-Related Distributions.--Section 
     72(t), as amended by sections 203 and 303, is amended by 
     adding at the end the following new paragraph:
       ``(9) Qualified disaster-related distributions.--For 
     purposes of paragraph (2)(E)--
       ``(A) In general.--The term `qualified disaster-related 
     distribution' means any payment or distribution received by 
     an individual to the extent that the payment or distribution 
     is used by such individual within 60 days of the payment or 
     distribution to pay for the repair or replacement of tangible 
     property which is disaster-damaged property.
       ``(B) Limitations.--
       ``(i) Only distributions within 2 years.--The term 
     `qualified disaster-related distribution' shall only include 
     any payment or distribution which is made during the 2-year 
     period beginning on the date of the determination referred to 
     in subparagraph (D).
       ``(ii) Dollar limitation.--Such term shall not include 
     distributions to the extent the amount of such distributions 
     exceeds $10,000 during the 2-year period described in clause 
     (i).
       ``(C) Disaster-damaged property.--The term `disaster-
     damaged property' means property--
       ``(i) which was located in a disaster area on the date of 
     the determination referred to in subparagraph (C), and
       ``(ii) which was destroyed or substantially damaged as a 
     result of the disaster occurring in such area.
       ``(D) Disaster area.--The term `disaster area' means an 
     area determined by the President during 1997 to warrant 
     assistance by the Federal Government under the Robert T. 
     Stafford Disaster Relief and Emergency Assistance Act.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments and distributions after December 31, 
     1996, with respect to disasters occurring after such date.

     SEC. 725. ELIMINATION OF 10 PERCENT FLOOR FOR DISASTER 
                   LOSSES.

       (a) General Rule.--Section 165(h)(2)(A) (relating to net 
     casualty loss allowed only to the extent it exceeds 10 
     percent of adjusted gross income) is amended by striking 
     clauses (i) and (ii) and inserting the following new clauses:
       ``(i) the amount of the personal casualty gains for the 
     taxable year,
       ``(ii) the amount of the federally declared disaster losses 
     for the taxable year (or, if lesser, the net casualty loss), 
     plus
       ``(iii) the portion of the net casualty loss which is not 
     deductible under clause (ii) but only to the extent such 
     portion exceeds 10 percent of the adjusted gross income of 
     the individual.
     For purposes of the preceding sentence, the term `net 
     casualty loss' means the excess of personal casualty losses 
     for the taxable year over personal casualty gains.''.
       (b) Federally Declared Disaster Loss Defined.--Section 
     165(h)(3) (relating to treatment of casualty gains and 
     losses) is amended by adding at the end the following new 
     subparagraph:
       ``(C) Federally declared disaster loss.--
       ``(i) In general.--The term `federally declared disaster 
     loss' means any personal casualty loss attributable to a 
     disaster occurring during 1997 in an area subsequently 
     determined by the President of the United States to warrant 
     assistance by the Federal Government under the Robert T. 
     Stafford Disaster Relief and Emergency Assistance Act.
       ``(ii) Dollar limitation.--Such term shall not include 
     personal casualty losses to the extent such losses exceed 
     $10,000 for the taxable year.''.
       (c) Conforming Amendment.--The heading for section 
     165(h)(2) is amended by striking ``Net casualty loss'' and 
     inserting ``Net nondisaster casualty loss''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to losses attributable to disasters occurring 
     after December 31, 1996, including for purposes of 
     determining the portion of such losses allowable in taxable 
     years ending before such date pursuant to an election under 
     section 165(i) of the Internal Revenue Code of 1986.

     SEC. 726. ABATEMENT OF INTEREST ON UNDERPAYMENTS BY TAXPAYERS 
                   IN PRESIDENTIALLY DECLARED DISASTER AREAS.

       (a) In General.--Section 6404 (relating to abatements) is 
     amended by adding at the end the following:
       ``(h) Abatement of Interest on Underpayments by Taxpayers 
     in Presidentially Declared Disaster Areas.--
       ``(1) In general.--If the Secretary extends for any period 
     the time for filing income tax returns under section 6081 and 
     the time for paying income tax with respect to such returns 
     under section 6161 (and waives any penalties relating to the 
     failure to so file or so pay) for any individual located in a 
     Presidentially declared disaster

[[Page S6819]]

     area, the Secretary shall abate for such period the 
     assessment of any interest prescribed under section 6601 on 
     such income tax.
       ``(2) Presidentially declared disaster area.--For purposes 
     of paragraph (1), the term `Presidentially declared disaster 
     area' means, with respect to any individual, any area which 
     the President has determined during 1997 warrants assistance 
     by the Federal Government under the Robert T. Stafford 
     Disaster Relief and Emergency Assistance Act.
       ``(3) Individual.--For purposes of this subsection, the 
     term `individual' shall not include any estate or trust.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to disasters declared after December 31, 1996.
          Subtitle D--Provisions Relating to Small Businesses

     SEC. 731. WAIVER OF PENALTY THROUGH JUNE 30, 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 July 1, 1998.

     SEC. 732. MINIMUM TAX NOT TO APPLY TO FARMERS' INSTALLMENT 
                   SALES.

       (a) In General.--Subsection (a) of section 56 is amended by 
     striking paragraph (6) (relating to treatment of installment 
     sales).
       (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)''.

     SEC. 733. INCREASE IN DEDUCTION FOR HEALTH INSURANCE COSTS OF 
                   SELF-EMPLOYED INDIVIDUALS.

       (a) In General.--The table contained in section 
     162(l)(1)(B) is amended to read as follows:

The applicable percentage is--in calendar year--
  1997..........................................................50 ....

  1998..........................................................50 ....

  1999 through 2001.............................................60 ....

  2002..........................................................60 ....

  2003..........................................................70 ....

  2004..........................................................80 ....

  2005..........................................................85 ....

  2006..........................................................90 ....

  2007......................................................100.''.....

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

     SEC. 734. SENSE OF THE SENATE WITH RESPECT TO SELF-EMPLOYMENT 
                   TAX OF LIMITED PARTNERS.

       (a) Findings.--The Senate finds that--
       (1) the Department of the Treasury issued Proposed 
     Regulation 1.1402(a)-2 in January 1997 relating to the 
     definition of a limited partner for self-employment tax 
     purposes under section 1402(a)(13) of the Internal Revenue 
     Code;
       (2) since 1977, section 1402(a)(13) of such Code has 
     provided that--
       (A) a limited partner's net earnings from self-employment 
     include only guaranteed payments made to the individual for 
     services actually rendered and do not include a limited 
     partner's distributive share of the income or loss of the 
     partnership, and
       (B) a general partner's net earnings from self-employment 
     include the partner's distributive share;
       (3) the proposed regulations provide generally--
       (A) that a partner will not be treated as a limited partner 
     if the individual--
       (i) has personal liability for partnership debts,
       (ii) has authority to contract on behalf of the 
     partnership, or
       (iii) participates in the partnership's trade or business 
     for more than 500 hours during the taxable year;
       (B) that an individual meeting any one of these three 
     criteria will be treated as a general partner, and net 
     earnings from self-employment will include the partner's 
     distributive share of partnership income and loss, resulting 
     in substantial tax liability because there is a 15.3 percent 
     tax on self-employment income below $65,400 in 1997 and a 2.9 
     percent hospital insurance tax on self-employment income 
     above that amount;
       (4) certain types of entities, such as limited liability 
     companies and limited liability partnerships, were not widely 
     used at the time the present rule relating to limited 
     partners was enacted, and that the proposed regulations 
     attempt to address owners of such entities;
       (5) the Senate is concerned that the proposed change in the 
     treatment of individuals who are limited partners under 
     applicable State law exceeds the regulatory authority of the 
     Treasury Department and would effectively change the law 
     administratively without congressional action; and
       (6) the proposed regulations address and raise significant 
     policy issues and the proposed definition of a limited 
     partner may have a substantial impact on the tax liability of 
     certain individuals and may also affect individuals' 
     entitlement to social security benefits.
       (b) Sense of Senate.--It is the sense of the Senate that--
       (1) the Department of the Treasury and the Internal Revenue 
     Service should withdraw Proposed Regulation 1.1402(a)-2 which 
     imposes a tax on limited partners; and
       (2) Congress, not the Department of the Treasury or the 
     Internal Revenue Service, should determine the tax law 
     governing self-employment income for limited partners.
                     Subtitle E--Foreign Provisions

                       PART I--GENERAL PROVISIONS

     SEC. 741. 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.

     SEC. 742. DENIAL OF TREATY BENEFITS FOR CERTAIN PAYMENTS 
                   THROUGH HYBRID ENTITIES.

       (a) In General.--Section 894 (relating to income affected 
     by treaty) is amended by inserting after subsection (b) the 
     following new subsection:
       ``(c) Denial of Treaty Benefits for Certain Payments 
     Through Hybrid Entities.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to determine 
     the extent to which a taxpayer shall be denied benefits under 
     any income tax treaty of the United States with respect to 
     any payment received by, or income attributable to any 
     activities of, an entity organized in any jurisdiction 
     (including the United States) that is treated as a 
     partnership or is otherwise treated as fiscally transparent 
     for United States Federal income tax purposes (including a 
     common investment trust under section 584, a grantor trust, 
     or an entity that is disregarded for United States Federal 
     income tax purposes) and is treated as fiscally 
     nontransparent for purposes of the tax laws of the 
     jurisdiction of residence of the taxpayer.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply upon the date of enactment of this Act.

     SEC. 743. UNITED STATES PROPERTY NOT TO INCLUDE CERTAIN 
                   ASSETS ACQUIRED BY DEALERS IN ORDINARY COURSE 
                   OF TRADE OR BUSINESS.

       (a) In General.--Section 956(c)(2) is amended by striking 
     ``and'' at the end of subparagraph (H), by striking the 
     period at the end of subparagraph (I) and inserting a 
     semicolon, and by adding at the end the following new 
     subparagraphs:
       ``(J) deposits of cash or securities made or received on 
     commercial terms in the ordinary course of a United States or 
     foreign person's business as a dealer in securities or in 
     commodities, but only to the extent such deposits are made or 
     received as collateral or margin for (i) a securities loan, 
     notional principal contract, options contract, forward 
     contract, or futures contract, or (ii) any other financial 
     transaction in which the Secretary determines that it is 
     customary to post collateral or margin; and
       ``(K) an obligation of a United States person to the extent 
     the principal amount of the obligation does not exceed the 
     fair market value of readily marketable securities sold or 
     purchased pursuant to a sale and repurchase agreement or 
     otherwise posted or received as collateral for the obligation 
     in the ordinary course of its business by a United States or 
     foreign person which is a dealer in securities or 
     commodities.
     For purposes of subparagraphs (J) and (K), the term `dealer 
     in securities' has the meaning given such term by section 
     475(c)(1), and the term `dealer in commodities' means a 
     futures commission merchant or any person which would be a 
     dealer in securities if securities under section 475(c)(2) 
     included commodities, evidences of an interest in 
     commodities, and derivative instruments in respect of 
     commodities (other than any activity gain or loss from which 
     is described in section 1256(a)(3)).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 1997, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.

     SEC. 744. EXEMPTION FOR ACTIVE FINANCING INCOME.

       (a) Exemption From Foreign Personal Holding Company 
     Income.--Subsection (c) of section 954 is amended by adding 
     at the end the following new paragraph:
       ``(4) Certain income derived in active conduct of trade or 
     business.--
       ``(A) In general.--For purposes of paragraph (1), foreign 
     personal holding company income shall not include income 
     which is--
       ``(i) derived in or incident to the active conduct by a 
     controlled foreign corporation of a banking, financing, or 
     similar business, but only if the corporation is 
     predominantly engaged in the active conduct of such business,
       ``(ii) received from a person other than a related person 
     (within the meaning of subsection (d)(3)) and derived from 
     the investments made by a qualifying insurance company of its 
     unearned premiums or reserves ordinary and necessary for the 
     proper conduct of its insurance business, or
       ``(iii) received from a person other than a related person 
     (within the meaning of subsection (d)(3)) and derived from 
     investments made by a qualifying insurance company of an 
     amount of its assets equal to--

       ``(I) in the case of contracts regulated in the country in 
     which sold as property, casualty, or health insurance 
     contracts, one-third of its premiums earned on insurance 
     contracts during the taxable year (as defined in section 
     832(b)(4)), and

[[Page S6820]]

       ``(II) in the case of contracts regulated in the country in 
     which sold as life insurance or annuity contracts, the 
     greater of 10 percent of the reserves described in clause 
     (ii) or $10,000,000,

     which are not directly or indirectly attributable to the 
     insurance or reinsurance of risks of persons who are related 
     persons (within the meaning of subsection (d)(3)).
       ``(B) Applicable principles.--
       ``(i) Banking, etc. income.--The Secretary shall prescribe 
     regulations which interpret subparagraph (A)(i) in accordance 
     with the applicable principles of section 904(d)(2)(C), 
     except that in prescribing such regulations, the Secretary 
     shall include income from all leases in income from a 
     banking, financing, or similar business.
       ``(ii) Look-thru rules.--The Secretary shall prescribe 
     regulations consistent with the principles of section 
     904(d)(3) which provide that dividends, interest, income 
     equivalent to interest, rents, or royalties received or 
     accrued from a related person (within the meaning of 
     subsection (d)(3)) shall be subject to look-thru treatment 
     for purposes of this section.
       ``(iii) Special rule for banking or securities business.--
     In the case of a corporation described in subparagraph 
     (C)(ii), the regulations under clauses (i) and (ii) shall be 
     consistent with the applicable principles of section 1296(b) 
     (as in effect on the day before the enactment of the Revenue 
     Reconciliation Act of 1997).
       ``(C) Predominantly engaged.--For purposes of subparagraph 
     (A)(i), a corporation shall be deemed predominantly engaged 
     in the active conduct of a banking, financing, or similar 
     business only if--
       ``(i) more than 70 percent of its gross income from such 
     business is derived from transactions with unrelated persons 
     (as defined in subsection (d)(3)), and more than 20 percent 
     of its gross income from that business is derived from 
     transactions with unrelated persons (as so defined) located 
     within the country under the laws of which the controlled 
     foreign corporation is created or organized, or
       ``(ii) the corporation is--

       ``(I) predominantly engaged in the active conduct of a 
     banking or securities business (within the meaning of section 
     1296(b), as in effect before the enactment of the Revenue 
     Reconciliation Act of 1997), or
       ``(II) a qualified bank affiliate or a qualified securities 
     affiliate for purposes of section 1296(b) (as so in effect).

       ``(D) Qualifying insurance company.--For purposes of 
     clauses (ii) and (iii) of subparagraph (A), the term 
     `qualifying insurance company' means any entity which is 
     subject to regulation as an insurance company under the laws 
     of its country of incorporation and which realizes at least 
     50 percent of its gross income (other than gross income 
     derived from investments) from premiums written on risks 
     situated within its country of incorporation.
       ``(E) Application.--This paragraph shall apply to taxable 
     years of foreign corporations beginning after December 31, 
     1997, and before January 1, 1999, and to taxable years of 
     United States shareholders with or within which such taxable 
     years of foreign corporations end.''.
       (b) Exemption From Foreign Base Company Services Income.--
     Paragraph (2) of section 954(e) 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:
       ``(C) in the case of taxable years described in subsection 
     (c)(4)(E), the active conduct by a controlled foreign 
     corporation of a banking, financing, insurance, or similar 
     business, but only if the corporation is predominantly 
     engaged in the active conduct of that business (within the 
     meaning of subsection (c)(4)(C)).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years of foreign corporations 
     beginning after December 31, 1997, and before January 1, 
     1999, and to taxable years of United States shareholders with 
     or within which such taxable years of foreign corporations 
     end.

     SEC. 745. TREATMENT OF NONRESIDENT ALIENS ENGAGED IN 
                   INTERNATIONAL TRANSPORTATION SERVICES.

       (a) Sourcing Rules.--
       (1) In general.--Section 861(a)(3) is amended by adding at 
     the end the following new flush sentence:
     ``In addition, compensation for labor or services performed 
     in the United States shall not be deemed to be income from 
     sources within the United States if the labor or services are 
     performed by a nonresident alien individual in connection 
     with the individual's temporary presence in the United States 
     as a regular member of the crew of a foreign vessel engaged 
     in transportation between the United States and a foreign 
     country or a possession of the United States.''.
       (2) Transportation income.--Subparagraph (B) of section 
     863(c)(2) is amended by adding at the end the following flush 
     sentence:
     ``In the case of transportation income derived from, or in 
     connection with, a vessel, this subparagraph shall only apply 
     if the taxpayer is a citizen or resident alien.''.
       (3) Conforming amendment.--Section 410(b)(3)(C) is amended 
     by inserting ``without regard to the last sentence thereof'' 
     after ``section 861(a)(3)''.
       (b) Exclusion From Income.--Section 872(b) is amended by 
     redesignating paragraphs (6) and (7) as paragraphs (7) and 
     (8), respectively, and by inserting after paragraph (5) the 
     following new paragraph:
       ``(6) Personal services of crew members.--Income derived by 
     an individual resident of a foreign country from personal 
     services as a regular crew member on board a vessel to which 
     paragraph (1) applies.''.
       (c) Presence in United States.--
       (1) In general.--Paragraph (7) of section 7701(b) is 
     amended by adding at the end the following new subparagraph:
       ``(D) Crew members temporarily present.--If an individual 
     is temporarily present in the United States as a regular 
     member of the crew of a foreign vessel engaged in 
     transportation between the United States and a foreign 
     country or a possession of the United States, such individual 
     shall not be treated as present in the United States on any 
     such day.''.
       (2) Conforming amendment.--Subparagraph (A) of section 
     7701(b)(7) is amended by striking ``or (C)'' and inserting 
     ``, (C), or (D)''.
       (d) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to remuneration for services performed in taxable years 
     beginning after December 31, 1997.
       (2) Presence.--The amendment made by subsection (c) shall 
     apply to taxable years beginning after December 31, 1997.

       PART II--TREATMENT OF PASSIVE FOREIGN INVESTMENT COMPANIES

     SEC. 751. 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. 752. 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)--
       ``(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.

[[Page S6821]]

       ``(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.''.
       (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

[[Page S6822]]

     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. 753. EFFECTIVE DATE.

       The amendments made by this part 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 F--Other Provisions

     SEC. 761. 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. 762. 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 3.5 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. 763. 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 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. 764. 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

[[Page S6823]]

     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) Association Property.--Paragraph (5) of section 528(c), 
     as redesignated by paragraph (2), is amended by adding at the 
     end the following new flush sentence:
     ``In the case of a timeshare association, such term includes 
     property in which the timeshare association, or members of 
     the association, have rights arising out of recorded 
     easements, covenants, or other recorded instruments to use 
     property related to the timeshare project.''.
       (d) 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)''.
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 765. INCREASED DEDUCTIBILITY OF BUSINESS MEAL EXPENSES 
                   FOR INDIVIDUALS SUBJECT TO FEDERAL HOURS OF 
                   SERVICE AND SEAFOOD PROCESSORS.

       (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 and seafood processors.--
       ``(A) In general.--In the case of any expenses for food or 
     beverages consumed--
       ``(i) 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, or
       ``(ii) by an individual in connection with the individual's 
     employment at a seafood processing facility located in the 
     United States, North of 53 degrees North latitude,
     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--
                                                             98 55 1999

  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. 766. DEDUCTION IN COMPUTING ADJUSTED GROSS INCOME FOR 
                   EXPENSES IN CONNECTION WITH SERVICE PERFORMED 
                   BY CERTAIN OFFICIALS.

       (a) In General.--Paragraph (2) of section 62(a) (defining 
     adjusted gross income) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Certain expenses of officials.--The deductions 
     allowed by section 162 which consist of expenses paid or 
     incurred with respect to services performed by an official as 
     an employee of a State or a political subdivision thereof in 
     a position compensated in whole or in part on a fee basis.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to expenses paid or incurred in taxable years 
     beginning after December 31, 1997.

     SEC. 767. INCREASE IN STANDARD MILEAGE RATE EXPENSE DEDUCTION 
                   FOR CHARITABLE USE OF PASSENGER AUTOMOBILE.

       (a) In General.--Section 170(i) (relating to standard 
     mileage rate for use of passenger automobile) is amended to 
     read as follows:
       ``(i) Standard Mileage Rate for Use of Passenger 
     Automobile.--
       ``(1) General rule.--Except as provided in paragraph (2), 
     for purposes of computing the deduction under this section 
     for use of a passenger automobile, the standard mileage rate 
     shall be 15 cents per mile.
       ``(2) Indexing after 1998.--In the case of taxable years 
     beginning in a calendar year after 1998, the 15-cent amount 
     under paragraph (1) shall be increased by an amount equal to 
     the product of such amount and the cost-of-living adjustment 
     determined under section 1(f)(3) for such calendar year, 
     except that subparagraph (B) thereof shall be applied by 
     substituting `1997' for `1992'. If the amount as increased 
     under the preceding sentence is not a multiple of 1 cent, 
     such amount shall be rounded to the next lowest multiple of 1 
     cent.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 768. 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 empowerment zone or enterprise community (and any 
     supplemental zone designated on December 21, 1994), and
       ``(ii) 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. 769. COMBINED EMPLOYMENT TAX REPORTING DEMONSTRATION 
                   PROJECT.

       (a) In General.--The Secretary of the Treasury shall 
     provide for a demonstration project to

[[Page S6824]]

     assess the feasibility and desirability of expanding combined 
     Federal and State tax reporting.
       (b) Description of Demonstration Project.--The 
     demonstration project under subsection (a) shall be--
       (1) carried out between the Internal Revenue Service and 
     the State of Montana for a period ending with the date which 
     is 5 years after the date of the enactment of this Act,
       (2) limited to the reporting of employment taxes, and
       (3) limited to the disclosure of the taxpayer identity (as 
     defined in section 6103(b)(6) of such Code) and the signature 
     of the taxpayer.
     Such identity and signature may be disclosed notwithstanding 
     section 6103 of the Internal Revenue Code of 1986.

     SEC. 770. INCREASED MAXIMUM CAPITAL EXPENDITURE LIMIT FOR 
                   QUALIFIED SMALL ISSUE BONDS.

       (a) In General.--Subparagraph (A) of section 144(a)(4) 
     (relating to $10,000,000 limit in certain cases) is amended 
     by adding at the end the following new flush sentence:
     ``Capital expenditures which would (but for this sentence) be 
     taken into account under clause (ii) shall be taken into 
     account only to the extent such expenditures exceed 
     $10,000,000.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to--
       (1) obligations issued after December 31, 1997, and
       (2) capital expenditures made after such date with respect 
     to obligations issued on or before such date.

     SEC. 771. EXTENSION OF CREDIT FOR ELECTRICITY PRODUCED FROM 
                   CERTAIN RENEWABLE RESOURCES.

       Paragraph (3) of section 45(c) is amended by striking 
     ``July 1, 1999'' and inserting ``July 1, 2001''.

     SEC. 772. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION NOT TO 
                   APPLY TO MARGINAL PRODUCTION.

       (a) In General.--Paragraph (6) of section 613A(c) is 
     amended by adding at the end the following new subparagraph:
       ``(H) Exemption from taxable income limit where reference 
     price below $14.--The second sentence of subsection (a) of 
     section 613 shall not apply to so much of the allowance for 
     depletion as is determined under subparagraph (A) for any 
     taxable year beginning in a calendar year for which the 
     reference price (as defined in section 29(d)(2)(C)) is below 
     $14.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 773. CLARIFICATION OF TREATMENT OF CERTAIN RECEIVABLES 
                   PURCHASED BY COOPERATIVE HOSPITAL SERVICE 
                   ORGANIZATIONS.

       (a) In General.--Subparagraph (A) of section 501(e)(1) is 
     amended by inserting ``(including the purchase of patron 
     accounts receivable on a recourse basis)'' after ``billing 
     and collection''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1996.

     SEC. 774. EXCEPTION FOR BONDS GUARANTEED BY FEDERAL HOME LOAN 
                   BANK BOARD FROM RESTRICTION ON FEDERAL 
                   GUARANTEE OF BONDS.

       (a) In General.--Clause (i) of section 149(b)(3)(A) is 
     amended by striking ``or the Government National Mortgage 
     Association'' and inserting ``the Government National 
     Mortgage Association, or the Federal Home Loan Bank Board''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to bonds issued after the date of the enactment 
     of this Act.

     SEC. 775. INCREASED PERIOD FOR DEDUCTION FOR TRAVELING 
                   EXPENSES WHILE WORKING AWAY FROM HOME.

       (a) In General.--Section 162 (relating to trade or business 
     expenses) is amended--
       (1) in subsection (a)--
       (A) in paragraph (2), by inserting ``subject to subsection 
     (o),'' before ``traveling expenses'', and
       (B) by striking the last sentence, and
       (2) by redesignating subsection (o) as subsection (p) and 
     by inserting after subsection (n) the following new 
     subsection:
       ``(o) Expenses While Away From Home.--For purposes of 
     subsection (a)(2)--
       ``(1) In general.--A taxpayer shall not be treated as being 
     temporarily away from home during any period of employment if 
     such period exceeds 1 year.
       ``(2) Special rules for construction projects.--
       ``(A) 18-month period for certain projects.--If--
       ``(i) the employment described in paragraph (1) is in 
     connection with an identifiable construction project with a 
     completion date that is reasonably expected to occur within 5 
     years after the starting date of such project, and
       ``(ii) the taxpayer continues to maintain a household as 
     his principal residence and incur duplicative expenses at 
     such residence,
     paragraph (1) shall be applied by substituting `18 months' 
     for `1 year'.
       ``(B) 2-year period for projects in areas lacking family 
     support infrastructure.--If the employment described in 
     paragraph (1) is in connection with an identifiable 
     construction project described in subparagraph (A) which is 
     located in an area which lacks adequate housing, educational, 
     medical, or other facilities necessary for families, 
     paragraph (1) shall be applied by substituting `2 years' for 
     `1 year'.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to costs paid or incurred in taxable years 
     beginning after December 31, 1997.

