[Congressional Record Volume 145, Number 150 (Friday, October 29, 1999)]
[Senate]
[Pages S13507-S13520]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
TAX RELIEF EXTENSION ACT OF 1999
Mr. LOTT. Mr. President, we have some very important extenders in the
Tax Code that need to be acted on before the end of this year or they
will
[[Page S13508]]
expire. The Finance Committee, in a broad bipartisan way, reported out
the bill. We have now cleared it on both sides. So this is very
important to get it into conference with the House quickly so we can
get this legislation completed before the year's legislative end.
Mr. President, I ask unanimous consent that the Senate now turn to
the consideration of Calendar No. 346, S. 1792, the so-called Finance
Committee extenders bill, and there be 10 minutes for debate, with no
amendments or motions in order.
The PRESIDING OFFICER. The clerk will report the bill by title.
The legislative clerk read as follows:
A bill (S. 1792) to amend the Internal Revenue Code of 1986
to extend expiring provisions, to fully allow the
nonrefundable personal credits against regular tax liability,
and for other purposes.
There being no objection, the Senate proceeded to consider the bill.
Mr. BAUCUS. Mr. President, I express my support for this bill.
This bill is not perfect. There are many of us in the Senate who have
hoped we could have done more. I have argued that the Research and
Development tax credit should be made permanent for many years.
Companies plan their research many years in advance, and we don't get
the full benefit of the R&D credit by allowing it to expire so
frequently.
I also support making the AMT exclusion in the bill permanent.
Taxpayers should be assured they will receive the full benefits of the
personal credits that we enacted with such fanfare just last session.
There are other credits in this bill that should be made permanent,
such as the Work Opportunities and Welfare to Work tax credits. These
credits help compensate companies for hiring those employees that are
the hardest to employ and train--those coming off the welfare rolls.
But we cannot allow the perfect to be the enemy of the good. We stand
here in the waning days of this session, and it appears as though
enacting legislation that would make these credits permanent is simply
not in the cards. They are expensive, and it is not possible to enact
major tax legislation that uses a substantial portion of the surplus
unless it is in the context of a comprehensive bill.
Above all, we must be fiscally responsible, and protect the surplus
for our children and grandchildren.
This bill has been reviewed by all Senators and has received
unanimous consent to proceed. I hope the Conferees on the bill will
work out the differences between the House and Senate quickly, and send
us back a bill the President can sign into law. Doing otherwise risks
getting nothing at all, and allowing the gap since these important
credits lapsed to grow. This would further undermine their
effectiveness, and leave thousands of businesses and individuals with
tremendous uncertainty about their tax liabilities for this year.
We cannot and should not leave this important work undone. We should
restore these credits as soon as possible, even if that means leaving
the debate about permanence for these credits for another day.
Mr. LOTT. Mr. President, I ask consent that following the conclusion
or yielding back of time, the bill be advanced to third reading and
passed and the motion to reconsider be laid upon the table. I further
ask consent that the bill remain at the desk, and once the Senate
receives the House companion bill, the Senate proceed to its immediate
consideration and all after the enacting clause be stricken, the text
of the Senate bill be inserted, the bill be advanced to third reading
and passed. I further ask consent that the Senate insist on its
amendment, request a conference with the House, and the Chair be
authorized to appoint conferees on the part of the Senate, and passage
of the Senate bill be vitiated and it be placed back on the calendar.
The PRESIDING OFFICER. Is there objection?
Without objection, it is so ordered.
The bill (S. 1792) was read the third time and passed, as follows:
S. 1792
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE; ETC.
(a) Short Title.--This Act may be cited as the ``Tax Relief
Extension Act of 1999''.
(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; etc.
TITLE I--EXTENSION OF EXPIRED AND EXPIRING PROVISIONS
Sec. 101. Extension of minimum tax relief for individuals.
Sec. 102. Extension of exclusion for employer-provided educational
assistance.
Sec. 103. Extension of research and experimentation credit and increase
in rates for alternative incremental research credit.
Sec. 104. Extension of exceptions under subpart F for active financing
income.
Sec. 105. Extension of suspension of net income limitation on
percentage depletion from marginal oil and gas wells.
Sec. 106. Extension of work opportunity tax credit and welfare-to-work
tax credit.
Sec. 107. Extension and modification of tax credit for electricity
produced from certain renewable resources.
Sec. 108. Expansion of brownfields environmental remediation.
Sec. 109. Temporary increase in amount of rum excise tax covered over
to Puerto Rico and Virgin Islands.
Sec. 110. Delay requirement that registered motor fuels terminals offer
dyed fuel as a condition of registration.
Sec. 111. Extension of production credit for fuel produced by certain
gasification facilities.
TITLE II--REVENUE OFFSET PROVISIONS
Subtitle A--General Provisions
Sec. 201. Modification of individual estimated tax safe harbor.
Sec. 202. Modification of foreign tax credit carryover rules.
Sec. 203. Clarification of tax treatment of income and losses on
derivatives.