     SEC. 776. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN 
                   EXPENSES INCURRED IN SUPPORT OF NATIVE ALASKAN 
                   SUBSISTENCE WHALING.

       (a) In General.--Section 170 (relating to charitable, etc., 
     contributions and gifts) is amended by redesignating 
     subsection (m) as subsection (n) and by inserting after 
     subsection (l) the following new subsection:
       ``(m) Expenses Paid By Certain Whaling Captains in Support 
     of Native Alaskan Subsistence Whaling.--
       ``(1) In general.--In the case of an individual who is 
     recognized by the Alaska Eskimo Whaling Commission as a 
     whaling captain charged with the responsibility of 
     maintaining and carrying out sanctioned whaling activities 
     and who engages in such activities during the taxable year, 
     the amount described in paragraph (2) (to the extent such 
     amount does not exceed $7,500 for the taxable year) shall be 
     treated for purposes of this section as a charitable 
     contribution.
       ``(2) Amount described.--The amount described in this 
     paragraph is the aggregate of the reasonable and necessary 
     whaling expenses paid by the taxpayer during the taxable year 
     in carrying out sanctioned whaling activities. For purposes 
     of the preceding sentence, the term `whaling expenses' 
     includes expenses for--
       ``(A) the acquisition and maintenance of whaling boats, 
     weapons, and gear used in sanctioned whaling activities,
       ``(B) the supplying of food for the crew and other 
     provisions for carrying out such activities, and
       ``(C) storage and distribution of the catch from such 
     activities.
       ``(3) Sanctioned whaling activities.--For purposes of this 
     subsection, the term `sanctioned whaling activities' means 
     subsistence bowhead whale hunting activities conducted 
     pursuant to the management plan of the Alaska Eskimo Whaling 
     Commission.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years ending after the date of the 
     enactment of this Act.

     SEC. 777. MODIFICATION TO ELIGIBILITY CRITERIA FOR 
                   DESIGNATION OF FUTURE ENTERPRISE ZONES IN 
                   ALASKA OR HAWAII.

       Section 1392 (relating to eligibility criteria) is amended 
     by adding at the end the following new subsection:
       ``(d) Special Eligibility for Nominated Areas Located in 
     Alaska or Hawaii.--A nominated area in Alaska or Hawaii shall 
     be treated as meeting the requirements of paragraphs (2), 
     (3), and (4) of subsection (a) if for each census tract or 
     block group within such area 20 percent or more of the 
     families have income which is 50 percent or less of the 
     statewide median family income (as determined under section 
     143).''.

     SEC. 778. CLARIFICATION OF DE MINIMIS FRINGE BENEFIT RULES TO 
                   NO-CHARGE EMPLOYEE MEALS.

       (a) In General.--Paragraph (2) of section 132(e) (defining 
     de minimis fringe) is amended by adding at the end the 
     following new sentence: ``For purposes of subparagraph (B), 
     an employee entitled under section 119 to exclude the value 
     of a meal provided at such facility shall be treated as 
     having paid an amount for such meal equal to the direct 
     operating costs of the facility attributable to such meal.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 779. CLARIFICATION OF STANDARD TO BE USED IN DETERMINING 
                   EMPLOYMENT TAX STATUS OF SECURITIES BROKERS.

       (a) In General.--In determining for purposes of chapter 1 
     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. 780. SENSE OF THE SENATE REGARDING REFORM OF THE 
                   INTERNAL REVENUE CODE OF 1986.

       (a) Findings.--The Senate finds that--
       (1) the Internal Revenue Code of 1986 (``tax code'') is 
     unnecessarily complex, having grown from 14 pages at its 
     inception to 3,458 pages by 1995;
       (2) this complexity resulted in taxpayers spending about 
     5,300,000,000 hours and $225,000,000,000 trying to comply 
     with the tax code in 1996;
       (3) the current congressional budgetary process is weighted 
     too heavily toward tax increases, as evidenced by the fact 
     that since 1954 there have been 27 major bills enacted that 
     increased Federal income taxes and only 9 bills that 
     decreased Federal income taxes, 3 of which were de minimis 
     decreases;
       (4) the tax burden on working families has reached an 
     unsustainable level, as evidenced by the fact that in 1948 
     the average American family with children paid only 4.3 
     percent of its income to the Federal Government in direct 
     taxes and today the average family pays about 25 percent;
       (5) the tax code unfairly penalizes saving and investment 
     by double taxing these activities while only taxing income 
     used for consumption once, and as a result the United States 
     has one of the lowest saving rates, at 4.7 percent, in the 
     industrialized world;
       (6) the tax code stifles economic growth by discouraging 
     work and capital formation through excessively high tax 
     rates;
       (7) Congress and the President have found it necessary, on 
     2 separate occasions, to enact laws to protect taxpayers from 
     the abuses of the

[[Page S6825]]

     Internal Revenue Service and a third bill has been introduced 
     in the one hundred fifth Congress; and
       (8) the complexity of the tax code has increased the number 
     of Internal Revenue Service employees responsible for 
     administering the tax laws to 110,000 and this costs the 
     taxpayers $9,800,000,000 each year.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that--
       (1) the Internal Revenue Code of 1986 needs broad-based 
     reform; and
       (2) the President should submit to Congress a comprehensive 
     proposal to reform the Internal Revenue Code of 1986.

     SEC. 781. SENSE OF THE SENATE REGARDING TAX TREATMENT OF 
                   STOCK OPTIONS.

       (a) Findings.--The Senate finds that--
       (1) currently businesses can deduct the value of stock 
     options as a business expense on their income tax returns, 
     even though the stock options are not treated as an expense 
     on the books of those same businesses; and
       (2) stock options are the only form of compensation that is 
     treated in this way.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that the Committee on Finance of the Senate should hold 
     hearings on the tax treatment of stock options.

     SEC. 782. SENSE OF THE SENATE ON ESTATE TAXES.

       (a) Findings.--The Senate finds that whereas--
       (1) the Federal estate tax punishes hard working small 
     business owners and discourages savings and growth;
       (2) the Federal estate tax imposes an unfair economic 
     burden on small businesses and reduces their ability to 
     survive and compete with large corporations; and
       (3) a reduction in Federal estate taxes for family-owned 
     farms and enterprises will help to prevent the liquidation of 
     small businesses that strengthen American communities by 
     providing jobs and security.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that--
       (1) the estate tax relief provided in this bill is an 
     important step that will enable more family-owned farms and 
     small businesses to survive and continue to provide economic 
     security and job creation in American communities; and
       (2) Congress should eliminate the Federal estate tax 
     liability for family-owned businesses by the end of 2002 on a 
     deficit-neutral basis.

     SEC. 783. QUALIFIED GAMES OF CHANCE.

       (a) In General.--The term ``unrelated trade or business'' 
     does not include the activity of qualified games of chance.
       (b) Qualified Games of Chance.--For purposes of this 
     subsection, the term ``qualified games of chance'' means any 
     game of chance, other than provided in subsection (f), 
     conducted by an organization if--
       (1) such organization is licensed pursuant to State law to 
     conduct such game;
       (2) only organizations which are organized as nonprofit 
     corporations or are exempt from tax under section 501(a) may 
     be so licensed to conduct such game within the State; and
       (3) the conduct of such game does not violate State or 
     local law.

     SEC. 784. SURVIVOR BENEFITS FOR PUBLIC SAFETY 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 
                   PUBLIC SAFETY 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 public safety officer (as such term is defined in section 
     1204 of the Omnibus Crime Control and Safe Streets Act of 
     1968) killed in the line of duty--
       ``(1) if such annuity is provided under a governmental plan 
     which meets the requirements of section 401(1) to the spouse 
     (or a former spouse) of the public safety officer or to a 
     child of such officer; and
       ``(2) to the extent such annuity is attributable to such 
     officer's service as a public safety officer.
       ``(b) Exceptions.--
       ``(1) In general.--Subsection (a) shall not apply with 
     respect to the death of any public safety 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.''.
       (b) 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. 785. 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 in existence on July 1, 1992) 
     which irrebuttably presumed that heart disease and 
     hypertension are work-related illnesses but only for 
     employees separating from service before such date; and
       (2) which is received in calendar year 1989, 1990, or 1991.
     For purposes of the preceding sentence, the term ``State'' 
     includes the District of Columbia.
       (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. 786. REMOVAL OF DOLLAR LIMITATION ON BENEFIT PAYMENTS 
                   FROM A DEFINED BENEFIT PLAN MAINTAINED FOR 
                   CERTAIN POLICE AND FIRE EMPLOYEES.

       (a) In General.--Subparagraph (G) of section 415(b)(2) of 
     the Internal Revenue Code of 1986 is amended by striking 
     ``participant--'' and all that follows and inserting 
     ``participant, subparagraphs (C) and (D) of this paragraph 
     and subparagraph (B) of paragraph (1) shall not apply.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 1996.

     SEC. 787. DEBATE ON A RECONCILIATION BILL.

       Section 310(e)(2) of the Congressional Budget Act of 1974 
     is amended to read as follows:
       ``(2) For purposes of consideration of any reconciliation 
     bill reported under subsection (b)--
       ``(A) debate, and all amendments thereto and debatable 
     motions and appeals in connection therewith, shall be limited 
     to not more than 30 hours;
       ``(B) time on the bill may only be yielded back by consent 
     and a motion to further limit debate shall be debatable with 
     debate limited to \1/2\ hour equally divided;
       ``(C) time on amendments shall be limited to 30 minutes to 
     be equally divided in the usual form and on any second degree 
     amendment or motion to 20 minutes to be equally divided in 
     the usual form, except that after the 15th hour of 
     consideration of a bill, time on all amendments or motions 
     shall be limited to 20 minutes;
       ``(D) no first degree amendment may be proposed after the 
     15th hour of consideration of a bill unless it has been 
     submitted to the Journal Clerk prior to the expiration of the 
     15th hour;
       ``(E) no second degree amendment may be proposed after the 
     20th hour of consideration of a bill unless it has been 
     submitted to the Journal Clerk prior to the expiration of the 
     20th hour; and
       ``(F) after no more than thirty hours of consideration of 
     the measure, the Senate shall proceed, without any further 
     debate on any question, to vote on the final disposition 
     thereof to the exclusion of all amendments not then actually 
     pending before the Senate at that time and to the exclusion 
     of all motions, except a motion to table, or to reconsider 
     and one quorum call on demand to establish the presence of a 
     quorum (and motions required to establish a quorum) 
     immediately before the final vote begins.''.

     SEC. 788. EXCLUSION FROM INCOME OF SEVERANCE PAYMENT AMOUNTS; 
                   TIME PERIODS FOR CARRYBACK AND CARRYFORWARD OF 
                   UNUSED CREDITS.

       (a) Exclusion From Income of Severance Payment Amounts.--
     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. SEVERANCE PAYMENTS.

       ``(a) In General.--In the case of an individual, gross 
     income shall not include any qualified severance payment.
       ``(b) Limitation.--The amount to which the exclusion under 
     subsection (a) applies shall not exceed $2,000 with respect 
     to any separation from employment.
       ``(c) Qualified Severance Payment.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified severance payment' 
     means any payment received by an individual if--
       ``(A) such payment was paid by such individual's employer 
     on account of such individual's separation from employment,
       ``(B) such separation was in connection with a reduction in 
     the work force of the employer, and
       ``(C) such individual does not attain employment within 6 
     months of the date of such separation in which the amount of 
     compensation is equal to or greater than 95 percent of the 
     amount of compensation for the employment that is related to 
     such payment.
       ``(2) Limitation.--Such term shall not include any payment 
     received by an individual if the aggregate payments received 
     with respect to the separation from employment exceed 
     $125,000.''.
       (b) Time Periods for Carryback and Carryforward of Unused 
     Credits.--Section 39(a) (relating to unused credits) is 
     amended--

[[Page S6826]]

       (1) in paragraph (1), by striking ``3'' each place it 
     appears and inserting ``1'' and by striking ``15'' each place 
     it appears and inserting ``20''; and
       (2) in paragraph (2), by striking ``18'' each place it 
     appears and inserting ``22'' and by striking ``17'' each 
     place it appears and inserting ``21''.
       (c) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by striking the item 
     relating to section 138 and inserting the following new 
     items:

``Sec. 138. Severance payments.
``Sec. 139. Cross references to other Acts.''.
       (d) Effective Dates.--
       (1) In general.--The amendments made by subsections (a) and 
     (c) shall apply to taxable years beginning after December 31, 
     1997, and before July 1, 2002.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to the carryback and carryforward of credits 
     arising in taxable years beginning after December 31, 1997.

     SEC. 789. CURRENT REFUNDINGS OF CERTAIN TAX-EXEMPT BONDS.

       (a) In General.--Subsection (c) of section 10632 of the 
     Revenue Act of 1987 (relating to bonds issued by Indian 
     tribal governments) is amended by adding at the end the 
     following new sentence: ``The amendments made by this section 
     shall not apply to any obligation issued after such date if--
       ``(1) such obligation is issued (or is part of a series of 
     obligations issued) to refund an obligation issued on or 
     before such date,
       ``(2) the average maturity date of the issue of which the 
     refunding obligation is a part is not later than the average 
     maturity date of the obligations to be refunded by such 
     issue,
       ``(3) the amount of the refunding obligation does not 
     exceed the outstanding amount of the refunded obligation, and
       ``(4) the net proceeds of the refunding obligation are used 
     to redeem the refunded obligation not later than 90 days 
     after the date of the issuance of the refunding obligation.
     For purposes of paragraph (2), average maturity shall be 
     determined in accordance with section 147(b)(2)(A) of the 
     Internal Revenue Code of 1986.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to refunding obligations issued after the date of 
     the enactment of this Act.

     SEC. 790. SPECIAL RULE FOR THRIFTS WHICH BECOME LARGE BANKS.

       (a) In General.--Section 593(g)(2) (defining applicable 
     excess reserves) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Special rule for thrifts which became large banks in 
     1995.--
       ``(i) In general.--In the case of a bank (as defined in 
     section 581) which became a large bank (as defined in section 
     585(c)(2)) for its first taxable year beginning after 
     December 31, 1994, the balance taken into account under 
     subparagraph (A)(ii) shall not be less than the amount which 
     would be the balance of such reserves as of the close of its 
     last taxable year beginning before January 1, 1995, if the 
     additions to such reserves for all taxable years had been 
     determined under section 585(b)(2)(A).
       ``(ii) Application of cut-off method; etc.--In the case of 
     a taxpayer to which this subparagraph applies--

       ``(I) paragraph (5)(B) shall apply, and
       ``(II) this subparagraph shall not apply in determining the 
     amount taken into account by the taxpayer under subparagraph 
     (A)(ii) for purposes of paragraphs (5) and (6) or subsection 
     (e)(1).''.

       (b) Effective Date.--The amendment made by this section 
     shall take effect as if included in the amendments made by 
     section 1616 of the Small Business Job Protection Act of 
     1996.

      SEC. 791. SENSE OF THE SENATE REGARDING MIDDLE-CLASS 
                   TAXPAYERS BENEFITING FROM TAX CUTS.

       (a) Findings.--The Senate finds that--
       (1) Congress has not provided a genuine tax cut for 
     America's middle-class families since 1981;
       (2) President Clinton promised middle-class tax cuts in 
     1992;
       (3) President Clinton raised taxes by $240,000,000,000 in 
     1993;
       (4) President Clinton vetoed middle-class tax cuts in 1995;
       (5) the middle-class American worker had to work until May 
     9 in order to earn enough money to pay all Federal, State, 
     and local taxes in 1997;
       (6) the Joint Economic Committee reports that real total 
     Government taxes per household in 1994 totaled $18,600;
       (7) more than 70 percent of the tax cuts in both the House 
     of Representatives and the Senate tax relief bills will go to 
     Americans earning less than $75,000 annually;
       (8) the Joint Economic Committee estimates that a family of 
     4 earning $30,000 will receive 53 percent of the tax relief 
     under the reconciliation bill;
       (9) the earned income tax credit was already expanded in 
     President Clinton's 1993 tax bill;
       (10) the fiscal year 1998 budget resolution does not make 
     the $500-per-child tax credit refundable; and
       (11) those who receive the earned income tax credit do not 
     pay Federal income taxes but receive a substantial cash 
     transfer from the Federal Government in the form of refund 
     checks above and beyond income tax rebates.
       (b) Sense of the Senate.--It is the sense of the Senate 
     that America's middle-class taxpayers shoulder the biggest 
     tax burden and that only those who pay Federal income taxes 
     should benefit from the Federal income tax cuts contained in 
     the Revenue Reconciliation Act of 1997.

     SEC. 792. AVERAGING OF FARM INCOME OVER 3 YEARS.

       (a) In General.--Subpart B of part II of subchapter E of 
     chapter 1 of the Internal Revenue Code of 1986 (relating to 
     taxable year for which items of gross income included) is 
     amended by adding the following new section:

     ``SEC. 460A. AVERAGING OF FARM INCOME.

       ``(a) In General.--At the election of a taxpayer engaged in 
     a farming business, the tax imposed by section 1 for such 
     taxable year shall be equal to the sum of--
       ``(1) a tax computed under such section on taxable income 
     reduced by elected farm income, plus
       ``(2) the increase in tax which would result if taxable 
     income for the 3 prior taxable years were increased by the 
     elected farm income.
       ``(b) Definitions.--In this section--
       ``(1) Elected farm income.--
       ``(A) In general.--The term `elected farm income' means so 
     much of the taxable income for the taxable year--
       ``(i) which is attributable to any farming business; and
       ``(ii) which is specified in the election under subsection 
     (a).
       ``(B) Treatment of gains.--For purposes of subparagraph 
     (A), gain from the sale or other disposition of property 
     (other than land) regularly used by the taxpayer in a farming 
     business for a substantial period shall be treated as 
     attributable to a farming business.
       ``(2) Farming business.--The term `farming business' has 
     the meaning given such term by section 263A(e)(4).''.
       (b) Clerical Amendment.--The table of sections for such 
     subpart B is amended by adding at the end the following new 
     item:

``Sec. 460A. Averaging of farm income.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act and before January 1, 2001.
                          TITLE VIII--REVENUES
                     Subtitle A--Financial Products

     SEC. 801. 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 debt if--
       ``(i) the interest payments (or other similar amounts) with 
     respect to such debt meet the requirements of clause (i) of 
     section 860G(a)(1)(B), and
       ``(ii) such debt is not convertible (directly or 
     indirectly) into stock of the issuer or any related person, 
     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

[[Page S6827]]

     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.
     If a position with respect to a transaction which is closed 
     during the 90-day period as described in subparagraph (B) is 
     reestablished, then such transaction shall be disregarded in 
     applying this section if the reestablished position is closed 
     during such 90-day period in a transaction which meets the 
     requirements of subparagraph (B).
       ``(4) Related person.--A person is related to another 
     person with respect to a transaction if--
       ``(A) the relationship is described in section 267 or 
     707(b), and
       ``(B) such transaction is entered into with a view toward 
     avoiding the purposes of this section.
       ``(d) Other Definitions.--For purposes of this section--
       ``(1) Forward contract.--The term `forward contract' means 
     a contract to deliver a substantially fixed amount of 
     property for a substantially fixed price.
       ``(2) Offsetting notional principal contract.--The term 
     `offsetting notional principal contract' means, with respect 
     to any property, an agreement which includes--
       ``(A) a requirement to pay (or provide credit for) all or 
     substantially all of the investment yield (including 
     appreciation) on such property for a specified period, and
       ``(B) a right to be reimbursed for (or receive credit for) 
     all or substantially all of any decline in the value of such 
     property.
       ``(e) Special Rules.--
       ``(1) Treatment of subsequent sale of position which was 
     deemed sold.--If--
       ``(A) there is a constructive sale of any appreciated 
     financial position,
       ``(B) such position is subsequently disposed of, and
       ``(C) at the time of such disposition, the transaction 
     resulting in the constructive sale of such position is open 
     with respect to the taxpayer or any related person,
     solely for purposes of determining whether the taxpayer has 
     entered into a constructive sale of any other appreciated 
     financial position held by the taxpayer, the taxpayer shall 
     be treated as entering into such transaction immediately 
     after such disposition. For purposes of the preceding 
     sentence, an assignment or other termination shall be treated 
     as a disposition.
       ``(2) Certain trust instruments treated as stock.--For 
     purposes of this section, an interest in a trust which is 
     actively traded (within the meaning of section 1092(d)(1)) 
     shall be treated as stock.
       ``(3) Multiple positions in property.--If a taxpayer holds 
     multiple positions in property, the determination of whether 
     a specific transaction is a constructive sale and, if so, 
     which appreciated financial position is deemed sold shall be 
     made in the same manner as actual sales.
       ``(f) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.''.
       (b) Election of Mark to Market for Securities Traders and 
     for Traders and Dealers in Commodities.--Subsection (d) of 
     section 475 (relating to mark to market accounting method for 
     dealers in securities) is amended by adding at the end the 
     following new paragraph:
       ``(4) Election of mark to market for securities traders and 
     for traders and dealers in commodities.--
       ``(A) In general.--In the case of a person--
       ``(i) who is engaged in a trade or business to which this 
     paragraph applies, and
       ``(ii) who elects to be treated as a dealer in securities 
     for purposes of this section with respect to such trade or 
     business,
     subsections (a), (b)(3), (c)(3), and (e) and the preceding 
     provisions of this subsection (or, in the case of a dealer in 
     commodities, this section) shall apply to all commodities and 
     securities held by such person in any trade or business with 
     respect to which such election is in effect in the same 
     manner as if such person were a dealer in securities and all 
     references to securities included references to commodities.
       ``(B) Application of paragraph.--This paragraph shall apply 
     to any active trade or business--
       ``(i) as a trader in securities, or
       ``(ii) as a trader or dealer in commodities.
       ``(C) Exception for certain holdings of traders.--In the 
     case of a trader in securities or commodities, subsection (a) 
     shall not apply to any security or commodity (to which 
     subsection (a) would otherwise apply solely by reason of this 
     paragraph) if such security or commodity is clearly 
     identified in the trader's records (before the close of the 
     day applicable under subsection (b)(2)) as being held other 
     than in a trade or business to which the election under 
     subparagraph (A) is in effect. A security or commodity so 
     identified shall be treated as described in subsection 
     (b)(1).
       ``(D) Commodity.--For purposes of this paragraph, the term 
     `commodities' includes only commodities of a kind customarily 
     dealt in on an organized commodity exchange.
       ``(E) Election.--An election under this paragraph may be 
     made separately for each trade or business and without the 
     consent of the Secretary. Such an election, once made, shall 
     apply to the taxable year for which made and all subsequent 
     taxable years unless revoked with the consent of the 
     Secretary.''.
       (c) Clerical Amendment.--The table of sections for part IV 
     of subchapter P of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 1259. Constructive sales treatment for appreciated financial 
              positions.''.
       (d) Effective Dates.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to any constructive sale after June 8, 1997.
       (2) Exception for sales of positions, etc. held before june 
     9, 1997.--A constructive sale before June 9, 1997, and the 
     property to which the position involved in the transaction 
     relates, shall not be taken into account in determining 
     whether any other constructive sale after June 8, 1997, has 
     occurred if, within before the close of the 30-day period 
     beginning on the date of the enactment of this Act, such 
     position and property are clearly identified in the 
     taxpayer's records as offsetting. The preceding sentence 
     shall cease to apply as of the date the taxpayer ceases to 
     hold such position or property.
       (3) Special rule.--In the case of a decedent dying after 
     June 8, 1997, if--
       (A) there was a constructive sale on or before such date of 
     any appreciated financial position,
       (B) the transaction resulting in such constructive sale of 
     such position remains open (with respect to the decedent or 
     any related person) for not less than 2 years after the date 
     of such transaction (whether such period is before or after 
     June 8, 1997), 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. 802. 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, and
       ``(B) by treating as securities--
       ``(i) money,
       ``(ii) stocks and other equity interests in a corporation, 
     evidences of indebtedness, options, forward or futures 
     contracts, notional principal contracts and derivatives,
       ``(iii) any foreign currency,
       ``(iv) any interest in a real estate investment trust, a 
     common trust fund, a regulated investment company, a 
     publicly-traded partnership (as defined in section 7704(b)) 
     or any other equity interest (other than in a corporation) 
     which pursuant to its terms or any other arrangement is 
     readily convertible into, or exchangeable for, any asset 
     described in any preceding clause, this clause or clause (v) 
     or (viii),
       ``(v) except to the extent provided in regulations 
     prescribed by the Secretary, any interest in a precious 
     metal, unless such metal is used or held in the active 
     conduct of a trade or business after the contribution,
       ``(vi) except as otherwise provided in regulations 
     prescribed by the Secretary, interests in any entity if 
     substantially all of the assets of such entity consist 
     (directly or indirectly) of any assets described in any 
     preceding clause or clause (viii),
       ``(vii) to the extent provided in regulations prescribed by 
     the Secretary, any interest in any entity not described in 
     clause (vi), but only to the extent of the value of such 
     interest that is attributable to assets listed in clauses (i) 
     through (v) or clause (viii), or
       ``(viii) any other asset specified in regulations 
     prescribed by the Secretary.
     The Secretary may prescribe regulations that, under 
     appropriate circumstances, treat any asset described in 
     clauses (i) through (v) as not so listed.''.
       (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. 803. GAINS AND LOSSES FROM CERTAIN TERMINATIONS WITH 
                   RESPECT TO PROPERTY.