Sec. 204. Inclusion of certain vaccines against streptococcus
pneumoniae to list of taxable vaccines.
Sec. 205. Expansion of reporting of cancellation of indebtedness
income.
Sec. 206. Imposition of limitation on prefunding of certain employee
benefits.
Sec. 207. Increase in elective withholding rate for nonperiodic
distributions from deferred compensation plans.
Sec. 208. Limitation on conversion of character of income from
constructive ownership transactions.
Sec. 209. Treatment of excess pension assets used for retiree health
benefits.
Sec. 210. Modification of installment method and repeal of installment
method for accrual method taxpayers.
Sec. 211. Limitation on use of nonaccrual experience method of
accounting.
Sec. 212. Denial of charitable contribution deduction for transfers
associated with split-dollar insurance arrangements.
Sec. 213. Prevention of duplication of loss through assumption of
liabilities giving rise to a deduction.
Sec. 214. Consistent treatment and basis allocation rules for transfers
of intangibles in certain nonrecognition transactions.
Sec. 215. Distributions by a partnership to a corporate partner of
stock in another corporation.
Sec. 216. Prohibited allocations of stock in S corporation ESOP.
Subtitle B--Provisions Relating to Real Estate Investment Trusts
Part I--Treatment of Income and Services Provided by Taxable REIT
Subsidiaries
Sec. 221. Modifications to asset diversification test.
Sec. 222. Treatment of income and services provided by taxable REIT
subsidiaries.
Sec. 223. Taxable REIT subsidiary.
Sec. 224. Limitation on earnings stripping.
Sec. 225. 100 percent tax on improperly allocated amounts.
Sec. 226. Effective date.
Part II--Health Care REITs
Sec. 231. Health care REITs.
Part III--Conformity With Regulated Investment Company Rules
Sec. 241. Conformity with regulated investment company rules.
Part IV--Clarification of Exception From Impermissible Tenant Service
Income
Sec. 251. Clarification of exception for independent operators.
Part V--Modification of Earnings and Profits Rules
Sec. 261. Modification of earnings and profits rules.
Part VI--Modification of Estimated Tax Rules
Sec. 271. Modification of estimated tax rules for closely held real
estate investment trusts.
[[Page S13509]]
Part VIII--Modification of Treatment of Closely-Held REITs
Sec. 281. Controlled entities ineligible for REIT status.
TITLE III--BUDGET PROVISION
Sec. 301. Exclusion from paygo scorecard.
TITLE I--EXTENSION OF EXPIRED AND EXPIRING PROVISIONS
SEC. 101. EXTENSION OF MINIMUM TAX RELIEF FOR INDIVIDUALS.
(a) In General.--The second sentence of section 26(a)
(relating to limitations based on amount of tax) is amended
by striking ``1998'' and inserting ``calendar year 1998,
1999, or 2000''.
(b) Child Credit.--Section 24(d)(2) (relating to reduction
of credit to taxpayer subject to alternative minimum tax) is
amended by striking ``December 31, 1998'' and inserting
``December 31, 2000''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1998.
SEC. 102. EXTENSION OF EXCLUSION FOR EMPLOYER-PROVIDED
EDUCATIONAL ASSISTANCE.
(a) In General.--Section 127(d) (relating to termination)
is amended by striking ``May 31, 2000'' and inserting
``December 31, 2000''.
(b) Repeal of Limitation on Graduate Education.--
(1) In general.--The last sentence of section 127(c)(1)
(defining educational assistance) 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''.
(2) Effective date.--The amendment made by paragraph (1)
shall apply with respect to expenses relating to courses
beginning after December 31, 1999.
SEC. 103. EXTENSION OF RESEARCH AND EXPERIMENTATION CREDIT
AND INCREASE IN RATES FOR ALTERNATIVE
INCREMENTAL RESEARCH CREDIT.
(a) Extension.--
(1) In general.--Section 41(h) (relating to termination) is
amended--
(A) by striking ``June 30, 1999'' and inserting ``December
31, 2000'',
(B) by striking ``36-month'' and inserting ``54-month'',
and
(C) by striking ``36 months'' and inserting ``54 months''.
(2) Conforming amendment.--Section 45C(b)(1)(D) is amended
by striking ``June 30, 1999'' and inserting ``December 31,
2000''.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts paid or incurred after June 30, 1999.
(b) Increase in Percentages Under Alternative Incremental
Credit.--
(1) In general.--Subparagraph (A) of section 41(c)(4) is
amended--
(A) by striking ``1.65 percent'' and inserting ``2.65
percent'',
(B) by striking ``2.2 percent'' and inserting ``3.2
percent'', and
(C) by striking ``2.75 percent'' and inserting ``3.75
percent''.
(2) Effective date.--The amendments made by this subsection
shall apply to taxable years beginning after June 30, 1999.
(c) Extension of Research Credit to Research in Puerto Rico
and the Possessions of the United States.--
(1) In general.--Section 41(d)(4)(F) (relating to foreign
research) is amended by inserting ``, the Commonwealth of
Puerto Rico, or any possession of the United States'' after
``United States''.