       (a) Application of Capital Treatment to Property Other Than 
     Personal Property.--

[[Page S6828]]

       (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 acquired after June 8, 1997, unless the basis of 
     the obligation in the hands of the acquirer is determined 
     solely by reference to the adjusted basis of the obligation 
     in the hands of the person from whom acquired.''.
       (2) Effective date.--The amendment made by paragraph (1) 
     shall take effect on the date of enactment of this Act.
        Subtitle B--Corporate Organizations and Reorganizations

     SEC. 811. 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. 812. APPLICATION OF SECTION 355 TO DISTRIBUTIONS 
                   FOLLOWED BY ACQUISITIONS AND TO INTRAGROUP 
                   TRANSACTIONS.

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

       ``(I) more than 50 percent of the total combined voting 
     power of all classes of stock entitled to vote, and
       ``(II) more than 50 percent of the total value of shares of 
     all classes of stock,

     in the distributing corporation or any controlled corporation 
     before such acquisition own indirectly stock possessing such 
     vote and value 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 (or series of related transactions) 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).''.

[[Page S6829]]

       (b) Special Rules for Certain Intragroup Transactions.--
       (1) Section 355 not to apply.--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 
     Distributions.--Except as provided in regulations, this 
     section (or so much of section 356 as relates to this 
     section) shall not apply to the distribution of stock from 1 
     member of an affiliated group (as defined in section 1504(a)) 
     to another member of such group if such distribution is part 
     of a plan (or series of related transactions) described in 
     subsection (e)(2)(A)(ii).''.
       (2) Adjustments to basis.--Section 358 (relating to basis 
     to distributees) is amended by adding at the end the 
     following new subsection:
       ``(g) Adjustments in Intragroup Transactions Involving 
     Section 355.--In the case of an exchange to which section 355 
     (or so much of section 356 as relates to section 355) applies 
     and which involves the distribution of stock from 1 member of 
     an affiliated group (as defined in section 1504(a)) to 
     another member of such group, the Secretary may, 
     notwithstanding any other provision of this section, provide 
     adjustments to the adjusted basis of any stock which--
       ``(1) is in a corporation which is a member of such group, 
     and
       ``(2) is held by another member of such group,
     to appropriately reflect the proper treatment of such 
     distribution.''.
       (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.--In 
     determining control for purposes of this section--
       ``(1) 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
       ``(2) 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 (immediately after the 
     distribution) stock possessing--
       ``(A) more than 50 percent of the total combined voting 
     power of all classes of stock of such corporation entitled to 
     vote, and
       ``(B) more than 50 percent of the total value of shares of 
     all classes of stock of such corporation.''.
       (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 (immediately after the 
     transfer) stock possessing--

       ``(I) more than 50 percent of the total combined voting 
     power of all classes of stock of such corporation entitled to 
     vote, and
       ``(II) more than 50 percent of the total value of shares of 
     all classes of stock of such corporation.''.

       (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 pursuant to an 
     acquisition described in section 355(e)(2)(A)(ii) of the 
     Internal Revenue Code of 1986 (or, in the case of the 
     amendments made by subsection (c), any transfer) after April 
     16, 1997, if such acquisition or transfer is--
       (A) made pursuant to a written agreement which was (subject 
     to customary conditions) 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 acquirer of the distributing corporation or 
     any controlled corporation, or the transfer or transferee, 
     whichever is applicable.

     SEC. 813. TAX TREATMENT OF REDEMPTIONS INVOLVING RELATED 
                   CORPORATIONS.

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

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

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

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

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

     SEC. 814. 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.--
       (1) In general.--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.
       (2) Transitional rule.--The amendments made by this section 
     shall not apply to dividends received or accrued during the 
     2-year period beginning on the date of the enactment of this 
     Act if--
       (A) the dividend is paid with respect to stock held by the 
     taxpayer on June 8, 1997, and all times thereafter until the 
     dividend is received,
       (B) such stock is continuously subject to a position 
     described in section 246(c)(4) of the Internal Revenue Code 
     of 1986 on June 8, 1997, and all times thereafter until the 
     dividend is received, and
       (C) such stock and position are clearly identified in the 
     taxpayer's records within 30 days after the date of the 
     enactment of this Act.
     Stock shall not be treated as meeting the requirement of 
     subparagraph (B) if the position is sold, closed, or 
     otherwise terminated and reestablished.
                 Subtitle C--Other Corporate Provisions

     SEC. 821. 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

[[Page S6830]]

       ``(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. 822. CERTAIN PREFERRED STOCK TREATED AS BOOT.

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

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

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

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

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

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

       (c) Section 355.--Paragraph (3) of section 355(a) is 
     amended by adding at the end the following new subparagraph:
       ``(D) 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.--

[[Page S6831]]

       (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 transaction.
                 Subtitle D--Administrative Provisions

     SEC. 831. 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. 832. 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. 833. 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.

     SEC. 834. 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, and
       ``(B) any payment described in paragraph (4), (7), (9), or 
     (11) of section 6334(a).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to levies issued after the date of the enactment 
     of this Act.

     SEC. 835. 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) 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. 836. 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:

[[Page S6832]]

       ``(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.
                   Subtitle E--Excise Tax Provisions

     SEC. 841. 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.--
       (1) Use of international travel facilities.--Subsection (c) 
     of section 4261 is amended to read as follows:
       ``(c) Use of International Travel Facilities.--
       ``(1) In general.--There is hereby imposed a tax of $8 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 segment 
     between the continental United States and Alaska or Hawaii or 
     between Alaska and Hawaii, such tax shall apply only to 
     departures and shall be at the rate of $6.''.
       (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) Application of subsection (a) to domestic segments of 
     international transportation.--
       ``(A) In general.--In the case of taxable transportation 
     described in section 4262(a)(2), the tax imposed by 
     subsection (a) shall be applied by taking into account only 
     an amount which bears the same ratio to the amount paid for 
     such transportation as the number of specified miles in the 
     domestic segments of such transportation bears to the total 
     number of specified miles in such transportation.
       ``(B) Specified miles.--For purposes of subparagraph (A), 
     the term `specified miles' means the great circle miles (as 
     specified by the Secretary) between the 2 points of each 
     segment. The Secretary may specify mileage which shall apply 
     in lieu of the mileage determined under the preceding 
     sentence with respect to any 2 points if the Secretary 
     determines that the mileage on the route customarily traveled 
     by air between such points is different from the mileage 
     determined under the preceding sentence.
       ``(C) Domestic segment.--For purposes of this section, the 
     term `domestic segment' means any segment which is taxable 
     transportation described in section 4262(a)(1).
       ``(2) Reduced rate of tax for segments to and from rural 
     airports.--
       ``(A) In general.--Subsections (a) and (b) shall be applied 
     by substituting `7.5 percent' for `10 percent' in the case of 
     any segment beginning or ending at an airport which is a 
     rural airport for the calendar year in which such segment 
     begins or ends (as the case may be).
       ``(B) Rural airport.--For purposes of subparagraph (A), the 
     term `rural airport' means, with respect to any calendar 
     year, any airport if--
       ``(i) there were fewer than 100,000 commercial passengers 
     departing by air during the second preceding calendar year 
     from such airport, and
       ``(ii) such airport--

       ``(I) is not located within 75 miles of another airport 
     which is not described in clause (i), or
       ``(II) is receiving essential air service subsidies as of 
     the date of the enactment of this paragraph.

       ``(C) Transportation involving multiple segments.--In the 
     case of transportation involving more than 1 segment at least 
     1 of which does not begin or end at a rural airport, 
     subparagraph (A) shall be applied by taking into account only 
     an amount which bears the same ratio to the amount paid for 
     such transportation as the number of specified miles in 
     segments which begin or end at a rural airport bears to the 
     total number of specified miles in such transportation.
       ``(3) Amounts paid for right to award free or reduced rate 
     air transportation.--Any amount paid (or 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) Secondary liability of carrier for unpaid tax.--
     Subsection (c) of section 4263 is amended by striking 
     ``subchapter--'' and all that follows and inserting 
     ``subchapter, such tax shall be paid by the carrier providing 
     the initial segment of such transportation which begins or 
     ends in the United States.''.
       (4) Technical amendments.--
       (A) Paragraph (2) of section 4262(a) is amended by striking 
     ``United States, but'' and all that follows and inserting 
     ``United States.''.
       (B) Subsection (c) of section 4262 is amended by striking 
     paragraph (3).
       (d) 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 16, 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.
       (e) Delayed Deposits of Airline Ticket Tax Revenues.--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, and
       (2) after July 1, 2001, and before October 1, 2001, shall 
     be October 10, 2001.

     SEC. 842. 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 September 30, 1997, and before October 1, 
     2007''.

     SEC. 843. APPLICATION OF COMMUNICATIONS TAX TO LONG-DISTANCE 
                   PREPAID TELEPHONE CARDS.

       (a) In General.--Section 4251 is amended by adding at the 
     end the following new subsection:
       ``(d) Treatment of Prepaid Telephone Cards.--
       ``(1) In general.--For purposes of this subchapter, in the 
     case of communications services acquired by means of a 
     prepaid telephone card--
       ``(A) the purchase of such card shall not be treated as an 
     amount paid for communications services, but
       ``(B) the amount paid to any telephone carrier from any 
     person who is not such a provider on account of the use of 
     such a card to acquire communications services shall be 
     treated as an amount paid for such communications services.
       ``(2) Prepaid telephone card.--For purposes of paragraph 
     (1), the term `prepaid telephone card' means any card or 
     other similar arrangement which permits its holder to obtain 
     communications services and pay for such services in 
     advance.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to amounts paid on or after the date of the 
     enactment of this Act.

     SEC. 844. 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

[[Page S6833]]

     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.
       (e) Limitation on Certain Credits or Refunds.--For purposes 
     of applying section 4132(b) of the Internal Revenue Code of 
     1986 with respect to any claim for credit or refund filed 
     before April 1, 1998, the amount of tax taken into account 
     shall not exceed the tax computed under the rate in effect on 
     October 1, 1997.

     SEC. 845. 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. 846. INCREASE IN EXCISE TAXES ON TOBACCO PRODUCTS.

       (a) Cigarettes.--Subsection (b) of section 5701 is 
     amended--
       (1) by striking ``$12 per thousand ($10 per thousand on 
     cigarettes removed during 1991 or 1992)'' in paragraph (1) 
     and inserting ``$22 per thousand'', and
       (2) by striking ``$25.20 per thousand ($21 per thousand on 
     cigarettes removed during 1991 or 1992)'' in paragraph (2) 
     and inserting ``$46.20 per thousand''.
       (b) Cigars.--Subsection (a) of section 5701 is amended--
       (1) by striking ``$1.125 cents per thousand (93.75 cents 
     per thousand on cigars removed during 1991 or 1992)'' in 
     paragraph (1) and inserting ``$2.063 cents per thousand'', 
     and
       (2) by striking ``equal to'' and all that follows in 
     paragraph (2) and inserting ``equal to 23.375 percent of the 
     price for which sold but not more than $55 per thousand.''.
       (c) Cigarette Papers.--Subsection (c) of section 5701 is 
     amended by striking ``0.75 cent (0.625 cent on cigarette 
     papers removed during 1991 or 1992)'' and inserting ``1.38 
     cents''.
       (d) Cigarette Tubes.--Subsection (d) of section 5701 is 
     amended by striking ``1.5 cents (1.25 cents on cigarette 
     tubes removed during 1991 or 1992)'' and inserting ``2.75 
     cents''.
       (e) Smokeless Tobacco.--Subsection (e) of section 5701 is 
     amended--
       (1) by striking ``36 cents (30 cents on snuff removed 
     during 1991 or 1992)'' in paragraph (1) and inserting ``66 
     cents'', and
       (2) by striking ``12 cents (10 cents on chewing tobacco 
     removed during 1991 or 1992)'' in paragraph (2) and inserting 
     ``22 cents''.
       (f) Pipe Tobacco.--Subsection (f) of section 5701 is 
     amended by striking ``67.5 cents (56.25 cents on pipe tobacco 
     removed during 1991 or 1992)'' and inserting ``$1.2375 
     cents''.
       (g) Imposition of Excise Tax on Manufacture or Importation 
     of Roll-Your-Own Tobacco.--
       (1) In general.--Section 5701 (relating to rate of tax) is 
     amended by redesignating subsection (g) as subsection (h) and 
     by inserting after subsection (f) the following new 
     subsection:
       ``(g) Roll-Your-Own Tobacco.--On roll-your-own tobacco, 
     manufactured in or imported into the United States, there 
     shall be imposed a tax of 66 cents per pound (and a 
     proportionate tax at the like rate on all fractional parts of 
     a pound).''.
       (2) Roll-your-own tobacco.--Section 5702 (relating to 
     definitions) is amended by adding at the end the following 
     new subsection:
       ``(p) Roll-Your-Own Tobacco.--The term `roll-your-own 
     tobacco' means any tobacco which, because of its appearance, 
     type, packaging, or labeling, is suitable for use and likely 
     to be offered to, or purchased by, consumers as tobacco for 
     making cigarettes.''.
       (3) Technical amendments.--
       (A) Subsection (c) of section 5702 is amended by striking 
     ``and pipe tobacco'' and inserting ``pipe tobacco, and roll-
     your-own tobacco''.
       (B) Subsection (d) of section 5702 is amended--
       (i) in the material preceding paragraph (1), by striking 
     ``or pipe tobacco'' and inserting ``pipe tobacco, or roll-
     your-own tobacco'', and
       (ii) by striking paragraph (1) and inserting the following 
     new paragraph:
       ``(1) a person who produces cigars, cigarettes, smokeless 
     tobacco, pipe tobacco, or roll-your-own tobacco solely for 
     the person's own personal consumption or use, and''.
       (C) The chapter heading for chapter 52 is amended to read 
     as follows:

    ``CHAPTER 52--TOBACCO PRODUCTS AND CIGARETTE PAPERS AND TUBES''.

       (D) The table of chapters for subtitle E is amended by 
     striking the item relating to chapter 52 and inserting the 
     following new item:

``Chapter 52. Tobacco products and cigarette papers and tubes.''.
       (h) Modifications of Certain Tobacco Tax Provisions.--
       (1) Exemption for exported tobacco products and cigarette 
     papers and tubes to apply only to articles marked for 
     export.--
       (A) Subsection (b) of section 5704 is amended by adding at 
     the end the following new sentence: ``Tobacco products and 
     cigarette papers and tubes may not be transferred or removed 
     under this subsection unless such products or papers and 
     tubes bear such marks, labels, or notices as the Secretary 
     shall by regulations prescribe.''.
       (B) Section 5761 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) Sale of Tobacco Products and Cigarette Papers and 
     Tubes for Export.--Except as provided in subsections (b) and 
     (d) of section 5704--
       ``(1) every person who sells, relands, or receives within 
     the jurisdiction of the United States any tobacco products or 
     cigarette papers or tubes which have been labeled or shipped 
     for exportation under this chapter,
       ``(2) every person who sells or receives such relanded 
     tobacco products or cigarette papers or tubes, and
       ``(3) every person who aids or abets in such selling, 
     relanding, or receiving,
     shall, in addition to the tax and any other penalty provided 
     in this title, be liable for a penalty equal to the greater 
     of $1,000 or 5 times the amount of the tax imposed by this 
     chapter. All tobacco products and cigarette papers and tubes 
     relanded within the jurisdiction of the United States, and 
     all vessels, vehicles, and aircraft used in such relanding or 
     in removing such products, papers, and tubes from the place 
     where relanded, shall be forfeited to the United States.''.
       (C) Subsection (a) of section 5761 is amended by striking 
     ``subsection (b)'' and inserting ``subsection (b) or (c)''.
       (D) Subsection (d) of section 5761, as redesignated by 
     subparagraph (B), is amended by striking ``The penalty 
     imposed by subsection (b)'' and inserting ``The penalties 
     imposed by subsections (b) and (c)''.
       (E)(i) Subpart F of chapter 52 is amended by adding at the 
     end the following new section:

     ``SEC. 5754. RESTRICTION ON IMPORTATION OF PREVIOUSLY 
                   EXPORTED TOBACCO PRODUCTS.

       ``(a) In General.--Tobacco products and cigarette papers 
     and tubes previously exported from the United States may be 
     imported or brought into the United States only as provided 
     in section 5704(d). For purposes of this section, section 
     5704(d), section 5761, and such other provisions as the 
     Secretary may specify by regulations, references to 
     exportation shall be treated as including a reference to 
     shipment to the Commonwealth of Puerto Rico.
       ``(b) Cross Reference.--

  ``For penalty for the sale of tobacco products and cigarette papers 
and tubes in the United States which are labeled for export, see 
section 5761(c).''.
       (ii) The table of sections for subpart F of chapter 52 is 
     amended by adding at the end the following new item:

``Sec. 5754. Restriction on importation of previously exported tobacco 
              products.''.
       (2) Importers required to be qualified.--
       (A) Sections 5712, 5713(a), 5721, 5722, 5762(a)(1), and 
     5763 (b) and (c) are each amended by inserting ``or 
     importer'' after ``manufacturer''.
       (B) The heading of subsection (b) of section 5763 is 
     amended by inserting ``Qualified Importers,'' after 
     ``Manufacturers,''.
       (C) The heading for subchapter B of chapter 52 is amended 
     by inserting ``and Importers'' after ``Manufacturers''.
       (D) The item relating to subchapter B in the table of 
     subchapters for chapter 52 is amended by inserting ``and 
     importers'' after ``manufacturers''.
       (3) Books of 25 or fewer cigarette papers subject to tax.--
     Subsection (c) of section 5701 is amended by striking ``On 
     each book or set of cigarette papers containing more than 25 
     papers,'' and inserting ``On cigarette papers,''.
       (4) Storage of tobacco products.--Subsection (k) of section 
     5702 is amended by inserting ``under section 5704'' after 
     ``internal revenue bond''.
       (5) Authority to prescribe minimum manufacturing activity 
     requirements.--Section 5712 is amended by striking ``or'' at 
     the end of paragraph (1), by redesignating paragraph (2) as 
     paragraph (3), and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) the activity proposed to be carried out at such 
     premises does not meet such minimum capacity or activity 
     requirements as the Secretary may prescribe, or''.
       (i) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to articles removed (as defined in section 5702(k) of 
     the Internal Revenue Code of 1986, as amended by this 
     section) after September 30, 1997.
       (2) Transitional rule.--Any person who--
       (A) on the date of the enactment of this Act is engaged in 
     business as a manufacturer of roll-your-own tobacco or as an 
     importer of tobacco products or cigarette papers and tubes, 
     and
       (B) before October 1, 1997, submits an application under 
     subchapter B of chapter 52 of such Code to engage in such 
     business,
     may, notwithstanding such subchapter B, continue to engage in 
     such business pending final action on such application. 
     Pending such final action, all provisions of such chapter 52 
     shall apply to such applicant in the same manner and to the 
     same extent as if such applicant were a holder of a permit 
     under such chapter 52 to engage in such business.
       (j) Floor Stocks Taxes.--
       (1) Imposition of tax.--On tobacco products and cigarette 
     papers and tubes manufactured in or imported into the United 
     States which are removed before October 1, 1997, and held on 
     such date for sale by any person, there is hereby imposed a 
     tax in an amount equal to the excess of--

[[Page S6834]]

       (A) the tax which would be imposed under section 5701 of 
     the Internal Revenue Code of 1986 on the article if the 
     article had been removed on such date, over
       (B) the prior tax (if any) imposed under section 5701 of 
     such Code on such article.
       (2) Authority to exempt cigarettes held in vending 
     machines.--To the extent provided in regulations prescribed 
     by the Secretary, no tax shall be imposed by paragraph (1) on 
     cigarettes held for retail sale on October 1, 1997, by any 
     person in any vending machine. If the Secretary provides such 
     a benefit with respect to any person, the Secretary may 
     reduce the $500 amount in paragraph (3) with respect to such 
     person.
       (3) Credit against tax.--Each person shall be allowed as a 
     credit against the taxes imposed by paragraph (1) an amount 
     equal to $500. Such credit shall not exceed the amount of 
     taxes imposed by paragraph (1) on October 1, 1997, for which 
     such person is liable.
       (4) Liability for tax and method of payment.--
       (A) Liability for tax.--A person holding cigarettes on 
     October 1, 1997, to which any 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 
     by regulations.
       (C) Time for payment.--The tax imposed by paragraph (1) 
     shall be paid on or before January 2, 1998.
       (5) Articles in foreign trade zones.--Notwithstanding the 
     Act of June 18, 1934 (48 Stat. 998, 19 U.S.C. 81a) and any 
     other provision of law, any article which is located in a 
     foreign trade zone on October 1, 1997, shall be subject to 
     the tax imposed by paragraph (1) if--
       (A) internal revenue taxes have been determined, or customs 
     duties liquidated, with respect to such article before such 
     date pursuant to a request made under the 1st proviso of 
     section 3(a) of such Act, or
       (B) such article is held on such date under the supervision 
     of a customs officer pursuant to the 2d proviso of such 
     section 3(a).
       (6) Definitions.--For purposes of this subsection--
       (A) In general.--Terms used in this subsection which are 
     also used in section 5702 of the Internal Revenue Code of 
     1986 shall have the respective meanings such terms have in 
     such section, as amended by this Act.
       (B) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury or the Secretary's delegate.
       (7) Controlled groups.--Rules similar to the rules of 
     section 5061(e)(3) of such Code shall apply for purposes of 
     this subsection.
       (8) Other laws applicable.--All provisions of law, 
     including penalties, applicable with respect to the taxes 
     imposed by section 5701 of such Code shall, insofar as 
     applicable and not inconsistent with the provisions of this 
     subsection, apply to the floor stocks taxes imposed by 
     paragraph (1), to the same extent as if such taxes were 
     imposed by such section 5701. The Secretary may treat any 
     person who bore the ultimate burden of the tax imposed by 
     paragraph (1) as the person to whom a credit or refund under 
     such provisions may be allowed or made.
         Subtitle F--Provisions Relating to Tax-Exempt Entities

     SEC. 851. EXPANSION OF LOOK-THRU RULE FOR INTEREST, 
                   ANNUITIES, ROYALTIES, AND RENTS DERIVED BY 
                   SUBSIDIARIES OF TAX-EXEMPT ORGANIZATIONS.

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

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

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

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

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

     SEC. 852. 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' has 
     the meaning given such term by section 168(h)(2) determined 
     without regard to subparagraph (A)(iii) thereof.
       ``(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. 853. TERMINATION OF EXCEPTION FROM RULES RELATING TO 
                   EXEMPT ORGANIZATIONS WHICH PROVIDE COMMERCIAL-
                   TYPE INSURANCE.

       (a) In General.--Subparagraph (A) 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--Foreign Provisions

     SEC. 861. 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

[[Page S6835]]

     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. 862. 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. 863. 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) with respect 
     to taxes deemed paid under section 902 or 960 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. 864. SOURCE RULES FOR INVENTORY PROPERTY.

       (a) In General.--Section 865(b) is amended by adding at the 
     end the following new paragraph:
       ``(2) Certain sales for use in united states.--If--
       ``(A) a United States resident sells (directly or 
     indirectly) inventory property to another United States 
     resident for use, consumption, or disposition in the United 
     States, and
       ``(B) such sale is not attributable to an office or other 
     fixed place of business maintained by the seller outside the 
     United States,
     any income of such United States resident (or any related 
     person) from such sale shall be sourced in the United 
     States.''.
       (b) Conforming Amendments.--Section 865(b) is amended--
       (1) by striking ``In the case of'' and inserting:
       ``(1) In general.--In the case of'', and
       (2) by redesignating paragraphs (1) and (2) as 
     subparagraphs (A) and (B), respectively.
       (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. 865. 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.''.

[[Page S6836]]

       (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. 866. 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. 867. MODIFICATION TO FOREIGN TAX CREDIT CARRYBACK AND 
                   CARRYOVER PERIODS.

       (a) In General.--Subsection (c) of section 904 (relating to 
     limitation on credit) is amended--
       (1) by striking ``in the second preceding taxable year,'', 
     and
       (2) by striking ``or fifth'' and inserting ``fifth, sixth, 
     or seventh''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to credits arising in taxable years beginning 
     after December 31, 1997.

     SEC. 868. REPEAL OF EXCEPTION TO ALTERNATIVE MINIMUM FOREIGN 
                   TAX CREDIT LIMIT.

       (a) In General.--Section 59(a)(2) (relating to limitation 
     to 90 percent of tax) is amended by striking subparagraph 
     (C).
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                  Subtitle H--Other Revenue Provisions

     SEC. 871. 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 striking paragraph (3), by redesignating 
     paragraphs (4), (5), and (6) as paragraphs (3), (4), and (5), 
     respectively, and by adding at the end the following new 
     paragraph:
       ``(6) 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. 872. 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) Retention of 3-year carryback in certain cases.--
       ``(i) In general.--Subparagraph (A)(i) shall be applied by 
     substituting `3 years' for `2 years' with respect to the 
     portion of the net operating loss for the taxable year which 
     is an eligible loss with respect to the taxpayer.
       ``(ii) Eligible loss.--For purposes of clause (i), the term 
     `eligible loss' means--

       ``(I) in the case of an individual, losses of property 
     arising from fire, storm, shipwreck, or other casualty, or 
     from theft,
       ``(II) in the case of a taxpayer which is a small business, 
     losses attributable to Presidentially declared disasters (as 
     defined in section 1033(h)(3)), and
       ``(III) in the case of a taxpayer engaged in the trade or 
     business of farming (as defined in section 263A(e)(4)), 
     losses attributable to such Presidentially declared 
     disasters.

       ``(iii) Small business.--For purposes of this subparagraph, 
     the term `small business' means a corporation or partnership 
     which meets the gross receipts test of section 448(c) for the 
     taxable year in which the loss arose (or, in the case of a 
     sole proprietorship, which would meet such test if such 
     proprietorship were a corporation).''.
       (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.

     SEC. 873. 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.

[[Page S6837]]

       ``(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. 874. 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.

     SEC. 875. 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. 876. 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.--

[[Page S6838]]

       ``(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. 877. EXPANSION OF REQUIREMENT THAT INVOLUNTARILY 
                   CONVERTED PROPERTY BE REPLACED WITH PROPERTY 
                   ACQUIRED FROM AN UNRELATED PERSON.

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

     SEC. 878. 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 more than 1 year 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.

     SEC. 879. MINIMUM PENSION ACCRUED BENEFIT DISTRIBUTABLE 
                   WITHOUT CONSENT INCREASED TO $5,000.

       (a) Amendment to 1986 Code.--
       (1) 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''.
       (2) 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 1997, 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 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.''.
       (3) Conforming amendments.--
       (A) 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 it appears (other than the headings) 
     and inserting ``the applicable limit under section 
     411(a)(11)(D)''.
       (B) 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''.
       (b) Amendments to ERISA.--
       (1) In general.--Section 203(e)(1) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1053(e)(1)) 
     is amended by striking ``$3,500'' and inserting ``the 
     applicable limit under section 411(a)(11) of the Internal 
     Revenue Code of 1986 for the plan year''.
       (2) Conforming amendments.--Sections 204(d)(1) and 205(g) 
     (1) and (2) (29 U.S.C. 1054(d)(1) and 1055(g) (1) and (2)) 
     are each amended by striking ``$3,500'' and inserting ``the 
     applicable limit under section 411(a)(11) of the Internal 
     Revenue Code of 1986 for the plan year''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after the date of the 
     enactment of this Act.

     SEC. 880. ELECTION TO RECEIVE TAXABLE CASH COMPENSATION IN 
                   LIEU OF NONTAXABLE PARKING BENEFITS.

       (a) In General.--Section 132(f)(4) (relating to benefits 
     not in lieu of compensation) is amended by adding at the end 
     the following new sentence: ``This paragraph shall not apply 
     to any qualified parking provided in lieu of compensation 
     which otherwise would have been includible in gross income of 
     the employee, and no amount shall be included in the gross 
     income of the employee solely because the employee may choose 
     between the qualified parking and compensation.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 881. EXTENSION OF TEMPORARY UNEMPLOYMENT TAX.

       Section 3301 (relating to rate of unemployment tax) is 
     amended--
       (1) by striking ``1998'' in paragraph (1) and inserting 
     ``2007'', and
       (2) by striking ``1999'' in paragraph (2) and inserting 
     ``2008''.

     SEC. 882. REPEAL OF EXCESS DISTRIBUTION AND EXCESS RETIREMENT 
                   ACCUMULATION TAX.

       (a) Repeal of Excess Distribution and Excess Retirement 
     Accumulation Tax.--Section 4980A (relating to excess 
     distributions from qualified retirement plans) is repealed.
       (b) Conforming Amendments.--
       (1) Section 691(c)(1) is amended by striking subparagraph 
     (C).
       (2) Section 2013 is amended by striking subsection (g).
       (3) Section 2053(c)(1)(B) is amended by striking the last 
     sentence.
       (4) Section 6018(a) is amended by striking paragraph (4).
       (c) Effective Dates.--
       (1) Excess distribution tax repeal.--Except as provided in 
     paragraph (2), the repeal made by subsection (a) shall apply 
     to excess distributions received after December 31, 1996.
       (2) Excess retirement accumulation tax repeal.--The repeal 
     made by subsection (a) with respect to section 4980A(d) of 
     the Internal Revenue Code of 1986 and the amendments made by 
     subsection (b) shall apply to estates of decedents dying 
     after December 31, 1996.

     SEC. 883. LIMITATION ON CHARITABLE REMAINDER TRUST 
                   ELIGIBILITY FOR CERTAIN TRUSTS.

       (a) In General.--Paragraphs (1)(A) and (2)(A) of section 
     664(d) (relating to charitable remainder annuity trust) are 
     each amended by inserting ``nor more than 50 percent'' after 
     ``not less than 5 percent''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to transfers in trust after June 18, 1997.

     SEC. 884. INCREASE IN TAX ON PROHIBITED TRANSACTIONS.

       (a) In General.--Section 4975(a) is amended by striking 
     ``10 percent'' and inserting ``15 percent''.

[[Page S6839]]

       (b) Effective Date.--The amendment made by this section 
     shall apply to prohibited transactions occurring after the 
     date of the enactment of this Act.

     SEC. 885. BASIS RECOVERY RULES FOR ANNUITIES OVER MORE THAN 
                   ONE LIFE.

       (a) In General.--Section 72(d)(1)(B) is amended by adding 
     at the end the following new clause:
       ``(iv) Number of anticipated payments where more than one 
     life.--If the annuity is payable over the lives of more than 
     1 individual, the number of anticipated payments shall be 
     determined as follows:

      The number is:es of annuitants are:
  Not more than 110............................................410 ....

  More than 110 but not more than 120..........................360 ....

  More than 120 but not more than 130..........................310 ....

  More than 130 but not more than 140..........................260 ....

  More than 140.............................................210.''.....

       (b) Conforming Amendment.--Section 72(d)(1)(B)(iii) is 
     amended--
       (1) by inserting ``If the annuity is payable over the life 
     of a single individual, the number of anticipated payments 
     shall be determined as follows:'' after the heading and 
     before the table, and
       (2) by striking ``primary'' in the table.
       (c) Effective Date.--The amendments made by this section 
     shall apply with respect to annuity starting dates beginning 
     after December 31, 1997.
          TITLE IX--FOREIGN-RELATED SIMPLIFICATION PROVISIONS
                     Subtitle A--General Provisions

     SEC. 901. 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. 902. 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:
       ``(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 the 
     pools of post-1986 foreign income taxes 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--
       ``(i) shall be taken into account--

       ``(I) in the case of taxes deemed paid under section 902 or 
     section 960, for the taxable year in which paid (and no 
     redetermination shall be made under this section by reason of 
     such payment), and
       ``(II) in any other case, for the taxable year to which 
     such taxes relate, and

       ``(ii) shall be 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.

[[Page S6840]]

     SEC. 903. 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. 904. 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.
        Subtitle B--Treatment of Controlled Foreign Corporations

     SEC. 911. 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. 912. 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 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. 913. 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

[[Page S6841]]

     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--Repeal of Excise Tax on Transfers to Foreign Entities

     SEC. 921. 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.--Except as provided in regulations, 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 to the extent 
     that any 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 Certain Transfers to 
     Partnerships.--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 united states 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 D--Information Reporting

     SEC. 931. 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.
     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. 932. 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

[[Page S6842]]

       ``(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. 933. 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-percent 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. 934. 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
       ``(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.--
       (1) In general.--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).''.
       (2) Limit on penalty.--Section 6038B(b) is amended by 
     adding at the end the following new paragraph:
       ``(3) Limit on penalty.--The penalty under paragraph (1) 
     with respect to any exchange shall not exceed $100,000 unless 
     the failure with respect to such exchange was due to 
     intentional disregard.''.
       (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 all applicable reporting 
     requirements under section 6038B of such Code (as amended by 
     this section) are satisfied. The Secretary of the Treasury or 
     his delegate may prescribe simplified reporting under the 
     preceding sentence.

     SEC. 935. 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. 936. 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--

[[Page S6843]]

       ``(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 E--Determination of Foreign or Domestic Status of Partnerships

     SEC. 941. 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 Secretary provides otherwise by 
     regulations''.
       (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 F--Other Simplification Provisions

     SEC. 951. 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. 952. 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.

     SEC. 953. 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 X--SIMPLIFICATION PROVISIONS RELATING TO INDIVIDUALS AND 
                               BUSINESSES
             Subtitle A--Provisions Relating to Individuals

     SEC. 1001. 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. 1002. 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. 1003. TREATMENT OF CERTAIN REIMBURSED EXPENSES OF RURAL 
                   MAIL CARRIERS.

       (a) In General.--Section 162 (relating to trade or business 
     expenses), as amended by title VII, is amended by 
     redesignating subsection (p) as subsection (q) and by 
     inserting after subsection (o) the following new subsection:
       ``(p) 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. 1004. TREATMENT OF TRAVELING EXPENSES OF CERTAIN FEDERAL 
                   EMPLOYEES ENGAGED IN CRIMINAL INVESTIGATIONS.

       (a) In General.--Subsection (o) of section 162, as added by 
     title VII, is amended by adding at the end the following new 
     paragraph:
       ``(3) Traveling expenses of certain federal employees 
     engaged in criminal investigations.--Paragraph (1) 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.
        Subtitle B--Provisions Relating to Businesses Generally

     SEC. 1011. 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--

[[Page S6844]]

       ``(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.--
       ``(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. 1012. 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.

     SEC. 1013. 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. 1014. 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.
       ``(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.
   Subtitle C--Simplification Relating to Electing Large Partnerships

                       PART I--GENERAL PROVISIONS

     SEC. 1021. 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

[[Page S6845]]

     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
       ``(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).

[[Page S6846]]

       ``(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
       ``(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. 1022. 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

[[Page S6847]]

     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 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

[[Page S6848]]

     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.
       ``(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--

[[Page S6849]]

       ``(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.''.

     SEC. 1023. 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. 1024. 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. 1025. 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. 1026. 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. 1031. 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

[[Page S6850]]

     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 
     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. 1032. 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. 1033. 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. 1034. 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. 1035. 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. 1036. 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. 1037. 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)

[[Page S6851]]

     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 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. 1038. 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. 1039. 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. 1040. 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. 1041. 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. 1042. 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

[[Page S6852]]

     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. 1043. 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:
       ``(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. 1046. 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. 1051. 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. 1052. 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. 1053. 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. 1054. 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

[[Page S6853]]

     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).
       ``(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. 1055. 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. 1056. 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. 1057. 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. 1058. 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. 1059. 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. 1060. 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. 1061. 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. 1062. 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. 1063. 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. 1071. 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 years beginning after December 31, 
     1997.
                    Subtitle F--Taxpayer Protections

     SEC. 1081. 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

[[Page S6854]]

     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. 1082. 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. 1083. 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. 1084. 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. 1085. 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. 1086. 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 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 XI--SIMPLIFICATION PROVISIONS RELATING TO ESTATE AND GIFT TAXES

     SEC. 1101. 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. 1102. 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. 1103. 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.

[[Page S6855]]

     SEC. 1104. 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. 1105. 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. 1106. 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. 1107. 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.''.
       (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. 1108. 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. 1109. 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

[[Page S6856]]

     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. 1110. 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. 1111. 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. 1112. 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 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. 1113. 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 XII--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. 1201. 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.

   PART II--PROVISIONS RELATED TO DISTILLED SPIRITS, WINES, AND BEER

     SEC. 1211. 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. 1212. 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. 1213. 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. 1214. 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. 1215. 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. 1216. 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. 1217. 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. 1218. 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.

[[Page S6857]]

     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 the 1st day of the 1st calendar quarter 
     that begins at least 90 days after the date of the enactment 
     of this Act.

     SEC. 1219. 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. 1220. 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. 1221. 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. 1222. 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. 1231. 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. 1232. 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.''.

     SEC. 1233. SIMPLIFICATION OF IMPOSITION OF EXCISE TAX ON 
                   ARROWS.

       (a) In General.--Subsection (b) of section 4161 (relating 
     to imposition of tax) is amended to read as follows:
       ``(b) Bows and Arrows, Etc.--
       ``(1) Bows.--
       ``(A) In general.--There is hereby imposed on the sale by 
     the manufacturer, producer, or importer of any bow which has 
     a draw weight of 10 pounds or more, a tax equal to 11 percent 
     of the price for which so sold.
       ``(B) Parts and accessories.--There is hereby imposed upon 
     the sale by the manufacturer, producer, or importer--
       ``(i) of any part of accessory suitable for inclusion in or 
     attachment to a bow described in subparagraph (A), and
       ``(ii) of any quiver suitable for use with arrows described 
     in paragraph (2),
     a tax equivalent to 11 percent of the price for which so 
     sold.
       ``(2) Arrows.--There is hereby imposed on the sale by the 
     manufacturer, producer, or importer of any shaft, point, 
     nock, or vane of a type used in the manufacture of any arrow 
     which after its assembly--
       ``(A) measures 18 inches overall or more in length, or
       ``(B) measures less than 18 inches overall in length but is 
     suitable for use with a bow described in paragraph (1)(A),
     a tax equal to 12.4 percent of the price for which so sold.
       ``(3) Coordination with subsection (a).--No tax shall be 
     imposed under this subsection with respect to any article 
     taxable under subsection (a).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to articles sold by the manufacturer, producer, 
     or importer after September 30 1997.

     SEC. 1234. MODIFICATIONS TO RETAIL TAX ON HEAVY TRUCKS.

       (a) Certain Repairs and Modifications Not Treated as 
     Manufacture.--Section 4052 is amended by redesignating the 
     subsection defining a long-term lease as subsection (e) and 
     by adding at the end the following new subsection:
       ``(f) Certain Repairs and Modifications Not Treated as 
     Manufacture.--
       ``(1) In general.--An article described in section 
     4051(a)(1) shall not be treated as manufactured or produced 
     solely by reason of repairs or modifications to the article 
     (including any modification which changes the transportation 
     function of the article or restores a wrecked article to a 
     functional condition) if the cost of such repairs and 
     modifications does not exceed 75 percent of the retail price 
     of a comparable new article.
       ``(2) Exception.--Paragraph (1) shall not apply if the 
     article (as repaired or modified) would, if new, be taxable 
     under section 4051 and the article when new was not taxable 
     under this section or the corresponding provision of prior 
     law.''.
       (b) Simplification of Certification Procedures With Respect 
     to Sales of Taxable Articles.--
       (1) Repeal of registration requirement.--Subsection (d) of 
     section 4052 is amended by striking ``rules of--'' and all 
     that follows through ``shall apply'' and inserting ``rules of 
     subsections (c) and (d) of section 4216 (relating to partial 
     payments) shall apply''.
       (2) Requirement to modify regulations.--Section 4052 is 
     amended by adding at the end the following new subsection:
       ``(g) Regulations.--The Secretary shall prescribe 
     regulations which permit, in lieu of any

[[Page S6858]]

     other certification, persons who are purchasing articles 
     taxable under this subchapter for resale or leasing in a 
     long-term lease to execute a statement (made under penalties 
     of perjury) on the sale invoice that such sale is for resale. 
     The Secretary shall not impose any registration requirement 
     as a condition of using such procedure.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 1998.

     SEC. 1235. SKYDIVING FLIGHTS EXEMPT FROM TAX ON 
                   TRANSPORTATION OF PERSONS BY AIR.

       (a) In General.--Section 4261 (relating to imposition of 
     tax on transportation of persons by air) is amended by 
     redesignating subsection (h) as subsection (i) and by 
     inserting after subsection (g) the following new subsection:
       ``(h) Exemption for Skydiving Uses.--No tax shall be 
     imposed by this section or section 4271 on any air 
     transportation exclusively for the purpose of skydiving.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to transportation beginning after September 30, 
     1997.

     SEC. 1236. ALLOWANCE OR CREDIT OF REFUND FOR TAX-PAID 
                   AVIATION FUEL PURCHASED BY REGISTERED PRODUCER 
                   OF AVIATION FUEL.

       (a) In General.--Subsection (l) of section 6467 (relating 
     to nontaxable uses of diesel fuel and aviation fuel) is 
     amended by adding at the end the following new paragraph:
       ``(6) Refund of tax-paid aviation fuel to registered 
     producer of fuel.--For purposes of this subsection, the term 
     `nontaxable use' includes the taxable sale of aviation fuel 
     by a producer of such fuel who is registered under section 
     4101 if a prior tax imposed by section 4091 was paid (and not 
     credited or refunded) on such fuel.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to sales by the producer after September 30, 
     1997.
                 Subtitle B--Tax-Exempt Bond Provisions

     SEC. 1241. 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. 1242. 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. 1243. 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. 1244. 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. 1245. 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. 1251. 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. 1252. 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.
       ``(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. 1253. 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 separate individuals for purposes of clause (i) of such 
     section.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to proceedings commenced after the date of the 
     enactment of this Act.

     SEC. 1254. 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 6215, 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.

[[Page S6859]]

       ``(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. 1261. 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. 1262. 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. 1263. 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 XIII--PENSION SIMPLIFICATION

     SEC. 1301. MATCHING CONTRIBUTIONS OF SELF-EMPLOYED 
                   INDIVIDUALS NOT TREATED AS ELECTIVE EMPLOYER 
                   CONTRIBUTIONS.

       (a) In General.--Section 402(g) (relating to limitation on 
     exclusion for elective deferrals) is amended by adding at the 
     end the following:
       ``(9) Matching contributions on behalf of self-employed 
     individuals not treated as elective employer contributions.--
     Any matching contribution described in section 401(m)(4)(A)) 
     which is made on behalf of a self-employed individual (as 
     defined in section 401(c)) shall not be treated as an 
     elective employer contribution under a qualified cash or 
     deferred arrangement (as defined in section 401(k)) for 
     purposes of this title.''.
       (b) Conforming Amendment for Simple Retirement Accounts.--
     Section 408(p) (relating to simple retirement accounts) is 
     amended by adding at the end the following:
       ``(8) Matching contributions on behalf of self-employed 
     individuals not treated as elective employer contributions.--
     Any matching contribution described in paragraph (2)(A)(iii) 
     which is made on behalf of a self-employed individual (as 
     defined in section 401(c)) shall not be treated as an 
     elective employer contribution to a simple retirement account 
     for purposes of this title.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 1997.

     SEC. 1302. CONTRIBUTIONS TO IRAS THROUGH PAYROLL DEDUCTIONS.

       (a) Definitions.--For purposes of this section:
       (1) Contribution certificate.--The term ``contribution 
     certificate'' means a certificate submitted by an eligible 
     employee to the employee's employer which--
       (A) identifies the employee by name, address, and social 
     security number,
       (B) includes a certification by the employee that the 
     employee is an eligible employee,
       (C) identifies the individual retirement plan to which the 
     employee wishes to make contributions through payroll 
     deductions,
       (D) identifies the amount of such contributions, not to 
     exceed the amount allowed under section 408 of the Internal 
     Revenue Code of 1986 to an individual retirement plan for 
     such year.
       (2) Eligible employee.--
       (A) In general.--The term ``eligible employee'' means, with 
     respect to any taxable year, an employee whose employer does 
     not sponsor a plan, contract, pension, account, or trust 
     described in section 219(g)(5) (A) or (B) of the Internal 
     Revenue Code of 1986.
       (B) Employee.--The term ``employee'' does not include an 
     employee as defined in section 401(c)(1) of such Code.
       (3) Individual retirement plans.--The term ``individual 
     retirement plan'' has the meaning given the term by section 
     7701(a)(37) of the Internal Revenue Code of 1986.
       (4) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury.
       (b) Establishment of Payroll Deduction System.--An employer 
     may establish a system under which eligible employees, 
     through employer payroll deductions, may make contributions 
     to individual retirement plans. An employer shall not incur 
     any liability under title I of the Employee Retirement Income 
     Security Act of 1974 in providing for such a system.
       (c) Contributions to Individual Retirement Plans.--
       (1) In general.--The system established under subsection 
     (b) shall provide that contributions made to an individual 
     retirement plan for any taxable year are--
       (A) contributions through employer payroll deductions, and
       (B) if the employer so elects, additional contributions by 
     the employee which, when added to contributions under 
     subparagraph (A), do not exceed the amount allowed under 
     section 408 of the Internal Revenue Code of 1986 for the 
     taxable year.
       (2) Employer payroll deductions.--
       (A) In general.--The system established under subsection 
     (b) shall provide that an eligible employee may establish and 
     maintain an individual retirement plan simply by--
       (i) completing a contribution certificate, and
       (ii) submitting such certificate to the eligible employee's 
     employer in the manner provided under subparagraph (D).
       (B) Ease of administration.--An eligible employee 
     establishing and maintaining an individual retirement plan 
     under subparagraph (A) may change the amount of an employer 
     payroll deduction in the same manner as under subparagraph 
     (A).
       (C) Simplified contribution certificate.--The Secretary 
     shall develop a model contribution certificate for purposes 
     of this paragraph which is written in a clear and easily 
     understandable manner.
       (D) Use of certificate.--Each employer electing to adopt a 
     system under subsection (b) shall, upon receipt of a 
     contribution certificate from an eligible employee, deduct 
     the appropriate contribution as determined by such 
     certificate from the employee's wages in equal amounts during 
     the remaining payroll periods for the taxable year and shall 
     remit such amounts for investment in the employee's 
     individual retirement plan not later than the close of the 
     30-day period following the last day of the month in which 
     such payroll period occurs.
       (E) Failure to remit payroll deductions.--For purposes of 
     the Internal Revenue Code of 1986, any amount which an 
     employer fails to remit on behalf of an eligible employee 
     pursuant to a contribution certificate of such employee shall 
     not be allowed as a deduction to the employer under such 
     Code.

     SEC. 1303. PLANS NOT DISQUALIFIED MERELY BY ACCEPTING 
                   ROLLOVER CONTRIBUTIONS.

       (a) In General.--Section 401(a) (relating to qualified 
     pension, profit-sharing, and stock bonus plans) is amended by 
     inserting after paragraph (34) the following:
       ``(35) Plans not disqualified merely by accepting rollover 
     contributions.--A trust which is part of a plan shall not 
     fail to be a qualified trust under this section solely 
     because the plan accepts a contribution of an eligible 
     rollover distribution as described in section 402(c)(4) from 
     another plan without such a qualified trust if, at the time 
     of the transfer, the trustee of the other plan provided 
     notice of the other plan's intention to have such a qualified 
     trust.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to rollover contributions made after December 31, 
     1997.

     SEC. 1304. MODIFICATION OF PROHIBITION OF ASSIGNMENT OR 
                   ALIENATION.

       (a) Amendment to ERISA.--Section 206(d) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1056(d)) is 
     amended by adding at the end the following:
       ``(4) Paragraph (1) shall not apply to any offset of a 
     participant's accrued benefit in an employee pension benefit 
     plan against an amount that the participant is ordered or 
     required to pay to the plan if--
       ``(A) the order or requirement to pay arises--
       ``(i) under a judgment of conviction for a crime involving 
     such plan,
       ``(ii) under a civil judgment (including a consent order or 
     decree) entered by a court in an action brought in connection 
     with a violation (or alleged violation) of part 4 of this 
     subtitle, or
       ``(iii) pursuant to a settlement agreement between the 
     Secretary and the participant, or a settlement agreement 
     between the Pension Benefit Guaranty Corporation and the 
     participant, in connection with a violation (or alleged 
     violation) of part 4 of this subtitle by a fiduciary or any 
     other person,

[[Page S6860]]

       ``(B) the judgment, order, decree, or settlement agreement 
     expressly provides for the offset of all or part of the 
     amount ordered or required to be paid to the plan against the 
     participant's accrued benefit in the plan, and
       ``(C) if the participant has a spouse at the time at which 
     the offset is to be made--
       ``(i) such spouse has consented in writing to such offset 
     and such consent is witnessed by a notary public or 
     representative of the plan,
       ``(ii) such spouse is ordered or required in such judgment, 
     order, decree, or settlement to pay an amount to the plan in 
     connection with a violation of part 4 of this subtitle, or
       ``(iii) in such judgment, order, decree, or settlement, 
     such spouse retains the right to receive the value of the 
     survivor annuity under a qualified joint and survivor annuity 
     provided pursuant to section 205(a)(1) and under a qualified 
     preretirement survivor annuity provided pursuant to section 
     205(a)(2), determined in accordance with paragraph (5).
     A plan shall not be treated as failing to meet the 
     requirements of section 205 solely by reason of an offset 
     under this paragraph.
       ``(5)(A) The value of the survivor annuity described in 
     paragraph (4)(C)(iii) shall be determined as if--
       ``(i) the participant terminated employment on the date of 
     the offset,
       ``(ii) there was no offset,
       ``(iii) the plan permitted retirement only on or after 
     normal retirement age,
       ``(iv) the plan provided only the minimum-required 
     qualified joint and survivor annuity, and
       ``(v) the amount of the qualified preretirement survivor 
     annuity under the plan is equal to the amount of the survivor 
     annuity payable under the minimum-required qualified joint 
     and survivor annuity.
       ``(B) For purposes of this paragraph, the term `minimum-
     required qualified joint and survivor annuity' means the 
     qualified joint and survivor annuity which is the actuarial 
     equivalent of a single annuity for the life of the 
     participant and under which the survivor annuity is 50 
     percent of the amount of the annuity which is payable during 
     the joint lives of the participant and the spouse.''.
       (b) Amendment to 1986 Code.--Section 401(a)(13) (relating 
     to assignment and alienation) is made by adding at the end 
     the following:
       ``(C) Special rule for certain judgments and settlements.--
     Subparagraph (A) shall not apply to any offset of a 
     participant's accrued benefit in an employee pension benefit 
     plan against an amount that the participant is ordered or 
     required to pay to the plan if--
       ``(i) the order or requirement to pay arises--

       ``(I) under a judgment of conviction for a crime involving 
     such plan,
       ``(II) under a civil judgment (including a consent order or 
     decree) entered by a court in an action brought in connection 
     with a violation (or alleged violation) of part 4 of subtitle 
     B of title I of the Employee Retirement Income Security Act 
     of 1974, or
       ``(III) pursuant to a settlement agreement between the 
     Secretary and the participant, or a settlement agreement 
     between the Pension Benefit Guaranty Corporation and the 
     participant, in connection with a violation (or alleged 
     violation) of part 4 of such subtitle by a fiduciary or any 
     other person,

       ``(ii) the judgment, order, decree, or settlement agreement 
     expressly provides for the offset of all or part of the 
     amount ordered or required to be paid to the plan against the 
     participant's accrued benefit in the plan, and
       ``(iii) if the participant has a spouse at the time at 
     which the offset is to be made--

       ``(I) such spouse has consented in writing to such offset 
     and such consent is witnessed by a notary public or 
     representative of the plan,
       ``(II) such spouse is ordered or required in such judgment, 
     order, decree, or settlement to pay an amount to the plan in 
     connection with a violation of part 4 of such subtitle, or
       ``(III) in such judgment, order, decree, or settlement, 
     such spouse retains the right to receive the value of the 
     survivor annuity under a qualified joint and survivor annuity 
     provided pursuant to section 401(a)(11)(A)(i) and under a 
     qualified preretirement survivor annuity provided pursuant to 
     section 401(a)(11)(A)(ii), determined in accordance with 
     subparagraph (D).

     A plan shall not be treated as failing to meet the 
     requirements of this subsection, subsection (k), section 
     403(b), or section 409(d) solely by reason of an offset 
     described in this subparagraph.
       ``(D) Valuation of survivor annuity.--
       ``(i) In general.--The value of the survivor annuity 
     described in subparagraph (C)(iii)(III) shall be determined 
     as if--

       ``(I) the participant terminated employment on the date of 
     the offset,
       ``(II) there was no offset,
       ``(III) the plan permitted retirement only on or after 
     normal retirement age,
       ``(IV) the plan provided only the minimum-required 
     qualified joint and survivor annuity, and
       ``(V) the amount of the qualified preretirement survivor 
     annuity under the plan is equal to the amount of the survivor 
     annuity payable under the minimum-required qualified joint 
     and survivor annuity.

       ``(ii) Definition.--For purposes of this subparagraph, the 
     term `minimum-required qualified joint and survivor annuity' 
     means the qualified joint and survivor annuity which is the 
     actuarial equivalent of a single annuity for the life of the 
     participant and under which the survivor annuity is 50 
     percent of the amount of the annuity which is payable during 
     the joint lives of the participant and the spouse.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to judgments, orders, and decrees issued, and 
     settlement agreements entered into, on or after the date of 
     the enactment of this Act.

     SEC. 1305. ELIMINATION OF PAPERWORK BURDENS ON PLANS.

       (a) Elimination of Unnecessary Filing Requirements.--
     Section 101(b) of the Employee Retirement Income Security Act 
     of 1974 (29 U.S.C. 1021(b)) is amended by striking paragraphs 
     (1), (2), and (3) and by redesignating paragraphs (4) and (5) 
     as paragraphs (1) and (2), respectively.
       (b) Elimination of Plan Description.--
       (1) In general.--Section 102(a) of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1022(a)) is amended--
       (A) by striking paragraph (2), and
       (B) by striking ``(a)(1)'' and inserting ``(a)''.
       (2) Conforming amendments.--
       (A) Section 102(b) of such Act (29 U.S.C. 1022(b)) is 
     amended by striking ``The plan description and summary plan 
     description shall contain'' and inserting ``The summary plan 
     description shall contain''.
       (B) The heading for section 102 of such Act is amended by 
     striking ``plan description and''.
       (c) Furnishing of Reports.--
       (1) In general.--Section 104(a)(1) of the Employee 
     Retirement Income Security Act of 1974 (29 U.S.C. 1024(a)(1)) 
     is amended to read as follows:
       ``Sec. 104. (a)(1) The administrator of any employee 
     benefit plan subject to this part shall file with the 
     Secretary the annual report for a plan year within 210 days 
     after the close of such year (or within such time as may be 
     required by regulations promulgated by the Secretary in order 
     to reduce duplicative filing). The Secretary shall make 
     copies of such annual reports available for inspection in the 
     public document room of the Department of Labor.''.
       (2) Secretary may request documents.--
       (A) In general.--Section 104(a) of such Act (29 U.S.C. 
     1024(a)) is amended by adding at the end the following:
       ``(6) The administrator of any employee benefit plan 
     subject to this part shall furnish to the Secretary, upon 
     request, any documents relating to the employee benefit plan, 
     including but not limited to, the latest summary plan 
     description (including any summaries of plan changes not 
     contained in the summary plan description), and the 
     bargaining agreement, trust agreement, contract, or other 
     instrument under which the plan is established or 
     operated.''.
       (B) Penalty.--Section 502(c) of such Act (29 U.S.C. 
     1132(c)) is amended by redesignating paragraph (6) as 
     paragraph (7) and by inserting after paragraph (5) the 
     following:
       ``(6) If, within 30 days of a request by the Secretary to a 
     plan administrator for documents under section 104(a)(6), the 
     plan administrator fails to furnish the material requested to 
     the Secretary, the Secretary may assess a civil penalty 
     against the plan administrator of up to $100 a day from the 
     date of such failure (but in no event in excess of $1,000 per 
     request). No penalty shall be imposed under this paragraph 
     for any failure resulting from matters reasonably beyond the 
     control of the plan administrator.''.
       (d) Conforming Amendments.--
       (1) Section 104(b)(1) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1024(b)(1)) is amended by 
     striking ``section 102(a)(1)'' each place it appears and 
     inserting ``section 102(a)''.
       (2) Section 104(b)(2) of such Act (29 U.S.C. 1024(b)(2)) is 
     amended by striking ``the plan description and'' and 
     inserting ``the latest updated summary plan description 
     and''.
       (3) Section 104(b)(4) of such Act (29 U.S.C. 1024(b)(4)) is 
     amended by striking ``plan description''.
       (4) Section 106(a) of such Act (29 U.S.C. 1026(a)) is 
     amended by striking ``descriptions,''.
       (5) Section 107 of such Act (29 U.S.C. 1027) is amended by 
     striking ``description or''.
       (6) Paragraph (2)(B) of section 108 of such Act (29 U.S.C. 
     1028) is amended to read as follows: ``(B) after publishing 
     or filing the annual reports,''.
       (7) Section 502(a)(6) of such Act (29 U.S.C. 1132(a)(6)) is 
     amended by striking ``or (5)'' and inserting ``(5), or (6)''.
       (e) Technical Correction.--Section 1144(c) of the Social 
     Security Act (42 U.S.C. 1320b-14(c)) is amended by 
     redesignating paragraph (9) as paragraph (8).

     SEC. 1306. MODIFICATION OF 403(B) EXCLUSION ALLOWANCE TO 
                   CONFORM TO 415 MODIFICATIONS.

       (a) Definition of Compensation.--
       (1) In general.--Section 403(b)(3) (defining includible 
     compensation) is amended by adding at the end the following: 
     ``Such term includes--
       ``(A) any elective deferral (as defined in section 
     402(g)(3)), and
       ``(B) any amount which is contributed or deferred by the 
     employer at the election of the employee and which is not 
     includible in the gross income of the employee by reason of 
     section 125 or 457.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 1997.
       (b) Repeal of Rules in Section 415(e).--The Secretary of 
     the Treasury shall modify the regulations regarding the 
     exclusion allowance under section 403(b)(2) of the Internal 
     Revenue Code of 1986 to reflect the amendment made by section 
     1452(a) of the Small Business Job Protection Act of 1996. 
     Such modification shall take effect for limitation years 
     beginning after December 31, 1999.

     SEC. 1307. NEW TECHNOLOGIES IN RETIREMENT PLANS.

       (a) In General.--Not later than December 31, 1998, the 
     Secretary of the Treasury and the Secretary of Labor shall 
     each issue guidance which is designed to--
       (1) interpret the notice, election, consent, disclosure, 
     and time requirements (and related recordkeeping 
     requirements) under the Internal Revenue Code of 1986 and the 
     Employee Retirement Income Security Act of 1974 relating to 
     retirement plans as applied to the use of new technologies by 
     plan sponsors and administrators

[[Page S6861]]

     while maintaining the protection of the rights of 
     participants and beneficiaries, and
       (2) clarify the extent to which writing requirements under 
     the Internal Revenue Code of 1986 relating to retirement 
     plans shall be interpreted to permit paperless transactions.
       (b) Applicability of Final Regulations.--Final regulations 
     applicable to the guidance regarding new technologies 
     described in subsection (a) shall not be effective until the 
     first plan year beginning at least 6 months after the 
     issuance of such final regulations.

     SEC. 1308. 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.--
       (1) In general.--Section 401(k)(3) (relating to application 
     of participation and discrimination standards) is amended by 
     adding at the end the following:
       ``(G) The requirements of subparagraph (A)(i) and (C) shall 
     not apply to a governmental plan (within the meaning of 
     section 414(d)).''.
       (2) Matching contributions.--Section 401(m)(2) is amended 
     by adding at the end the following new subparagraph:
       ``(C) Special rule for governmental plans.--A defined 
     contribution plan which is a governmental plan (as defined in 
     section 414(d)) shall be treated as meeting the requirements 
     of this paragraph.''.
       (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) (other than 
     those relating to section 401(a)(17)) 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. 1309. 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) Certain Shareholder-Employees Not Treated as Owner-
     Employees.--
       (1) Amendment to 1986 code.--The last sentence of section 
     4975(d) is amended by inserting ``, except that this sentence 
     shall not apply for purposes of any sale of stock by such a 
     shareholder-employee to an employee stock ownership plan (as 
     defined in subsection (e)(7))'' after ``owner-employee''.
       (2) Amendment to erisa.--The last sentence of section 
     408(d) of the Employee Retirement Income Security Act of 1974 
     (29 U.S.C. 1108(d)) is amended by inserting ``, except that 
     this sentence shall not apply for purposes of any sale of 
     stock by such a shareholder-employee to an employee stock 
     ownership plan (as defined in section 4975(e)(7) of the 
     Internal Revenue Code of 1986)'' after ``owner-employee''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1997.

     SEC. 1310. MODIFICATION OF 10 PERCENT TAX FOR NONDEDUCTIBLE 
                   CONTRIBUTIONS.

       (a) In General.--Section 4972(c)(6)(B) (relating to 
     exceptions) is amended to read as follows:
       ``(B) so much of the contributions to 1 or more defined 
     contribution plans which are not deductible when contributed 
     solely because of section 404(a)(7) as does not exceed the 
     greater of--
       ``(i) the amount of contributions not in excess of 6 
     percent of compensation (within the meaning of section 
     404(a)) paid or accrued (during the taxable year for which 
     the contributions were made) to beneficiaries under the 
     plans, or
       ``(ii) the sum of--

       ``(I) the amount of contributions described in section 
     401(m)(4)(A), plus
       ``(II) the amount of contributions described in section 
     402(g)(3)(A).''.

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

     SEC. 1311. MODIFICATION OF FUNDING REQUIREMENTS FOR CERTAIN 
                   PLANS.

       (a) Funding Rules for Certain Plans.--Section 769 of the 
     Retirement Protection Act of 1994 is amended by adding at the 
     end the following new subsection:
       ``(c) Transition Rules for Certain Plans.--
       ``(1) In general.--In the case of a plan that--
       ``(A) was not required to pay a variable rate premium for 
     the plan year beginning in 1996;
       ``(B) has not, in any plan year beginning after 1995 and 
     before 2009, merged with another plan (other than a plan 
     sponsored by an employer that was in 1996 within the 
     controlled group of the plan sponsor); and
       ``(C) is sponsored by a company that is engaged primarily 
     in the interurban or interstate passenger bus service,
     the transition rules described in paragraph (2) shall apply 
     for any plan year beginning after 1996 and before 2010.
       ``(2) Transition rules.--The transition rules described in 
     this paragraph are as follows:
       ``(A) For purposes of section 412(l)(9)(A) of the Internal 
     Revenue Code of 1986 and section 302(d)(9)(A) of the Employee 
     Retirement Income Security Act of 1974--
       ``(i) the funded current liability percentage for any plan 
     year beginning after 1996 and before 2005 shall be treated as 
     not less than 90 percent if for such plan year the funded 
     current liability percentage is at least 85 percent, and
       ``(ii) the funded current liability percentage for any plan 
     year beginning after 2004 and before 2010 shall be treated as 
     not less than 90 percent if for such plan year the funded 
     current liability percentage satisfies the minimum percentage 
     determined according to the following table:

                                                ``In the casThe minimum
                                                     yearpercentage is:
      2005..................................................86 percent 
      2006..................................................87 percent 
      2007..................................................88 percent 
      2008..................................................89 percent 
      2009 and thereafter...................................90 percent.

       ``(B) Sections 412(c)(7)(E)(i)(I) of such Code and 
     302(c)(7)(E)(i)(I) of such Act shall be applied--
       ``(i) by substituting `85 percent' for `90 percent' for 
     plan years beginning after 1996 and before 2005, and
       ``(ii) by substituting the minimum percentage specified in 
     the table contained in subparagraph (A)(ii) for `90 percent' 
     for plan years beginning after 2004 and before 2010.
       ``(C) In the event the funded current liability percentage 
     of a plan is less than 85 percent for any plan year beginning 
     after 1996 and before 2005, the transition rules under 
     subparagraphs (A) and (B) shall continue to apply to the plan 
     if contributions for such a plan year are made to the plan in 
     an amount equal to the lesser of--
       ``(i) the amount necessary to result in a funded current 
     liability percentage of 85 percent, or
       ``(ii) the greater of--
       ``(I) 2 percent of the plan's current liability as of the 
     beginning of such plan year, or
       ``(II) the amount necessary to result in a funded current 
     liability percentage of 80 percent as of the end of such plan 
     year.
     For the plan year beginning in 2005 and for the 3 succeeding 
     plan years, the transition rules under subparagraphs (A) and 
     (B) shall continue to apply to the plan for such plan year 
     only if contributions to the plan equal at least the expected 
     increase in current liability due to benefits accruing during 
     such plan year.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to contributions due after December 31, 1997.
     TITLE XIV--TECHNICAL AMENDMENTS RELATED TO SMALL BUSINESS JOB 
              PROTECTION ACT OF 1996 AND OTHER LEGISLATION

     SEC. 1401. 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''.

[[Page S6862]]

       (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.
       (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 any requirement of this 
     subsection 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) Amendments related to section 1461.--
       (A) Section 415(e)(5)(A) is amended to read as follows:
       ``(A) Certain ministers may participate.--For purposes of 
     this part--
       ``(i) In general.--A duly ordained, commissioned, or 
     licensed minister of a church is described in paragraph 
     (3)(B) if, in connection with the exercise of their ministry, 
     the minister--

       ``(I) is a self-employed individual (within the meaning of 
     section 401(c)(1)(B), or
       ``(II) is employed by an organization other than an 
     organization which is described in section 501(c)(3) and with 
     respect to which the minister shares common religious bonds.

       ``(ii) Treatment as employer and employee.--For purposes of 
     sections 403(b)(1)(A) and 404(a)(10), a minister described in 
     clause (i)(I) shall be treated as employed by the minister's 
     own employer which is an organization described in section 
     501(c)(3) and exempt from tax under section 501(a).''.
       (B) Section 403(b)(1)(A) is amended by striking ``or'' at 
     the end of clause (i), by inserting ``or'' at the end of 
     clause (ii), and by adding at the end the following new 
     clause:
       ``(iii) for the minister described in section 415(e)(5)(A) 
     by the minister or by an employer,''.
       (5) 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).
       (6) 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

[[Page S6863]]

     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--
       ``(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. 1402. 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

[[Page S6864]]

     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''.
       (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. 1403. 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. 1404. 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 Tax Reform Act of 1986.--Paragraph 
     (3) of section 1059(d) is amended by striking ``subsection 
     (a)(2)'' and inserting ``subsection (a)''.
       (d) 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.
       (e) 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).
           TITLE XV--CHILDREN'S HEALTH INSURANCE INITIATIVES

     SEC. 1501. ESTABLISHMENT OF CHILDREN'S HEALTH INSURANCE 
                   INITIATIVES.

       (a) In General.--The Social Security Act is amended by 
     adding at the end the following:

            ``TITLE XXI--CHILD HEALTH INSURANCE INITIATIVES

     ``SEC. 2101. PURPOSE.

       ``The purpose of this title is to provide funds to States 
     to enable such States to expand the provision of health 
     insurance coverage for low-income children. Funds provided 
     under this title shall be used to achieve this purpose 
     through outreach activities described in section 2106(a) and, 
     at the option of the State through--
       ``(1) a grant program conducted in accordance with section 
     2107 and the other requirements of this title; or
       ``(2) expansion of coverage of such children under the 
     State medicaid program who are not required to be provided 
     medical assistance under section 1902(l) (taking into account 
     the process of individuals aging into eligibility under 
     subsection (l)(1)(D)).

     ``SEC. 2102. DEFINITIONS.

       ``In this title:
       ``(1) Base-year covered low-income child population.--The 
     term `base-year covered low-income child population' means 
     the total number of low-income children with respect to whom, 
     as of fiscal year 1996, an eligible State provides or pays 
     the cost of health benefits either through a State funded 
     program or through expanded eligibility under the State plan 
     under title XIX (including under a waiver of such plan), as 
     determined by the Secretary. Such term does not include any 
     low-income child described in paragraph (3)(A) that a State 
     must cover in order to be considered an eligible State under 
     this title.
       ``(2) Child.--The term `child' means an individual under 19 
     years of age.
       ``(3) Eligible state.--The term `eligible State' means, 
     with respect to a fiscal year, a State that--
       ``(A) provides, under section 1902(l)(1)(D) or under a 
     waiver, for eligibility for medical assistance under a State 
     plan under title XIX of individuals under 17 years of age in 
     fiscal year 1998,

[[Page S6865]]

     and under 19 years of age in fiscal year 2000, regardless of 
     date of birth;
       ``(B) has submitted to the Secretary under section 2104 a 
     program outline that--
       ``(i) sets forth how the State intends to use the funds 
     provided under this title to provide health insurance 
     coverage for low-income children consistent with the 
     provisions of this title; and
       ``(ii) is approved under section 2104; and
       ``(iii) otherwise satisfies the requirements of this title; 
     and
       ``(C) satisfies the maintenance of effort requirement 
     described in section 2105(c)(5).
       ``(4) Federal medical assistance percentage.--The term 
     `Federal medical assistance percentage' means, with respect 
     to a State, the meaning given that term under section 
     1905(b). Any cost-sharing imposed under this title may not be 
     included in determining Federal medical assistance percentage 
     for reimbursement of expenditures under a State program 
     funded under this title.
       ``(5) FEHBP-equivalent children's health insurance 
     coverage.--The term `FEHBP-equivalent children's health 
     insurance coverage' means, with respect to a State, any plan 
     or arrangement that provides, or pays the cost of, health 
     benefits that the Secretary has certified are equivalent to 
     or better than the services covered for a child, including 
     hearing and vision services, under the standard Blue Cross/
     Blue Shield preferred provider option service benefit plan 
     offered under chapter 89 of title 5, United States Code.
       ``(6) Indians.--The term `Indians' has the meaning given 
     that term in section 4(c) of the Indian Health Care 
     Improvement Act (25 U.S.C. 1601 et seq.).
       ``(7) Low-income child.--The term `low-income child' means 
     a child in a family whose income is below 200 percent of the 
     poverty line for a family of the size involved.
       ``(8) Poverty line.--The term `poverty line' has the 
     meaning given that term in section 673(2) of the Community 
     Services Block Grant Act (42 U.S.C. 9902(2)), including any 
     revision required by such section.
       ``(9) Secretary.--The term `Secretary' means the Secretary 
     of Health and Human Services.
       ``(10) State.--The term `State' means each of the 50 
     States, the District of Columbia, Puerto Rico, Guam, the 
     Virgin Islands, American Samoa, and the Northern Mariana 
     Islands.
       ``(11) State children's health expenditures.--The term 
     `State children's health expenditures' means the State share 
     of expenditures by the State for providing children with 
     health care items and services under--
       ``(A) the State plan for medical assistance under title 
     XIX;
       ``(B) the maternal and child health services block grant 
     program under title V;
       ``(C) the preventive health services block grant program 
     under part A of title XIX of the Public Health Services Act 
     (42 U.S.C. 300w et seq.);
       ``(D) State-funded programs that are designed to provide 
     health care items and services to children;
       ``(E) school-based health services programs;
       ``(F) State programs that provide uncompensated or indigent 
     health care;
       ``(G) county-indigent care programs for which the State 
     requires a matching share by a county government or for which 
     there are intergovernmental transfers from a county to State 
     government; and
       ``(H) any other program under which the Secretary 
     determines the State incurs uncompensated expenditures for 
     providing children with health care items and services.
       ``(12) State medicaid program.--The term `State medicaid 
     program' means the program of medical assistance provided 
     under title XIX.

     ``SEC. 2103. APPROPRIATION.

       ``(a) Appropriation.--
       ``(1) In general.--Subject to subsection (b), out of any 
     money in the Treasury of the United States not otherwise 
     appropriated, there is appropriated for the purpose of 
     carrying out this title--
       ``(A) for each of fiscal years 1998 and 1999, 
     $1,000,000,000;
       ``(B) for each of fiscal years 2000 through 2002, 
     $2,000,000,000; and
       ``(C) for each of fiscal years 2003 through 2007, $0.
       ``(2) Availability.--Funds appropriated under this section 
     shall remain available without fiscal year limitation, as 
     provided under section 2105(b)(4).
       ``(b) Reduction for Increased Medicaid Expenditures.--With 
     respect to each of the fiscal years described in subsection 
     (a)(1), the amount appropriated under subsection (a)(1) for 
     each such fiscal year shall be reduced by an amount equal to 
     the amount of the total Federal outlays under the medicaid 
     program under title XIX resulting from--
       ``(1) the amendment made by section 5732 of the Balanced 
     Budget Act of 1997 (regarding the State option to provide 12-
     month continuous eligibility for children);
       ``(2) increased enrollment under State plans approved under 
     such program as a result of outreach activities under section 
     2106(a); and
       ``(3) the requirement under section 2102(3)A) to provide 
     eligibility for medical assistance under the State plan under 
     title XIX for all children under 19 years of age who have 
     families with income that is at or below the poverty line.
       ``(c) State Entitlement.--This title constitutes budget 
     authority in advance of appropriations Acts and represents 
     the obligation of the Federal Government to provide for the 
     payment to States of amounts provided in accordance with the 
     provisions of this title.
       ``(d) Effective Date.--No State is eligible for payments 
     under section 2105 for any calendar quarter beginning before 
     October 1, 1997.

     ``SEC. 2104. PROGRAM OUTLINE.

       ``(a) General Description.--A State shall submit to the 
     Secretary for approval a program outline, consistent with the 
     requirements of this title, that--
       ``(1) identifies, on or after the date of enactment of the 
     Balanced Budget Act of 1997, which of the 2 options described 
     in section 2101 the State intends to use to provide low-
     income children in the State with health insurance coverage;
       ``(2) describes the manner in which such coverage shall be 
     provided; and
       ``(3) provides such other information as the Secretary may 
     require.
       ``(b) Other Requirements.--The program outline submitted 
     under this section shall include the following:
       ``(1) Eligibility standards and methodologies.--A summary 
     of the standards and methodologies used to determine the 
     eligibility of low-income children for health insurance 
     coverage under a State program funded under this title.
       ``(2) Eligibility screening; coordination with other health 
     coverage.--A description of the procedures to be used to 
     ensure--
       ``(A) through both intake and followup screening, that only 
     low-income children are furnished health insurance coverage 
     through funds provided under this title; and
       ``(B) that any health insurance coverage provided for 
     children through funds under this title does not reduce the 
     number of children who are provided such coverage through any 
     other publicly or privately funded health plan.
       ``(3) Indians.--A description of how the State will ensure 
     that Indians are served through a State program funded under 
     this title.
       ``(c) Deadline for submission.--A State program outline 
     shall be submitted to the Secretary by not later than March 
     31 of any fiscal year (October 1, 1997, in the case of fiscal 
     year 1998).

     ``SEC. 2105. DISTRIBUTION OF FUNDS.

       ``(a) Establishment of Funding Pools.--
       ``(1) In general.--From the amount appropriated under 
     section 2103(a)(1) for each fiscal year, determined after the 
     reduction required under section 2103(b), the Secretary 
     shall, for purposes of fiscal year 1998, reserve 85 percent 
     of such amount for distribution to eligible States through 
     the basic allotment pool under subsection (b) and 15 percent 
     of such amount for distribution through the new coverage 
     incentive pool under subsection (c)(2)(B)(ii).
       ``(2) Annual adjustment of reserve percentages.--The 
     Secretary shall annually adjust the amount of the percentages 
     described in paragraph (1) in order to provide sufficient 
     basic allotments and sufficient new coverage incentives to 
     achieve the purpose of this title.
       ``(b) Distribution of Funds Under the Basic Allotment 
     Pool.--
       ``(1) States.--
       ``(A) In general.--From the total amount reserved under 
     subsection (a) for a fiscal year for distribution through the 
     basic allotment pool, the Secretary shall first set aside 
     0.25 percent for distribution under paragraph (2) and shall 
     allot from the amount remaining to each eligible State not 
     described in such paragraph the State's allotment percentage 
     for such fiscal year.
       ``(B) State's allotment percentage.--
       ``(i) In general.--For purposes of subparagraph (A), the 
     allotment percentage for a fiscal year for each State is the 
     percentage equal to the ratio of the number of low-income 
     children in the base period in the State to the total number 
     of low-income children in the base period in all States not 
     described in paragraph (2).
       ``(ii) Number of low-income children in the base period.--
     In clause (i), the number of low-income children in the base 
     period for a fiscal year in a State is equal to the average 
     of the number of low-income children in the State for the 
     period beginning on October 1, 1992, and ending on September 
     30, 1995, as reported in the March 1994, March 1995, and 
     March 1996 supplements to the Current Population Survey of 
     the Bureau of the Census.
       ``(2) Other states.--
       ``(A) In general.--From the amount set aside under 
     paragraph (1)(A) for each fiscal year, the Secretary shall 
     make allotments for such fiscal year in accordance with the 
     percentages specified in subparagraph (B) to Puerto Rico, 
     Guam, the Virgin Islands, American Samoa, and the Northern 
     Mariana Islands, if such States are eligible States for such 
     fiscal year.
       ``(B) Percentages specified.--The percentages specified in 
     this subparagraph are in the case of--
       ``(i) Puerto Rico, 91.6 percent;
       ``(ii) Guam, 3.5 percent;
       ``(iii) the Virgin Islands, 2.6 percent;
       ``(iv) American Samoa, 1.2 percent; and
       ``(v) the Northern Mariana Islands, 1.1 percent.
       ``(3) Three-year availability of amounts allotted.--Amounts 
     allotted to a State pursuant to this subsection for a fiscal 
     year shall remain available for expenditure by the State 
     through the end of the second succeeding fiscal year.
       ``(4) Procedure for distribution of unused funds.--The 
     Secretary shall determine an appropriate procedure for 
     distribution of funds to eligible States that remain unused 
     under this subsection after the expiration of the 
     availability of funds required under paragraph (3). Such 
     procedure shall be developed and administered in a manner 
     that is consistent with the purpose of this title.
       ``(c) Payments.--
       ``(1) In general.--The Secretary shall--
       ``(A) before October 1 of any fiscal year, pay an eligible 
     State an amount equal to 1 percent of the amount allotted to 
     the State under subsection (b) for conducting the outreach 
     activities required under section 2106(a); and
       ``(B) make quarterly fiscal year payments to an eligible 
     State from the amount remaining of

[[Page S6866]]

     such allotment for such fiscal year in an amount equal to the 
     Federal medical assistance percentage for the State (as 
     defined under section 2102(4) and determined without regard 
     to the amount of Federal funds received by the State under 
     title XIX before the date of enactment of this title) of the 
     Federal and State incurred cost of providing health insurance 
     coverage for a low-income child in the State plus the 
     applicable bonus amount.
       ``(2) Applicable bonus.--
       ``(A) In general.--For purposes of paragraph (1), the 
     applicable bonus amount is--
       ``(i) 5 percent of the Federal and State incurred cost, 
     with respect to a period, of providing health insurance 
     coverage for children covered at State option among the base-
     year covered low-income child population (measured in full 
     year equivalency) (including such children covered by the 
     State through expanded eligibility under the medicaid program 
     under title XIX before the date of enactment of this title, 
     but excluding any low-income child described in section 
     2102(3)(A) that a State must cover in order to be considered 
     an eligible State under this title); and
       ``(ii) 10 percent of the Federal and State incurred cost, 
     with respect to a period, of providing health insurance 
     coverage for children covered at State option among the 
     number (as so measured) of low-income children that are in 
     excess of such population.
       ``(B) Source of bonuses.--
       ``(i) Base-year covered low-income child population.--A 
     bonus described in subparagraph (A)(i) shall be paid out of 
     an eligible State's allotment for a fiscal year.
       ``(ii) For other low-income child populations.--A bonus 
     described in subparagraph (A)(ii) shall be paid out of the 
     new coverage incentive pool reserved under subsection (a)(1).
       ``(3) Definition of cost of providing health insurance 
     coverage.--For purposes of this subsection the cost of 
     providing health insurance coverage for a low-income child in 
     the State means--
       ``(A) in the case of an eligible State that opts to use 
     funds provided under this title through the medicaid program, 
     the cost of providing such child with medical assistance 
     under the State plan under title XIX; and
       ``(B) in the case of an eligible State that opts to use 
     funds provided under this title under section 2107, the cost 
     of providing such child with health insurance coverage under 
     such section.
       ``(4) Limitation on total payments.--With respect to a 
     fiscal year, the total amount paid to an eligible State under 
     this title (including any bonus payments) shall not exceed 85 
     percent of the total cost of a State program conducted under 
     this title for such fiscal year.
       ``(5) Maintenance of effort.--
       ``(A) Deemed compliance.--A State shall be deemed to be in 
     compliance with this provision if--
       ``(i) it does not adopt income and resource standards and 
     methodologies that are more restrictive than those applied as 
     of June 1, 1997, for purposes of determining a child's 
     eligibility for medical assistance under the State plan under 
     title XIX; and
       ``(ii) in the case of fiscal year 1998 and each fiscal year 
     thereafter, the State children's health expenditures defined 
     in section 2102(11) are not less than the amount of such 
     expenditures for fiscal year 1996.
       ``(B) Failure to maintain medicaid standards and 
     methodologies.--A State that fails to meet the conditions 
     described in subparagraph (A) shall not receive--
       ``(i) funds under this title for any child that would be 
     determined eligible for medical assistance under the State 
     plan under title XIX using the income and resource standards 
     and methodologies applied under such plan as of June 1, 1997; 
     and
       ``(ii) any bonus amounts described in paragraph (2)(A)(ii).
       ``(C) Failure to maintain spending on child health 
     programs.--A State that fails to meet the condition described 
     in subparagraph (A)(ii) shall not receive funding under this 
     title.
       ``(6) Advance payment; retrospective adjustment.--The 
     Secretary may make payments under this subsection for each 
     quarter on the basis of advance estimates of expenditures 
     submitted by the State and such other investigation as the 
     Secretary may find necessary, and shall reduce or increase 
     the payments as necessary to adjust for any overpayment or 
     underpayment for prior quarters.

     ``SEC. 2106. USE OF FUNDS.

       ``(a) Set-Aside for Outreach Activities.--
       ``(1) In general.--From the amount allotted to a State 
     under section 2105(b) for a fiscal year, each State shall 
     conduct outreach activities described in paragraph (2).
       ``(2) Outreach activities described.--The outreach 
     activities described in this paragraph include activities 
     to--
       ``(A) identify and enroll children who are eligible for 
     medical assistance under the State plan under title XIX; and
       ``(B) conduct public awareness campaigns to encourage 
     employers to provide health insurance coverage for children.
       ``(b) State Options for Remainder.--A State may use the 
     amount remaining of the allotment to a State under section 
     2105(b) for a fiscal year, determined after the payment 
     required under section 2105(c)(1)(A), in accordance with 
     section 2107 or the State medicaid program (but not both). 
     Nothing in the preceding sentence shall be construed as 
     limiting a State's eligibility for receiving the 5 percent 
     bonus described in section 2105(c)(2)(A)(i) for children 
     covered by the State through expanded eligibility under the 
     medicaid program under title XIX before the date of enactment 
     of this title.
       ``(c) Prohibition On Use of Funds.--No funds provided under 
     this title may be used to provide health insurance coverage 
     for--
       ``(1) families of State public employees; or
       ``(2) children who are committed to a penal institution.
       ``(d) Use Limited to State Program Expenditures.--Funds 
     provided to an eligible State under this title shall only be 
     used to carry out the purpose of this title (as described in 
     section 2101), and any health insurance coverage provided 
     with such funds may include coverage of abortion only if 
     necessary to save the life of the mother or if the pregnancy 
     is the result of an act of rape or incest.
       ``(e) Administrative expenditures.--
       ``(1) In general.--Not more than the applicable percentage 
     of the amount allotted to a State under section 2105(b) for a 
     fiscal year, determined after the payment required under 
     section 2105(c)(1)(A), shall be used for administrative 
     expenditures for the program funded under this title.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage with respect to a fiscal year 
     is--
       ``(A) for the first 2 years of a State program funded under 
     this title, 10 percent;
       ``(B) for the third year of a State program funded under 
     this title, 7.5 percent; and
       ``(C) for the fourth year of a State program funded under 
     this title and each year thereafter, 5 percent.
       ``(f) Nonapplication of Five-Year Limited Eligibility for 
     Means-Tested Public Benefits.--The provisions of section 403 
     of the Personal Responsibility and Work Opportunity 
     Reconciliation Act of 1996 (8 U.S.C. 1613) shall not apply 
     with respect to a State program funded under this title.
       ``(g) Audits.--The provisions of section 506(b) shall apply 
     to funds expended under this title to the same extent as they 
     apply to title V.
       ``(h) Requirement to Follow State Program Outline.--The 
     State shall conduct the program in accordance with the 
     program outline approved by the Secretary under section 2104.

     ``SEC. 2107. STATE OPTION FOR THE PURCHASE OR PROVISION OF 
                   CHILDREN'S HEALTH INSURANCE.

       ``(a) State Option.--
       ``(1) In general.--An eligible State that opts to use funds 
     provided under this title under this section shall use such 
     funds to provide FEHBP-equivalent children's health insurance 
     coverage for low-income children who reside in the State.
       ``(2) Priority for low-income children.--A State that uses 
     funds provided under this title under this section shall not 
     cover low-income children with higher family income without 
     covering such children with a lower family income.
       ``(3) Determination of eligibility and form of 
     assistance.--An eligible State may establish any additional 
     eligibility criteria for the provision of health insurance 
     coverage for a low-income child through funds provided under 
     this title, so long as such criteria and assistance are 
     consistent with the purpose and provisions of this title.
       ``(4) Affordability.--An eligible State may impose any 
     family premium obligations or cost-sharing requirements 
     otherwise permitted under this title on low-income children 
     with family incomes that exceed 150 percent of the poverty 
     line. In the case of a low-income child whose family income 
     is at or below 150 percent of the poverty line, limits on 
     beneficiary costs generally applicable under title XIX apply 
     to coverage provided such children under this section.
       ``(b) Nonentitlement.--Nothing in this section shall be 
     construed as providing an entitlement for an individual or 
     person to any health insurance coverage, assistance, or 
     service provided through a State program funded under this 
     title. If, with respect to a fiscal year, an eligible State 
     determines that the funds provided under this title are not 
     sufficient to provide health insurance coverage for all the 
     low-income children that the State proposes to cover in the 
     State program outline submitted under section 2104 for such 
     fiscal year, the State may adjust the applicable eligibility 
     criteria for such children appropriately or adjust the State 
     program in another manner specified by the Secretary, so long 
     as any such adjustments are consistent with the purpose of 
     this title.

     ``SEC. 2107A. MENTAL HEALTH PARITY.

       ``(a) Prohibition.--In the case of a health plan that 
     enrolls children through the use of assistance provided under 
     a grant program conducted under this title, such plan, if the 
     plan provides both medical and surgical benefits and mental 
     health benefits, shall not impose treatment limitations or 
     financial requirements on the coverage of mental health 
     benefits if similar limitations or requirements are not 
     imposed on medical and surgical benefits.
       ``(b) Rule of Construction.--Nothing in this section shall 
     be construed--
       ``(1) as prohibiting a health plan from requiring 
     preadmission screening prior to the authorization of services 
     covered under the plan or from applying other limitations 
     that restrict coverage for mental health services to those 
     services that are medically necessary; and
       ``(2) as requiring a health plan to provide any mental 
     health benefits.
       ``(c) Separate Application to Each Option Offered.--In the 
     case of a health plan that offers a child described in 
     subsection (a) 2 or more benefit package options under the 
     plan, the requirements of this section shall be applied 
     separately with respect to each such option.
       ``(d) Definitions.--In this section:
       ``(1) Medical or surgical benefits.--The term `medical or 
     surgical benefits' means benefits with respect to medical or 
     surgical services, as defined under the terms of the plan, 
     but does not include mental health benefits.
       ``(2) Mental health benefits.--The term `mental health 
     benefits' means benefits with respect to mental health 
     services, as defined under the terms of the plan, but does 
     not include benefits with respect to the treatment of 
     substance abuse and chemical dependency.

[[Page S6867]]

     ``SEC. 2108. PROGRAM INTEGRITY.

       ``The following provisions of the Social Security Act shall 
     apply to eligible States under this title in the same manner 
     as such provisions apply to a State under title XIX:
       ``(1) Section 1116 (relating to administrative and judicial 
     review).
       ``(2) Section 1124 (relating to disclosure of ownership and 
     related information).
       ``(3) Section 1126 (relating to disclosure of information 
     about certain convicted individuals).
       ``(4) Section 1128 (relating to exclusion from individuals 
     and entities from participation in State health care plans).
       ``(5) Section 1128A (relating to civil monetary penalties).
       ``(6) Section 1128B (relating to criminal penalties).
       ``(7) Section 1132 (relating to periods within which claims 
     must be filed).
       ``(8) Section 1902(a)(4)(C) (relating to conflict of 
     interest standards).
       ``(9) Section 1903(i) (relating to limitations on payment).
       ``(10) Section 1903(m)(5) (as in effect on the day before 
     the date of enactment of the Balanced Budget Act of 1997).
       ``(11) Section 1903(w) (relating to limitations on provider 
     taxes and donations).
       ``(12) Section 1905(a)(B) (relating to the exclusion of 
     care or services for any individual who has not attained 65 
     years of age and who is a patient in an institution for 
     mental diseases from the definition of medical assistance).
       ``(13) Section 1921 (relating to state licensure 
     authorities).
       ``(14) Sections 1902(a)(25), 1912(a)(1)(A), and 1903(o) 
     (insofar as such sections relate to third party liability).
       ``(15) Sections 1948 and 1949 (as added by section 
     5701(a)(2) of the Balanced Budget Act of 1997).

     ``SEC. 2109. ANNUAL REPORTS.

       ``(a) Annual State Assessment of Progress.--An eligible 
     State shall--
       ``(1) assess the operation of the State program funded 
     under this title in each fiscal year, including the progress 
     made in providing health insurance coverage for low-income 
     children; and
       ``(2) report to the Secretary, by January 1 following the 
     end of the fiscal year, on the result of the assessment.
       ``(b) Report of the Secretary.--The Secretary shall submit 
     to the appropriate committees of Congress an annual report 
     and evaluation of the State programs funded under this title 
     based on the State assessments and reports submitted under 
     subsection (a). Such report shall include any conclusions and 
     recommendations that the Secretary considers appropriate.''.
       (b) Conforming Amendment.--Section 1128(h) (42 U.S.C. 
     1320a-7(h)) is amended by--
       (1) in paragraph (2), by striking ``or'' at the end;
       (2) in paragraph (3), by striking the period and inserting 
     ``, or''; and
       (3) by adding at the end the following:
       ``(4) a program funded under title XXI.''.

     SEC. 1502. APPLICABILITY.

       If, on the date of enactment of this Act, the Social 
     Security Act contains a title XXI, the amendments made to the 
     Social Security Act by this title shall not take effect, 
     except that amounts appropriated under such title XXI for a 
     fiscal year shall be increased by the amounts that would have 
     been appropriated for such fiscal year under section 2103 of 
     the Social Security Act, as added by this title.
                     TITLE XVI--BUDGET ENFORCEMENT
  Subtitle A--Amendments to the Congressional Budget and Impoundment 
                          Control Act of 1974

     SEC. 1601. AMENDMENTS TO SECTION 201.

       Section 201 of the Congressional Budget Act of 1974 is 
     amended by redesignating subsection (g) (relating to revenue 
     estimates) as subsection (f).

     SEC. 1602. AMENDMENTS TO SECTION 202.

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

     SEC. 1603. AMENDMENT TO SECTION 300.

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

     SEC. 1604. AMENDMENTS TO SECTION 301.

       (a) Terms of Budget Resolutions.--Section 301(a) of the 
     Congressional Budget Act of 1974 is amended by striking ``, 
     and planning levels for each of the two ensuing fiscal 
     years,'' and inserting ``and for at least each of the 4 
     ensuing fiscal years''.
       (b) Contents of Budget Resolutions.--Paragraphs (1) and (4) 
     of section 301(a) of the Congressional Budget Act of 1974 are 
     amended by striking ``, budget outlays, direct loan 
     obligations, and primary loan guarantee commitments'' each 
     place it appears and inserting ``and budget outlays''.
       (c) Additional Matters.--Section 301(b) of the 
     Congressional Budget Act of 1974 is amended by--
       (1) amending paragraph (7) to read as follows--
       ``(7) set forth pay-as-you-go procedures in the Senate 
     whereby committee allocations, aggregates, and other levels 
     can be revised for legislation if such legislation would not 
     increase the deficit or would not increase the deficit when 
     taken with other legislation enacted after the adoption of 
     the resolution for the first fiscal year or the total period 
     of fiscal years covered by the resolution;'';
       (2) in paragraph 8, striking the period and inserting ``; 
     and''; and
       (3) adding the following new paragraph:
       ``(9) set forth direct loan obligations and primary loan 
     commitment guarantee levels.''.
       (d) Views and Estimates.--The first sentence of section 
     301(d) of the Congressional Budget Act of 1974 is amended by 
     inserting ``or at such time as may be requested by the 
     Committee on the Budget,'' after ``Code,''.
       (e) Hearings and Report.--Section 301(e) of the 
     Congressional Budget Act of 1974 is amended--
       (1) by striking ``In developing'' and inserting the 
     following:
       ``(1) In general.--In developing''; and
       (2) by striking the sentence beginning with ``The report 
     accompanying '' and all that follows through the end of the 
     subsection and inserting the following:
       ``(2) Required contents of report.--The report accompanying 
     such concurrent resolution shall include--
       ``(A) a comparison of the appropriate levels of total new 
     budget authority, total budget outlays, and total revenues as 
     set forth in such concurrent resolution with those requested 
     in the budget submitted by the President;
       ``(B) with respect to each major functional category, an 
     estimate of total new budget authority and total outlays with 
     the estimates divided between permanent authority and funds 
     provided in appropriations Acts;
       ``(C) the economic assumptions which underlie each of the 
     matters set forth in such concurrent resolution and any 
     alternative economic assumptions and objectives that the 
     committee considered;
       ``(D) projections for the period of 5 fiscal years 
     beginning with such fiscal year, of the estimated levels of 
     total new budget authority, total outlays and total revenues 
     and the surplus or deficit for each fiscal year;
       ``(E) information, data, and comparisons indicating the 
     manner in which, and the basis on which, the committee 
     determined each of the matters set forth in the concurrent 
     resolutions;
       ``(F) the estimated levels of tax expenditures (the tax 
     expenditures budget) by major items and functional categories 
     for the President's budget and in the concurrent resolution; 
     and
       ``(G) allocations described in section 302(a).
       ``(3) Additional contents of report.--The report 
     accompanying such concurrent resolution may include--
       ``(A) a statement of any significant changes in the 
     proposed levels of Federal assistance to State and local 
     governments;
       ``(B) an allocation of the level of Federal revenues 
     recommended in the concurrent resolution among the major 
     sources of such revenues;
       ``(C) information, data, and comparisons on the share of 
     total Federal budget outlays and of gross domestic product 
     devoted to investment in the budget submitted by the 
     President and in the concurrent resolution; and
       ``(D) other matters, relating to the budget and fiscal 
     policy, the committee deems appropriate.''.
       (f) Social Security Corrections.--Section 301(i) of the 
     Congressional Budget Act of 1974 is amended by--
       (1) inserting ``Social security point of order.--'' after 
     ``(i)''; and
       (2) striking ``as reported to the Senate'' and inserting 
     ``(or amendment, motion, or conference report on such a 
     resolution)''.
       (g) Repeal of Budget Resolution Provision.--Section 22 of 
     House Concurrent Resolution 218 (103d Congress) is repealed.

     SEC. 1605. AMENDMENTS TO SECTION 302.

       (a) Allocations and Suballocations.--Subsections (a) and 
     (b) of section 302 of the Congressional Budget Act of 1974 
     are amended to read as follows:
       ``(a) Committee Spending Allocations.--
       ``(1) House of representatives.--
       ``(A) Allocation among committees.--The joint explanatory 
     statement accompanying a conference report on a budget 
     resolution shall include allocations, consistent with the 
     resolution recommended in the conference report, of the 
     appropriate levels (for each fiscal year covered by that 
     resolution and a total for all such years) of--
       ``(i) total new budget authority;
       ``(ii) total entitlement authority; and
       ``(iii) total outlays;
     among each committee of the House of Representatives that has 
     jurisdiction over legislation providing or creating such 
     amounts.
       ``(B) No double counting.--Any item allocated to one 
     committee of the House of Representatives may not be 
     allocated to another such committee.
       ``(C) Further division of amounts.--The amounts allocated 
     to each committee for each fiscal year, other than the 
     Committee on Appropriations, shall be further divided between 
     amounts provided or required by law on the date of filing of 
     that conference report and amounts not so provided or 
     required. The amounts allocated to the Committee on 
     Appropriations for each fiscal year shall be further divided 
     between discretionary and mandatory amounts or programs, as 
     appropriate.
       ``(2) Senate allocation among committees.--The joint 
     explanatory statement accompanying a conference report on a 
     budget resolution shall include an allocation, consistent 
     with the resolution recommended in the conference report, of 
     the appropriate levels of--
       ``(A) total new budget authority; and
       ``(B) total outlays;
     among each committee of the Senate that has jurisdiction over 
     legislation providing or creating such amounts.
       ``(3) Amounts not allocated.--
       ``(A) In the house.--In the House of Representatives, if a 
     committee receives no allocation of new budget authority, 
     entitlement authority, or outlays, that committee shall be 
     deemed to have received an allocation equal to zero for new 
     budget authority, entitlement authority, or outlays.

[[Page S6868]]

       ``(B) In the senate.--In the Senate, if a committee 
     receives no allocation of new budget authority, outlays, or 
     social security outlays, that committee shall be deemed to 
     have received an allocation equal to zero for new budget 
     authority, outlays, or social security outlays.
       ``(4) Scope of allocations in the senate.--In the Senate, 
     the allocations made pursuant to paragraph (2) shall be made 
     for all committees for the first fiscal year covered by the 
     resolution and for all committees other than the Committee on 
     Appropriations for the period of fiscal years covered by such 
     resolution.
       ``(b) Suballocations by Appropriation Committees.--As soon 
     as practicable after a concurrent resolution on the budget is 
     agreed to, the Committee on Appropriations of each House 
     (after consulting with the Committee on Appropriations of the 
     other House) shall suballocate each amount allocated to it 
     for the budget year under subsection (a)(1)(A) or (a)(2) 
     among its subcommittees. Each Committee on Appropriations 
     shall promptly report to its House suballocations made or 
     revised under this paragraph.''.
       (b) Point of Order.--Section 302(c) of the Congressional 
     Budget Act of 1974 is amended to read as follows:
       ``(c) Point of Order.--After the Committee on 
     Appropriations has received an allocation pursuant to 
     subsection (a) for a fiscal year, it shall not be in order in 
     the House of Representatives or the Senate to consider any 
     bill, joint resolution, amendment, motion, or conference 
     report providing new budget authority for that fiscal year 
     within the jurisdiction of that committee, until such 
     committee makes the suballocations required by subsection 
     (b).''.
       (c) Enforcement of Point of Order.--Section 302(f)(2) of 
     the Congressional Budget Act of 1974 is amended to read as 
     follows:
       ``(2) Enforcement of committee allocations and 
     suballocations.--After a concurrent resolution on the budget 
     is agreed to, it shall not be in order in the Senate to 
     consider any bill, joint resolution, amendment, motion, or 
     conference report that would cause--
       ``(A) in the case of any committee except the Committee on 
     Appropriations, the appropriate allocation of new budget 
     authority or outlays under subsection (a) to be exceeded; or
       ``(B) in the case of the Committee on Appropriations, the 
     appropriate suballocation of new budget authority or outlays 
     under subsection (b) to be exceeded.''.
       (d) Separate Allocations.--Section 302(g) is amended to 
     read as follows:
       ``(g) Separate Allocations.--The Committees on 
     Appropriations and the Budget shall make separate allocations 
     under subsections (a) and (b) consistent with the categories 
     in section 251(c) of the Balanced Budget and Emergency 
     Deficit Control Act of 1985.''.

     SEC. 1606. AMENDMENTS TO SECTION 303.

       (a) In General.--Section 303 of the Congressional Budget 
     Act of 1974 is amended--
       (1) by striking ``NEW CREDIT AUTHORITY,'' in the center 
     heading;
       (2) by striking paragraph (4) of subsection (a) and be 
     redesignating paragraphs (5) and (6) as paragraphs (4) and 
     (5), respectively;
       (3) in subsection (b)(1)(A), by inserting ``advanced, 
     discretionary'' before ``new budget authority''; and
       (4) by striking subsection (c).
       (b) Conforming Amendment.--The item relating to section 303 
     in the table of contents set forth in section 1(b) of the 
     Congressional Budget and Impoundment Control Act of 1974 is 
     amended by striking ``new credit authority,''.

     SEC. 1607. AMENDMENT TO SECTION 305.

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

     SEC. 1608. AMENDMENT TO SECTION 308.

       (a) Elimination of References to Credit Authority.--Section 
     308 of the Congressional Budget Act of 1974 is amended--
       (1) by striking the center heading and inserting the 
     following:


            ``REPORTS ON SPENDING AND REVENUE LEGISLATION'';

       (2) in paragraphs (1) and (2) of subsection (a), by 
     striking ``or new credit authority,'' each place it appears 
     and insert ``and'' before ``new spending'' each place it 
     appears;
       (3) in subsection (b)(1), by striking ``or new credit 
     authority,'' and insert ``and'' before ``new spending''; and
       (4) in subsection (c), by inserting ``and'' after the 
     semicolon at the end of paragraph (3), strike ``; and'' at 
     the end of paragraph (4) and insert a period; and strike 
     paragraph (5).
       (b) Conforming Amendment.--The item relating to section 308 
     in the table of contents set forth in section 1(b) of the 
     Congressional Budget and Impoundment Control Act of 1974 is 
     amended by striking ``or new credit authority'' and by 
     inserting ``and'' after the first comma.

     SEC. 1609. AMENDMENTS TO SECTION 311.

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


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

       ``Sec. 311. (a) Enforcement of Budget Aggregates.--
       ``(1) In the house of representatives.--Except as provided 
     by subsection (c), after the Congress has completed action on 
     a concurrent resolution on the budget for a fiscal year, it 
     shall not be in order in the House of Representatives to 
     consider any bill, joint resolution, amendment, motion, or 
     conference report providing new budget authority for such 
     fiscal year, providing new entitlement authority effective 
     during such fiscal year, or reducing revenues for such fiscal 
     year, if--
       ``(A) the enactment of such bill or resolution as reported;
       ``(B) the adoption and enactment of such amendment; or
       ``(C) the enactment of such bill or resolution in the form 
     recommended in such conference report;
     would cause the appropriate level of total new budget 
     authority or total budget outlays set forth in the most 
     recently agreed to concurrent resolution on the budget for 
     such fiscal year to be exceeded, or would cause revenues to 
     be less than the appropriate level of total revenues set 
     forth in such concurrent resolution except in the case that a 
     declaration of war by the Congress is in effect.
       ``(2) In the senate.--After a concurrent resolution on the 
     budget is agreed to, it shall not be in order in the Senate 
     to consider any bill, resolution, amendment, motion, or 
     conference report that--
       ``(A) would cause the appropriate level of total new budget 
     authority or total outlays set forth for the first fiscal 
     year in such resolution to be exceeded; or
       ``(B) would cause revenues to be less than the appropriate 
     level of total revenues set forth for the first fiscal year 
     covered by such resolution or for the period including the 
     first fiscal year plus the following 4 fiscal years in such 
     resolution.
       ``(3) Enforcement of social security levels in the 
     senate.--After a concurrent resolution on the budget is 
     agreed to, it shall not be in order in the Senate to consider 
     any bill, resolution, amendment, motion, or conference report 
     that would cause a decrease in social security surpluses or 
     an increase in social security deficits derived from the 
     levels of social security revenues and social security 
     outlays set forth for the first fiscal year covered by the 
     resolution and for the period including the first fiscal year 
     plus the following 4 fiscal years in such resolution.
       ``(b) Social Security Levels.--
       ``(1) In general.--For the purposes of subsection (a)(3), 
     social security surpluses equal the excess of social security 
     revenues over social security outlays in a fiscal year or 
     years with such an excess and social security deficits equal 
     the excess of social security outlays over social security 
     revenues in a fiscal year or years with such an excess.
       ``(2) Tax treatment.--For the purposes of this section, no 
     provision of any legislation involving a change in chapter 1 
     of the Internal Revenue Code of 1986 shall be treated as 
     affecting the amount of social security revenues or outlays 
     unless such provision changes the income tax treatment of 
     social security benefits.
       ``(c) Exception in the House of Representatives.--
     Subsection (a)(1) shall not apply in the House of 
     Representatives to any bill, resolution, or amendment which 
     provides new budget authority or new entitlement authority 
     effective during such fiscal year, or to any conference 
     report on any such bill or resolution, if--
       ``(1) the enactment of such bill or resolution as reported;
       ``(2) the adoption and enactment of such amendment; or
       ``(3) the enactment of such bill or resolution in the form 
     recommended in such conference report;
     would not cause the appropriate allocation of new 
     discretionary budget authority or new entitlement authority 
     made pursuant to section 302(a) for such fiscal year, for the 
     committee within whose jurisdiction such bill, resolution, or 
     amendment falls, to be exceeded.''.

     SEC. 1610. AMENDMENT TO SECTION 312.

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


                           ``points of order

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

[[Page S6869]]

     be raised against a bill, resolution, amendment, motion, or 
     conference report while an amendment or motion, the adoption 
     of which would remedy the violation of this Act, is pending 
     before the Senate.
       ``(e) Points of Order in the Senate Against Amendments 
     Between the Houses.--Each provision of this Act that 
     establishes a point of order against an amendment also 
     establishes a point of order in the Senate against an 
     amendment between the Houses. If a point of order under this 
     Act is raised in the Senate against an amendment between the 
     Houses, and the point of order is sustained, the effect shall 
     be the same as if the Senate had disagreed to the amendment.
       ``(f) Effect of a Point of Order on a Bill in the Senate.--
     In the Senate, if the Chair sustains a point of order under 
     this Act against a bill, the Chair shall then send the bill 
     to the committee of appropriate jurisdiction for further 
     consideration.''.
       (b) Conforming Amendments.--Sections 302(g), 311(c), and 
     313(e) of the Congressional Budget Act of 1974 are repealed.

     SEC. 1611. ADJUSTMENTS.

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


                             ``adjustments

       ``Sec. 314. (a) Adjustments.--When--
       ``(1)(A) the Committee on Appropriations reports an 
     appropriation measure for fiscal year 1998, 1999, 2000, 2001, 
     or 2002 that specifies an amount for emergencies pursuant to 
     section 251(b)(2)(A) of the Balanced Budget and Emergency 
     Deficit Control Act of 1985 or for continuing disability 
     reviews pursuant to section 251(b)(2)(C) of that Act;
       ``(B) any other committee reports emergency legislation 
     described in section 252(e) of that Act;
       ``(C) the Committee on Appropriations reports an 
     appropriation measure for fiscal year 1998, 1999, 2000, 2001, 
     or 2002 that includes an appropriation with respect to clause 
     (i) or (ii), the adjustment shall be the amount of budget 
     authority in the measure that is the dollar equivalent, in 
     terms of Special Drawing Rights, of--
       ``(i) an increase in the United States quota as part of the 
     International Monetary Fund Eleventh General Review of Quotas 
     (United States Quota); or
       ``(ii) an increase in the maximum amount available to the 
     Secretary of the Treasury pursuant to section 17 of the 
     Bretton Woods Agreements Act, as amended from time to time 
     (New Arrangements to Borrow); or
       ``(D) the Committee on Appropriations reports an 
     appropriation measure for fiscal year 1998, 1999, or 2000 
     that includes an appropriation for arrearages for 
     international organizations, international peacekeeping, and 
     multilateral development banks during that fiscal year, and 
     the sum of the appropriations for the period of fiscal years 
     1998 through 2000 does not exceed $1,884,000,000 in budget 
     authority; or
       ``(2) a conference committee submits a conference report 
     thereon;
     the chairman of the Committee on the Budget of the Senate or 
     House of Representatives (whichever is appropriate) shall 
     make the adjustments referred to in subsection (c) to reflect 
     the additional new budget authority for such matter provided 
     in that measure or conference report and the additional 
     outlays flowing from such amounts for such matter.
       ``(b) Application of Adjustments.--The adjustments and 
     revisions to allocations, aggregates, and limits made by the 
     Chairman of the Committee on the Budget pursuant to 
     subsection (a) for legislation shall only apply while such 
     legislation is under consideration shall only permanently 
     take effect upon the enactment of that legislation.
       ``(c) Content of Adjustments.--The adjustments referred to 
     in subsection (a) shall consist of adjustments, as 
     appropriate, to--
       ``(1) the discretionary spending limits as set forth in the 
     most recently adopted concurrent resolution on the budget;
       ``(2) the allocations made pursuant to the most recently 
     adopted concurrent resolution on the budget pursuant to 
     section 302(a); and
       ``(3) the budgetary aggregates as set forth in the most 
     recently adopted concurrent resolution on the budget.
       ``(d) Reporting Revised Suballocations.--Following the 
     adjustments made under subsection (a), the Committees on 
     Appropriations of the Senate and the House of Representatives 
     shall report appropriately revised suballocations pursuant to 
     section 302(b) to carry out this subsection.
       ``(e) Definitions.--As used in subsection (a)(1)(A), when 
     referring to continuing disability reviews, the terms 
     `continuing disability reviews', `additional new budget 
     authority', and `additional outlays' shall have the same 
     meanings as provided in section 251(b)(2)(C)(ii) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985.''.
       (b) Table of Contents.--The table of contents set forth in 
     section 1(b) of the Congressional Budget and Impoundment 
     Control Act of 1974 is amended by--
       (1) striking the item for section 312 and inserting the 
     following:

``Sec. 312. Points of order.''; and
       (2) adding after the item relating to section 313 the 
     following new item:

``Sec. 314. Adjustments.''.

     SEC. 1612. AMENDMENTS TO TITLE V.

       (a) Section 502.--Section 502 of the Federal Credit Reform 
     Act of 1990 is amended as follows:
       (1) In the second sentence of paragraph (1), insert ``and 
     refinancing arrangements that defer payment for more than 90 
     days, including the sale of a government asset on credit 
     terms'' before the period.
       (2) In paragraph (5)(A), insert ``or modification thereof'' 
     before the first comma.
       (3) In paragraph (5)(B)(iii), strike ``and other 
     recoveries'' and insert ``, other recoveries, and routine 
     workouts of troubled loans or loans in imminent default when 
     those workouts are to maximize repayments to the Government 
     or to minimize claims on the Government''.
       (4) In paragraph (5)(C), strike ``, and'' at the end of 
     clause (i), strike ``the'' in clause (ii) and strike the 
     period and insert ``, and'' at the end of that clause, and at 
     the end add the following new clause:
       ``(iii) routine workouts of troubled loans or loans in 
     imminent default when those workouts are to maximize the 
     repayments to the Government or to minimize claims on the 
     Government.''.
       (5) In paragraph (5), amend subparagraph (D) to read as 
     follows:
       ``(D) The cost of a modification is the difference in cost 
     that results from the modification of a direct loan or loan 
     guarantee (or direct loan obligation or loan guarantee 
     commitment). This difference in cost is the difference 
     between the currently estimated net present value of the 
     remaining cash flows under the terms of the direct loan or 
     loan guarantee contract assumed in the most recent 
     President's budget submitted to Congress, and the currently 
     estimated net present value of the remaining cash flows under 
     the terms of the contract, as modified. Except for interest 
     rates, the estimates shall be consistent with the economic 
     and technical assumptions underlying the most recent 
     President's budget submitted to Congress.''.
       (6) Redesignate paragraph (9) as paragraph (10) and after 
     paragraph (8) add the following new paragraph:
       ``(9) The term `modification' means any Government action 
     that alters the estimated cost of an outstanding direct loan 
     (or direct loan obligation) or an outstanding loan guarantee 
     (or loan guarantee commitment) from the estimate based on the 
     cash flows contained in the most recent President's budget 
     submitted to Congress. This includes the sale of loan assets, 
     with or without recourse, and the purchase of guaranteed 
     loans. This also includes any action resulting from new 
     legislation, or from the exercise of administrative 
     discretion under existing law, that directly or indirectly 
     alters the estimated cost of outstanding direct loans (or 
     direct loan obligations) or loan guarantees (or loan 
     guarantee commitments) such as a change in collection 
     procedures. The term `modification' does not include the 
     routine administrative work-outs of troubled loans or loans 
     in imminent default. Work-outs are actions undertaken to 
     maximize the repayments to the Government under existing 
     direct loans or to minimize claims under existing loan 
     guarantees. The expected effects of such work-outs shall be 
     included in the original estimate of the cash flows. Insofar 
     as the effects on cash flows are more or less than originally 
     estimated, the differences in cash flows shall be included in 
     a reestimate of the cost. The term `modification' does not 
     include changes in loan or guarantee terms resulting from the 
     exercise by the borrower of an option included in the loan or 
     guarantee contract. The expected effects of such changes in 
     terms shall be included in the original estimate of the cash 
     flow. Insofar as the effects on cash flow are more or less 
     than originally estimated, the differences in cash flow shall 
     be included in a reestimate of the cost; and''.
       (b) Section 504.--Section 504 of the Federal Credit Reform 
     Act of 1990 is amended as follows:
       (1) Amend subsection (b)(1) to read as follows:
       ``(1) new budget authority to cover their costs is provided 
     in advance in appropriation Acts;''.
       (2) In subsection (b)(2), strike ``enacted'' and insert 
     ``provided in an appropriation Act''.
       (3) In subsection (d)(1), strike ``directly or indirectly 
     alter the costs of outstanding direct loans and loan 
     guarantees'' and insert ``modify outstanding direct loans (or 
     direct loan obligations) or loan guarantees (or loan 
     guarantee commitments)''.
       (4) In subsection (e), strike ``A direct loan obligation or 
     loan guarantee commitment'' and insert ``An outstanding 
     direct loan (or direct loan obligation) or loan guarantee (or 
     loan guarantee commitment)'', after ``unless'' insert 
     ``new'', and strike ``or from other budgetary resources''.
       (c) Section 505.--Section 505 of the Federal Credit Reform 
     Act of 1990 is amended as follows:
       (1) In subsection (c), by inserting before the period at 
     the end of the second sentence the following: ``, except that 
     the rate of interest charged by the Secretary on lending to 
     financing accounts (including amounts treated as lending to 
     financing accounts by the Federal Financing Bank (hereinafter 
     in this subsection referred to as the `Bank`) pursuant to 
     section 406(b)) and the rate of interest paid to financing 
     accounts on uninvested balances in financing accounts shall 
     be the same as the rate determined pursuant to section 
     502(5)(E). For guaranteed loans financed by the Bank and 
     treated as direct loans by a Federal agency pursuant to 
     section 406(b), any fee or interest surcharge (the amount by 
     which the interest rate charged exceeds the rate determined 
     pursuant to section 502(5)(E)) that the Bank charges to a 
     private borrower pursuant to section 6(c) of the Federal 
     Financing Bank Act of 1973 shall be considered a cash flow to 
     the Government for the purposes of determining the cost of 
     the direct loan pursuant to section 502(5). All such amounts 
     shall be credited to the appropriate financing account. The 
     Bank is authorized to require reimbursement from a Federal 
     agency to cover the administrative expenses of the Bank that 
     are attributable to the direct loans financed for that 
     agency. All such payments by an agency shall be considered 
     administrative expenses subject to section 504(g). This 
     section shall apply to transactions related to direct loan 
     obligations or loan guarantee commitments made on or after 
     October 1, 1991.''.
       (2) In subsection (c), by striking ``supercede'' and 
     inserting ``supersede''.

[[Page S6870]]

       (3) By amending subsection (d) to read as follows:
       ``(d) Authorization for Liquidating Accounts.--(1) Amounts 
     in liquidating accounts shall be available only for payments 
     resulting from direct loan obligations or loan guarantee 
     commitments made prior to October 1, 1991. These payments 
     shall include--
       ``(A) interest payments and principal repayments to the 
     Treasury or the Federal Financing Bank for amounts borrowed;
       ``(B) disbursements of loans;
       ``(C) default and other guarantee claim payments;
       ``(D) interest supplement payments;
       ``(E) payments for the costs of foreclosing, managing, and 
     selling collateral that are capitalized or routinely deducted 
     from the proceeds of sales;
       ``(F) payments to financing accounts when required for 
     modifications;
       ``(G) administrative expenses, if--
       ``(i) amounts credited to the liquidating account would 
     have been available for administrative expenses under a 
     provision of law in effect prior to October 1, 1991; and
       ``(ii) no direct loan obligation or loan guarantee 
     commitment has been made, or any modification of a direct 
     loan or loan guarantee has been made, since September 30, 
     1991; and
       ``(H) such other payments as are necessary for the 
     liquidation of such direct loan obligations and loan 
     guarantee commitments.
       ``(2) Amounts credited to liquidating accounts in any year 
     shall be available only for payments required in that year. 
     Any unobligated balances in liquidating accounts at the end 
     of a fiscal year shall be transferred to miscellaneous 
     receipts as soon as practicable after the end of the fiscal 
     year.
       ``(3) If funds in liquidating accounts are insufficient to 
     satisfy obligations and commitments of said accounts, there 
     is hereby provided permanent, indefinite authority to make 
     any payments required to be made on such obligations and 
     commitments.''.

     SEC. 1613. REPEAL OF TITLE VI.

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

     SEC. 1614. AMENDMENTS TO SECTION 904.

       (a) Waivers.--Section 904(c) of the Congressional Budget 
     Act of 1974 is amended to read as follows:
       ``(c) Waivers.--
       ``(1) Sections 305(b)(2), 305(c)(4), 306, 310(d)(2), 313, 
     904(c), and 904(d) of this Act may be waived or suspended in 
     the Senate only by the affirmative vote of three-fifths of 
     the Members, duly chosen and sworn.
       ``(2) Sections 301(i), 302(c), 302(f), 310(g), 311(a), 
     312(b), and 312(c) of this Act and sections 258(a)(4)(C), 
     258A(b)(3)(C)(I), 258B(f)(1), 258B(h)(1), 258(h)(3), 
     258C(a)(5), and 258C(b)(1) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 may be waived or 
     suspended in the Senate only by the affirmative vote of 
     three-fifths of the Members, duly chosen and sworn.''.
       (b) Appeals.--Section 904(d) of the Congressional Budget 
     Act of 1974 is amended to read as follows:
       ``(d) Appeals.--
       ``(1) Appeals in the Senate from the decisions of the Chair 
     relating to any provision of title III or IV or section 1017 
     shall, except as otherwise provided therein, be limited to 1 
     hour, to be equally divided between, and controlled by, the 
     mover and the manager of the resolution, concurrent 
     resolution, reconciliation bill, or rescission bill, as the 
     case may be.
       ``(2) An affirmative vote of three-fifths of the Members, 
     duly chosen and sworn, shall be required in the Senate to 
     sustain an appeal of the ruling of the Chair on a point of 
     order raised under sections 305(b)(2), 305(c)(4), 306, 
     310(d)(2), 313, 904(c), and 904(d) of this Act.
       ``(3) An affirmative vote of three-fifths of the Members, 
     duly chosen and sworn, shall be required in the Senate to 
     sustain an appeal of the ruling of the Chair on a point of 
     order raised under sections 301(i), 302(c), 302(f), 310(g), 
     311(a), 312(b), and 312(c) of this Act and sections 
     258(a)(4)(C), 258A(b)(3)(C)(I), 258B(f)(1), 258B(h)(1), 
     258(h)(3), 258C(a)(5), and 258C(b)(1) of the Balanced Budget 
     and Emergency Deficit Control Act of 1985.''.
       (c) Expiration of Supermajority Voting Requirements.--
     Section 904 of the Congressional Budget Act of 1974 is 
     amended by adding at the end the following:
       ``(e) Expiration of Certain Supermajority Voting 
     Requirements.--Subsections (c)(2) and (d)(3) shall expire on 
     September 30, 2002.''.

     SEC. 1615. REPEAL OF SECTIONS 905 AND 906.

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

     SEC. 1616. AMENDMENTS TO SECTIONS 1022 AND 1024.

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

     SEC. 1617. AMENDMENT TO SECTION 1026.

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

     SEC. 1651. PURPOSE.

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

     SEC. 1652. GENERAL STATEMENT AND DEFINITIONS.

       (a) General Statement.--Section 250(b) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     by striking the first two sentences and inserting the 
     following: ``This part provides for the enforcement of a 
     balanced budget by fiscal year 2002 as called for in House 
     Concurrent Resolution 84 (105th Congress, 1st session).''.
       (b) Definitions.--Section 250(c) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended--
       (1) by striking paragraph (4) and inserting the following:
       ``(4) The term `category' means defense, nondefense, and 
     violent crime reduction discretionary appropriations as 
     specified in the joint explanatory statement accompanying a 
     conference report on the Balanced Budget Act of 1997. New 
     accounts or activities shall be categorized only after 
     consultation with the committees on Appropriations and the 
     Budget of the House of Representatives and the Senate and 
     such consultation shall include written communication to such 
     committees that affords such committees the opportunity to 
     comment before official action is taken with respect to new 
     accounts or activities.'';
       (2) by striking paragraph (6) and inserting the following:
       ``(6) The term `budgetary resources' means new budget 
     authority, unobligated balances, direct spending authority, 
     and obligation limitations.'';
       (3) in paragraph (9), by striking ``submission of the 
     fiscal year 1992 budget that are not included with a budget 
     submission'' and inserting ``that budget submission that are 
     not included with that budget submission'';
       (4) in paragraph (14), by inserting ``first 4'' before 
     ``fiscal years'' and by striking ``1995'' and inserting 
     ``2006''; and
       (5) by striking paragraphs (17) and (20) and by 
     redesignating paragraphs (18), (19), and (21) as paragraphs 
     (17), (18), and (19), respectively.

     SEC. 1653. ENFORCING DISCRETIONARY SPENDING LIMITS.

       (a) Extension Through Fiscal Year 2002.--Section 251 of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended--
       (1) in the side heading of subsection (a), by striking 
     ``1991-1998'' and inserting ``1997-2002'';
       (2) in subsection (a)(7), by inserting ``(excluding 
     Saturdays, Sundays, and legal holidays)'' after ``days'';
       (3) in the first sentence of subsection (b)(1), by striking 
     ``1992, 1993, 1994, 1995, 1996, 1997 or 1998'' and inserting 
     ``1997 or any fiscal year thereafter through 2002'' and by 
     striking ``through 1998'' and inserting ``through 2002'';
       (4) in subsection (b)(1), by striking ``the following:'' 
     and all that follows through ``in concepts and definitions'' 
     the first place it appears and inserting ``the following: the 
     adjustments'' and by striking subparagraphs (B) and (C);
       (5) in subsection (b)(1), as amended, by striking the last 
     sentence and inserting ``Changes in concepts and definitions 
     may only be made after consultation with the committees on 
     Appropriations and the Budget of the House of Representatives 
     and the Senate and such consultation shall include written 
     communication to such committees that affords such committees 
     the opportunity to comment before official action is taken 
     with respect to such changes.'';
       (6) in subsection (b)(2), by striking ``1991, 1992, 1993, 
     1994, 1995, 1996, 1997, or 1998'' and inserting ``1997 or any 
     fiscal year thereafter through 2002'', by striking ``through 
     1998'' and inserting ``through 2002'', and by striking 
     subparagraphs (A), (B), (C), (E), and (G), and by 
     redesignating subparagraphs (D), (F), and (H) as 
     subparagraphs (A), (B), and (C), respectively;
       (7) in subsection (b)(2)(A), as redesignated, by striking 
     ``(i)'', by striking clause (ii), and by inserting ``fiscal'' 
     before ``years'';
       (8) in subsection (b)(2)(B), as redesignated, by striking 
     everything after ``the adjustment in outlays'' and inserting 
     ``for a fiscal year is the amount of the excess but not to 
     exceed 0.5 percent of the adjusted discretionary spending 
     limit on outlays for that fiscal year in fiscal year 1997 or 
     any fiscal year thereafter through 2002;
       (9) in subsection (b)(2)(C)(i), as redesignated--
       (A) in subclause (III) by striking ``$245,000,000'' and 
     inserting ``$290,000,000'';
       (B) in subclause (IV), by striking ``$280,000,000'' and 
     inserting ``$520,000,000'';
       (C) in subclause (V), by striking ``$317,500,000'' and 
     inserting ``$520,000,000'';
       (D) in subclause (VI), by striking ``$317,500,000'' and 
     inserting ``$520,000,000''; and
       (E) in subclause (VII), by striking ``$317,000,000'' and 
     inserting ``$520,000,000''; and
       (10) by adding at the end of subsection (b)(2) the 
     following:
       ``(D) Allowance for IMF.--If an appropriations bill or 
     joint resolution is enacted for fiscal year 1998, 1999, 2000, 
     2001, or 2002 that includes an appropriation with respect to 
     clause (i) or (ii), the adjustment shall be the amount of 
     budget authority in the measure that is the dollar 
     equivalent, in terms of Special Drawing Rights, of--
       ``(i) an increase in the United States quota as part of the 
     International Monetary Fund Eleventh General Review of Quotas 
     (United States Quota); or

[[Page S6871]]

       ``(ii) any increase in the maximum amount available to the 
     Secretary of the Treasury pursuant to section 17 of the 
     Bretton Woods Agreements Act, as amended from time to time 
     (New Arrangements to Borrow).
       ``(E) Allowance for international arrearages.--
       ``(i) Adjustments.--If an appropriations bill or joint 
     resolution is enacted for fiscal year 1998, 1999 or 2000 that 
     includes an appropriation for arrearages for international 
     organizations, international peacekeeping, and multilateral 
     development banks for that fiscal year, the adjustment shall 
     be the amount of budget authority in such measure and the 
     outlays flowing in all fiscal years from such budget 
     authority.
       ``(ii) Limitations.--The total amount of adjustments made 
     pursuant to this subparagraph shall not exceed $1,884,000,000 
     in budget authority.
       ``(F) Allowances for transportation.--
       ``(i) In general.--If during the 105th Congress, revenue 
     increases or direct spending reductions creditable under 
     section 252 are enacted for transportation reserve funds as 
     provided in sections 207, 207A, 208, or 209 of House 
     Concurrent Resolution 84 (105th Congress), OMB shall 
     determine the amount of the budget authority adjustment for 
     the applicable program for each fiscal year through 2002.
       ``(ii) Adjustments.--If for fiscal years 1998 through 2002, 
     discretionary appropriations are enacted for a fiscal year 
     that designates funding for the applicable program, the 
     adjustment is the amount of the discretionary budget 
     authority appropriated for such program in such fiscal year 
     and the outlays in all years flowing from such discretionary 
     budget authority, but not to exceed the amount available for 
     such program pursuant to this subparagraph.
       ``(iii) Limitations.--(I) Revenue increases and direct 
     spending reductions credited under this subparagraph shall be 
     so designated in statute and shall not be credited under 
     section 252.
       ``(II) The amount of the budget authority adjustment 
     determined for a fiscal year under clause (ii) shall not 
     exceed the amount of the revenue increase or direct spending 
     reduction credited for a fiscal year under clause (i) and 
     shall meet the terms and conditions of sections 207, 207A, 
     208, or 209 of House Concurrent Resolution 84 (105th 
     Congress), as applicable.
       (b) Shifting of Discretionary Spending Limits into Gramm-
     Rudman.--
       (1) In general.--Section 251 of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended by adding at 
     the end the following:
       ``(c) Discretionary Spending Limit.--As used in this part, 
     the term `discretionary spending limit' means--
       ``(1) with respect to fiscal year 1997, for the 
     discretionary category, the current adjusted amount of new 
     budget authority and outlays;
       ``(2) with respect to fiscal year 1998--
       ``(A) for the defense category: $269,000,000,000 in new 
     budget authority and $266,823,000,000 in outlays;
       ``(B) for the nondefense category: $252,357,000,000 in new 
     budget authority and $282,853,000,000 in outlays; and
       ``(C) for the violent crime reduction category: 
     $5,500,000,000 in new budget authority and $3,592,000,000 in 
     outlays;
       ``(3) with respect to fiscal year 1999--
       ``(A) for the defense category: $271,500,000,000 in new 
     budget authority and $266,518,000,000 in outlays;
       ``(B) for the nondefense category: $255,699,000,000 in new 
     budget authority and $287,850,000,000 in outlays; and
       ``(C) for the violent crime reduction category: 
     $5,800,000,000 in new budget authority and $4,953,000,000 in 
     outlays;
       ``(4) with respect to fiscal year 2000--
       ``(A) for the discretionary category: $532,693,000,000 in 
     new budget authority and $558,711,000,000 in outlays; and
       ``(B) for the violent crime reduction category: 
     $4,500,000,000 in new budget authority and $5,554,000,000 in 
     outlays;
       ``(5) with respect to fiscal year 2001--
       ``(A) for the discretionary category: $537,677,000,000 in 
     new budget authority and $558,460,000,000 in outlays; and
       ``(B) for the violent crime reduction category: 
     $4,355,000,000 in new budget authority and $5,936,000,000 in 
     outlays;
       ``(6) with respect to fiscal year 2002--
       ``(A) for the discretionary category: $546,619,000,000 in 
     new budget authority and $556,314,000,000 in outlays; and
       ``(B) for the violent crime reduction category: 
     $4,455,000,000 in new budget authority and $4,485,000,000 in 
     outlays;
     as adjusted in strict conformance with subsection (b).''.
       (2) Transfers into the fund.--On the first day of the 
     following fiscal years, the following amounts shall be 
     transferred from the general fund to the Violent Crime 
     Reduction Trust Fund--
       (A) for fiscal year 2001, $4,355,000,000; and
       (B) for fiscal year 2002, $4,455,000,000.
       (3) Repeal of duplicative provisions.--Sections 201, 202, 
     and 206 of House Concurrent Resolution 84 (105th Congress) 
     are repealed.

     SEC. 1654. VIOLENT CRIME REDUCTION TRUST FUND.

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

     SEC. 1655. ENFORCING PAY-AS-YOU-GO.

       (a) Extension.--Section 252 of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended--
       (1) by striking subsections (a) and (b) and inserting the 
     following:
       ``(a) Purpose.--The purpose of this section is to assure 
     that any legislation enacted prior to September 30, 2002, 
     affecting direct spending or receipts that increases the 
     deficit will trigger an offsetting sequestration.
       ``(b) Sequestration.--
       ``(1) Timing.--For fiscal years 1998 through 2002, within 
     15 calendar days after Congress adjourns to end a session and 
     on the same day as a sequestration (if any) under sections 
     251 and 253, there shall be a sequestration to offset the 
     amount of any net deficit increase in the budget year caused 
     by all direct spending and receipts legislation (after 
     adjusting for any prior sequestration as provided by 
     paragraph (2)) plus any net deficit increase in the prior 
     fiscal year caused by all direct spending and receipts 
     legislation not reflected in the final OMB sequestration 
     report for that year.
       ``(2) Calculation of deficit increase.--OMB shall calculate 
     the amount of deficit increase, if any, in the budget year by 
     adding--
       ``(A) all applicable estimates of direct spending and 
     receipts legislation transmitted under subsection (d) 
     applicable to the budget year, other than any amounts 
     included in such estimates resulting from--
       ``(i) full funding of, and continuation of, the deposit 
     insurance guarantee commitment in effect under current law; 
     and
       ``(ii) emergency provisions as designated under subsection 
     (e);
       ``(B) the estimated amount of savings in direct spending 
     programs applicable to the budget year resulting from the 
     prior year's sequestration under this section or section 253, 
     if any (except for any amounts sequestered as a result of any 
     deficit increase in the fiscal year immediately preceding the 
     prior fiscal year), as published in OMB's final sequestration 
     report for that prior year; and
       ``(C) all applicable estimates of direct spending and 
     receipts legislation transmitted under subsection (d) for the 
     current year that are not reflected in the final OMB 
     sequestration report for that year, other than any amounts 
     included in such estimates resulting from--
       ``(i) full funding of, and continuation of, the deposit 
     insurance guarantee commitment in effect under current law; 
     and
       ``(ii) emergency provisions as designated under subsection 
     (e).'';
       (2) by amending subsection (d) to read as follows:
       ``(d) Estimates.--
       ``(1) CBO estimates.--As soon as practicable after Congress 
     completes action on any direct spending or receipts 
     legislation, CBO shall provide an estimate to OMB of the 
     legislation.
       ``(2) OMB estimates.--Not later than 5 calendar days 
     (excluding Saturdays, Sundays, and legal holidays) after the 
     enactment of any direct spending or receipts legislation, OMB 
     shall transmit a report to the House of Representatives and 
     to the Senate containing--
       ``(A) the CBO estimate of that legislation;
       ``(B) an OMB estimate of that legislation using current 
     economic and technical assumptions; and
       ``(C) an explanation of any difference between the 2 
     estimates.
       ``(3) Scope of estimates.--The estimates shall be prepared 
     in conformance with scorekeeping guidelines and shall include 
     the amount of change in outlays or receipts, as the case may 
     be, for the current year (if applicable), the budget year, 
     and each outyear.
       ``(4) Consultation.--OMB and CBO, after consultation with 
     each other and the Committees on the Budget of the House of 
     Representatives and the Senate, shall--
       ``(A) determine scorekeeping guidelines; and
       ``(B) in conformance with such guidelines, prepare 
     estimates under this subsection.''; and
       (3) in subsection (e), by striking ``, for any fiscal year 
     from 1991 through 1998,'' and by striking ``through 1995''.

     SEC. 1656. REPORTS AND ORDERS.

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

     SEC. 1657. EXEMPT PROGRAMS AND ACTIVITIES.

       (a) Veterans Programs.--Section 255(b) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     as follows:
       (1) In the item relating to Veterans Insurance and 
     Indemnity, strike ``Indemnity'' and insert ``Indemnities''.
       (2) In the item relating to Veterans' Canteen Service 
     Revolving Fund, strike ``Veterans' ''.
       (3) In the item relating to Benefits under chapter 21 of 
     title 38, strike ``(36-0137-0-1-702)'' and insert ``(36-0120-
     0-1-701)''.
       (4) In the item relating to Veterans' compensation, strike 
     ``Veterans' compensation'' and insert ``Compensation''.
       (5) In the item relating to Veterans' pensions, strike 
     ``Veterans' pensions'' and insert ``Pensions''.
       (6) After the last item, insert the following new items:
       ``Benefits under chapter 35 of title 38, United States 
     Code, related to educational assistance for survivors and 
     dependents of certain veterans with service-connected 
     disabilities (36-0137-0-1-702);
       ``Assistance and services under chapter 31 of title 38, 
     United States Code, relating to training

[[Page S6872]]

     and rehabilitation for certain veterans with service-
     connected disabilities (36-0137-0-1-702);
       ``Benefits under subchapters I, II, and III of chapter 37 
     of title 38, United States Code, relating to housing loans 
     for certain veterans and for the spouses and surviving 
     spouses of certain veterans Guaranty and Indemnity Program 
     Account (36-1119-0-1-704);
       ``Loan Guaranty Program Account (36-1025-0-1-704); and
       ``Direct Loan Program Account (36-1024-0-1-704).''.
       (b) Certain Program Bases.--Section 255(f) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     to read as follows:
       ``(f) Optional Exemption of Military Personnel.--
       ``(1) The President may, with respect to any military 
     personnel account, exempt from sequestration or provide for a 
     lower uniform percentage reduction than would otherwise 
     apply.
       ``(2) The President may not use the authority provided by 
     paragraph (1) unless he notifies the Congress of the manner 
     in which such authority will be exercised on or before the 
     date specified in section 254(d) for the budget year.''.
       (c) Other Programs and Activities.--(1) Section 
     255(g)(1)(A) of the Balanced Budget Emergency Deficit Control 
     Act of 1985 is amended as follows:
       (A) After the first item, insert the following new item:
       ``Activities financed by voluntary payments to the 
     Government for goods or services to be provided for such 
     payments;''.
       (B) Strike ``Thrift Savings Fund (26-8141-0-7-602);''.
       (C) In the first item relating to the Bureau of Indian 
     Affairs, insert ``Indian land and water claims settlements 
     and'' after the comma.
       (D) In the second item relating to the Bureau of Indian 
     Affairs, strike ``miscellaneous'' and ``, tribal trust 
     funds'' and insert ``Miscellaneous'' before ``trust funds''.
       (E) Strike ``Claims, defense (97-0102-0-1-051);''.
       (F) In the item relating to Claims, judgments, and relief 
     acts, strike ``806'' and insert ``808''.
       (G) Strike ``Coinage profit fund (20-5811-0-2-803);''.
       (H) Insert ``Compact of Free Association (14-0415-0-1-
     808);'' after the item relating to claims, judgments, and 
     relief acts.
       (I) Insert ``Conservation Reserve Program (12-2319-0-1-
     302);'' after the item relating to the Compensation of the 
     President.
       (J) In the item relating to the Customs Service, strike 
     ``852'' and insert ``806''.
       (K) In the item relating to the Comptroller of the 
     Currency, insert ``, Assessment funds (20-8413-0-8-373)'' 
     before the semicolon.
       (L) Strike ``Director of the Office of Thrift 
     Supervision;''.
       (M) Strike ``Eastern Indian land claims settlement fund 
     (14-2202-0-1-806);''.
       (N) After the item relating to the Exchange stabilization 
     fund, insert the following new items:
       ``Farm Credit Administration, Limitation on Administrative 
     Expenses (78-4131-0-3-351);
       ``Farm Credit System Financial Assistance Corporation, 
     interest payment (20-1850-0-1-908);''.
       (O) Strike ``Federal Deposit Insurance Corporation;''.
       (P) In the first item relating to the Federal Deposit 
     Insurance Corporation, insert ``(51-4064-0-3-373)'' before 
     the semicolon.
       (Q) In the second item relating to the Federal Deposit 
     Insurance Corporation, insert ``(51-4065-0-3-373)'' before 
     the semicolon.
       (R) In the third item relating to the Federal Deposit 
     Insurance Corporation, insert ``(51-4066-0-3-373)'' before 
     the semicolon.
       (S) In the item relating to the Federal Housing Finance 
     Board, insert ``(95-4039-0-3-371)'' before the semicolon.
       (T) In the item relating to the Federal payment to the 
     railroad retirement account, strike ``account'' and insert 
     ``accounts''.
       (U) In the item relating to the health professions graduate 
     student loan insurance fund, insert ``program account'' after 
     ``fund'' and strike ``(Health Education Assistance Loan 
     Program) (75-4305-0-3-553)'' and insert ``(75-0340-0-1-
     552)''.
       (V) In the item relating to Higher education facilities, 
     strike ``and insurance''.
       (W) In the item relating to Internal revenue collections 
     for Puerto Rico, strike ``852'' and insert ``806''.
       (X) Amend the item relating to the Panama Canal Commission 
     to read as follows:
       ``Panama Canal Commission, Panama Canal Revolving Fund (95-
     4061-0-3-403);''.
       (Y) In the item relating to the Medical facilities 
     guarantee and loan fund, strike ``(75-4430-0-3-551)'' and 
     insert ``(75-9931-0-3-550)''.
       (Z) In the first item relating to the National Credit Union 
     Administration, insert ``operating fund (25-4056-0-3-373)'' 
     before the semicolon.
       (AA) In the second item relating to the National Credit 
     Union Administration, strike ``central'' and insert 
     ``Central'' and insert ``(25-4470-0-3-373)'' before the 
     semicolon.
       (BB) In the third item relating to the National Credit 
     Union Administration, strike ``credit'' and insert ``Credit'' 
     and insert ``(25-4468-0-3-373)'' before the semicolon.
       (CC) After the third item relating to the National Credit 
     Union Administration, insert the following new item:
       ``Office of Thrift Supervision (20-4108-0-3-373);''.
       (DD) In the item relating to Payments to health care trust 
     funds, strike ``572'' and insert ``571''.
       (EE) Strike ``Compact of Free Association, economic 
     assistance pursuant to Public Law 99-658 (14-0415-0-1-
     806);''.
       (FF) In the item relating to Payments to social security 
     trust funds, strike ``571'' and insert ``651''.
       (GG) Strike ``Payments to state and local government fiscal 
     assistance trust fund (20-2111-0-1-851);''.
       (HH) In the item relating to Payments to the United States 
     territories, strike ``852'' and insert ``806''.
       (II) Strike ``Resolution Funding Corporation;''.
       (JJ) In the item relating to the Resolution Trust 
     Corporation, insert ``Revolving Fund (22-4055-0-3-373)'' 
     before the semicolon.
       (KK) After the item relating to the Tennessee Valley 
     Authority funds, insert the following new items:
       ``Thrift Savings Fund;
       ``United States Enrichment Corporation (95-4054-0-3-271);
       ``Vaccine Injury Compensation (75-0320-0-1-551);
       ``Vaccine Injury Compensation Program Trust Fund (20-8175-
     0-7-551);''.
       (2) Section 255(g)(1)(B) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended as follows:
       (A) Strike ``The following budget'' and insert ``The 
     following Federal retirement and disability''.
       (B) In the item relating to Black lung benefits, strike 
     ``lung benefits'' and insert ``Lung Disability Trust Fund''.
       (C) In the item relating to the Court of Federal Claims 
     Court Judges' Retirement Fund, strike ``Court of Federal''.
       (D) In the item relating to Longshoremen's compensation 
     benefits, insert ``Special workers compensation expenses,'' 
     before ``Longshoremen's''.
       (E) In the item relating to Railroad retirement tier II, 
     insert ``Industry Pension Fund'' after ``tier II'', and 
     strike ``retirement tier II''.
       (3) Section 255(g)(2) of the Balanced Budget and Emergency 
     Deficit Control Act of 1985 is amended as follows:
       (A) Strike the following items:
       ``Agency for International Development, Housing, and other 
     credit guarantee programs (72-4340-0-3-151);
       ``Agricultural credit insurance fund (12-4140-0-1-351);''.
       (B) In the item relating to Check forgery, strike ``Check'' 
     and insert ``United States Treasury check''.
       (C) Strike ``Community development grant loan guarantees 
     (86-0162-0-1-451);''.
       (D) After the item relating to the United States Treasury 
     Check forgery insurance fund, insert the following new item:
       ``Credit liquidating accounts;''.
       (E) Strike the following items:
       ``Credit union share insurance fund (25-4468-0-3-371);
       ``Economic development revolving fund (13-4406-0-3);
       ``Export-Import Bank of the United States, Limitation of 
     program activity (83-4027-0-1-155);
       ``Federal deposit Insurance Corporation (51-8419-0-8-371);
       ``Federal Housing Administration fund (86-4070-0-3-371);
       ``Federal ship financing fund (69-4301-0-3-403);
       ``Federal ship financing fund, fishing vessels (13-4417-0-
     3-376);
       ``Government National Mortgage Association, Guarantees of 
     mortgage-backed securities (86-4238-0-3-371);
       ``Health education loans (75-4307-0-3-553);
       ``Indian loan guarantee and insurance fund (14-4410-0-3-
     452);
       ``Railroad rehabilitation and improvement financing fund 
     (69-4411-0-3-401);
       ``Rural development insurance fund (12-4155-0-3-452);
       ``Rural electric and telephone revolving fund (12-4230-8-3-
     271);
       ``Rural housing insurance fund (12-4141-0-3-371);
       ``Small Business Administration, Business loan and 
     investment fund (73-4154-0-3-376);
       ``Small Business Administration, Lease guarantees revolving 
     fund (73-4157-0-3-376);
       ``Small Business Administration, Pollution control 
     equipment contract guarantee revolving fund (73-4147-0-3-
     376);
       ``Small Business Administration, Surety bond guarantees 
     revolving fund (73-4156-0-3-376);
       ``Department of Veterans Affairs Loan guaranty revolving 
     fund (36-4025-0-3-704);''.
       (d) Low-Income Programs.--Section 255(h) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     as follows:
       (1) In the item relating to Aid to families with dependent 
     children, strike ``0412'' and insert ``1501''.
       (2) Amend the item relating to Child nutrition to read as 
     follows:
       ``State child nutrition programs (with the exception of 
     special milk programs) (12-3539-0-1-605);''.
       (3) After the item relating to State child nutrition 
     programs, insert the following new item:
       ``Commodity supplemental food program (12-3512-0-1-605);''.
       (4) Amend the item relating to the Women, infants, and 
     children program to read as follows:
       ``Special supplemental nutrition program for women, 
     infants, and children (WIC) (12-3510-0-1-605).''.
       (e) Identification of Programs.--Section 255(i) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended to read as follows:
       ``(i) Identification of Programs.--For purposes of 
     subsections (b), (g), and (h), each account is identified by 
     the designated budget account identification code number set 
     forth in the Budget of the United States Government 1998-
     Appendix, and an activity within an account is designated by 
     the name of the activity and the identification code number 
     of the account.''.
       (f) Optional Exemption of Military Personnel.--Section 
     255(h) of the Balanced Budget

[[Page S6873]]

     and Emergency Deficit Control Act of 1985 is repealed.

     SEC. 1658. GENERAL AND SPECIAL SEQUESTRATION RULES.

       (a) Conforming Amendments.--
       (1) Section heading.--The section heading of section 256 of 
     the Balanced Budget and Emergency Deficit Control Act of 1985 
     is amended by striking ``EXCEPTIONS, LIMITATIONS, AND SPECIAL 
     RULES'' and inserting ``GENERAL AND SPECIAL SEQUESTRATION 
     RULES''.
       (2) Table of contents.--The item relating to section 256 in 
     the table contents set forth in section 250(a) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended to read as follows:

``Sec. 256. General and special sequestration rules.''.
       (b) Automatic Spending Increases.--Section 256(a) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended by striking paragraph (1) and redesignating 
     paragraphs (2) and (3) as paragraphs (1) and (2), 
     respectively.
       (c) Guaranteed Student Loan Program.--Section 256(b) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended to read as follows:
       ``(b) Student Loans.--For all student loans under part B or 
     D of title IV of the Higher Education Act of 1965 made during 
     the period when a sequestration order under section 254 is in 
     effect, origination fees under sections 438(c)(2) and 456(c) 
     of that Act shall be increased by a uniform percentage 
     sufficient to produce the dollar savings in student loan 
     programs (as a result of that sequestration order) required 
     by section 252 or 253, as applicable.''.
       (d) Health Centers.--Section 256(e)(1) of the Balanced 
     Budget and Emergency Deficit Control Act of 1985 is amended 
     by striking the dash and all that follows thereafter and 
     inserting ``2 percent.''.
       (e) Treatment of Federal Administrative Expenses.--Section 
     256(h)(4) of the Balanced Budget and Emergency Deficit 
     Control Act of 1985 is amended by striking subparagraphs (D) 
     and (H), by redesignating subparagraphs (E), (F), (G), and 
     (I), as subparagraphs (D), (E), (F), and (G), respectively, 
     and by adding at the end the following new subparagraph:
       ``(H) Farm Credit Administration.''.
       (f) Commodity Credit Corporation.--Section 256(j)(5) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended to read as follows:
       ``(5) Dairy program.--Notwithstanding other provisions of 
     this subsection, as the sole means of achieving any reduction 
     in outlays under the milk price support program, the 
     Secretary of Agriculture shall provide for a reduction to be 
     made in the price received by producers for all milk produced 
     in the United States and marketed by producers for commercial 
     use. That price reduction (measured in cents per hundred 
     weight of milk marketed) shall occur under section 
     201(d)(2)(A) of the Agricultural Act of 1949 (7 U.S.C. 
     1446(d)(2)(A)), shall begin on the day any sequestration 
     order is issued under section 254, and shall not exceed the 
     aggregate amount of the reduction in outlays under the milk 
     price support program that otherwise would have been achieved 
     by reducing payments for the purchase of milk or the products 
     of milk under this subsection during the applicable fiscal 
     year.''.
       (g) Effects of Sequestration.--Section 256(k) of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 is 
     amended as follows:
       (1) in paragraph (1), strike ``other than a trust or 
     special fund account'' and insert ``, except as provided in 
     paragraph (5)'' before the period; and
       (2) strike paragraph (4), redesignate paragraphs (5) and 
     (6) as paragraphs (4) and (5), respectively, and amend 
     paragraph (5) (as redesignated) to read as follows:
       ``(5) Budgetary resources sequestered in revolving, trust, 
     and special fund accounts, and offsetting collections 
     sequestered in appropriation accounts shall not be available 
     for obligation during the fiscal year in which the 
     sequestration occurs, but shall be available in subsequent 
     years to the extent otherwise provided in law.''.

     SEC. 1659. THE BASELINE.

       (a) In General.--Section 257 of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended--
       (1) by striking subsection (b)(2)(A) and inserting the 
     following:
       ``(A)(i) No program with estimated current year outlays 
     greater than $50,000,000 shall be assumed to expire in the 
     budget year or the outyears except as provided in clause 
     (ii).
       ``(ii) If legislation eliminates direct spending authority 
     for a program for the budget year or any outyear and such 
     legislation provides that the Federal Government has no legal 
     authority or obligation to incur financial obligations for 
     such program, clause (i) shall not apply and CBO and OMB, as 
     appropriate, may score such legislation with the budget 
     authority and outlay effects resulting from terminating such 
     program as provided in such legislation and the baseline may 
     assume the expiration of that program as provided in such 
     legislation.'';
       (2) by adding the end of subsection (b)(2) the following 
     new subparagraph:
       ``(D) If any law expires before the budget year or any 
     outyear, then any program with estimated current year outlays 
     greater than $50,000,000 which operates under that law shall 
     be assumed to continue to operate under that law as in effect 
     immediately before its expiration.'';
       (3) in subsection (c)(5), in the second sentence, by 
     striking ``national product fixed-weight price index'' and 
     inserting ``domestic product chain-type price index''; and
       (4) by striking subsection (e) and inserting the following:
       ``(e) Asset Sales.--Amounts realized from the sale of an 
     asset shall not be counted for purposes of sections 251, 252, 
     and 253 against legislation if that sale would result in a 
     financial cost to the Federal Government.''.
       (b) Budgetary Treatment of Certain Trust Fund Operations.--
     Section 710 of the Social Security Act (42 U.S.C. 911) is 
     amended to read as follows:

             ``budgetary treatment of trust fund operations

       ``Sec. 710. (a) The receipts and disbursements of the 
     Federal Old-Age and Survivors Insurance Trust Fund and the 
     Federal Disability Insurance Trust Fund and the taxes imposed 
     under sections 1401 and 3101 of the Internal Revenue Code of 
     1986 shall not be included in the totals of the budget of the 
     United States Government as submitted by the President or of 
     the congressional budget and shall be exempt from any general 
     budget limitation imposed by statute on expenditures and net 
     lending (budget outlays) of the United States Government.
       ``(b) No provision of law enacted after the date of 
     enactment of the Balanced Budget and Emergency Deficit 
     Control Act of 1985 (other than a provision of an 
     appropriation Act that appropriated funds authorized under 
     the Social Security Act as in effect on the date of the 
     enactment of the Balanced Budget and Emergency Deficit 
     control Act of 1985) may provide for payments from the 
     general fund of the Treasury to any Trust Fund specified in 
     paragraph (1) or for payments from any such Trust Fund to the 
     general fund of the Treasury.''.

     SEC. 1660. TECHNICAL CORRECTION.

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

     SEC. 1661. JUDICIAL REVIEW.

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

     SEC. 1662. EFFECTIVE DATE.

       (a) Expiration.--Section 275(b) of the Balanced Budget and 
     Emergency Deficit Control Act of 1985 is amended--
       (1) by striking ``Part C of this title, section'' and 
     inserting ``Sections 251, 252, 253, 258B, and'';
       (2) by striking ``1995'' and inserting ``2002''; and
       (3) by adding at the end the following new sentence: ``The 
     remaining sections of part C of this title shall expire 
     September 30, 2006.''.
       (b) Expiration.--Section 14002(c)(3) of the Omnibus Budget 
     Reconciliation Act of 1993 is repealed.

     SEC. 1663. REDUCTION OF PREEXISTING BALANCES AND EXCLUSION OF 
                   EFFECTS OF THIS ACT FROM PAYGO SCORECARD.

       Upon the enactment of this Act, the Director of the Office 
     of Management and Budget shall--
       (1) reduce any balances of direct spending and receipts 
     legislation for any fiscal year under section 252 of the 
     Balanced Budget and Emergency Deficit Control Act of 1985 to 
     zero; and
       (2) not make any estimates of changes in direct spending 
     outlays and receipts under subsection (d) of such section 252 
     for any fiscal year resulting from the enactment of this Act 
     or any Act enacted pursuant to section 104 or 105 of House 
     Concurrent Resolution 84 (105th Congress).