(2) Denial of double benefit.--Section 280C(c)(1) is
amended by inserting ``or credit'' after ``deduction'' each
place it appears.
(3) Effective date.--The amendments made by this subsection
shall apply to amounts paid or incurred after June 30, 1999.
SEC. 104. EXTENSION OF EXCEPTIONS UNDER SUBPART F FOR ACTIVE
FINANCING INCOME.
(a) In General.--Sections 953(e)(10) and 954(h)(9)
(relating to application) are each amended--
(1) by striking ``the first taxable year'' and inserting
``taxable years'',
(2) by striking ``January 1, 2000'' and inserting ``January
1, 2001'', and
(3) by striking ``within which such'' and inserting
``within which any such''.
(b) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
1999.
SEC. 105. EXTENSION OF SUSPENSION OF NET INCOME LIMITATION ON
PERCENTAGE DEPLETION FROM MARGINAL OIL AND GAS
WELLS.
(a) In General.--Subparagraph (H) of section 613A(c)(6)
(relating to temporary suspension of taxable limit with
respect to marginal production) is amended by striking
``January 1, 2000'' and inserting ``January 1, 2001''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
1999.
SEC. 106. EXTENSION OF WORK OPPORTUNITY TAX CREDIT AND
WELFARE-TO-WORK TAX CREDIT.
(a) Temporary Extension.--Sections 51(c)(4)(B) and 51A(f )
(relating to termination) are each amended by striking ``June
30, 1999'' and inserting ``December 31, 2000''.
(b) Clarification of First Year of Employment.--Paragraph
(2) of section 51(i) is amended by striking ``during which he
was not a member of a targeted group''.
(c) Effective Date.--The amendments made by this section
shall apply to individuals who begin work for the employer
after June 30, 1999.
SEC. 107. EXTENSION AND MODIFICATION OF TAX CREDIT FOR
ELECTRICITY PRODUCED FROM CERTAIN RENEWABLE
RESOURCES.
(a) Extension and Modification of Placed-in-Service
Rules.--Paragraph (3) of section 45(c) is amended to read as
follows:
``(3) Qualified facility.--
``(A) Wind facility.--In the case of a facility using wind
to produce electricity, the term `qualified facility' means
any facility owned by the taxpayer which is originally placed
in service after December 31, 1993, and before January 1,
2001.
``(B) Closed-loop biomass facility.--In the case of a
facility using closed-loop biomass to produce electricity,
the term `qualified facility' means any facility owned by the
taxpayer which is--
``(i) originally placed in service after December 31, 1992,
and before January 1, 2001, or
``(ii) originally placed in service before December 31,
1992, and modified to use closed-loop biomass to co-fire with
coal after such date and before January 1, 2001.
``(C) Biomass facility.--In the case of a facility using
biomass (other than closed-loop biomass) to produce
electricity, the term `qualified facility' means any facility
owned by the taxpayer which is originally placed in service
before January 1, 2001.
``(D) Landfill gas or poultry waste facility.--
``(i) In general.--In the case of a facility using landfill
gas or poultry waste to produce electricity, the term
`qualified facility' means any facility of the taxpayer which
is originally placed in service after December 31, 1999, and
before January 1, 2001.
``(ii) Landfill gas.--In the case of a facility using
landfill gas, such term shall include equipment and housing
(not including wells and related systems required to collect
and transmit gas to the production facility) required to
generate electricity which are owned by the taxpayer and so
placed in service.
``(E) Special rule.--In the case of a qualified facility
described in subparagraph (B) or (C) using coal to co-fire
with biomass, the 10-year period referred to in subsection
(a) shall be treated as beginning no earlier than January 1,
2000.''
(b) Expansion of Qualified Energy Resources.--
(1) In general.--Section 45(c)(1) (defining qualified
energy resources) is amended by striking ``and'' at the end
of subparagraph (A), by striking the period at the end of
subparagraph (B) and inserting a comma, and by adding at the
end the following new subparagraphs:
``(C) biomass (other than closed-loop biomass),
``(D) landfill gas, and
``(E) poultry waste.''
(2) Definitions.--Section 45(c), as amended by subsection
(a), is amended by redesignating paragraph (3) as paragraph
(6) and inserting after paragraph (2) the following new
paragraphs:
``(3) Biomass.--The term `biomass' means any solid,
nonhazardous, cellulosic waste material which is segregated
from other waste materials and which is derived from--
``(A) any of the following forest-related resources: mill
residues, precommercial thinnings, slash, and brush, but not
including old-growth timber,
``(B) urban sources, including waste pallets, crates, and
dunnage, manufacturing and construction wood wastes, and
landscape or right-of-way tree trimmings, but not including
unsegregated municipal solid waste (garbage) or paper that is
commonly recycled, or
``(C) agriculture sources, including orchard tree crops,
vineyard, grain, legumes, sugar, and other crop by-products
or residues.
``(4) Landfill gas.--The term `landfill gas' means gas from
the decomposition of any household solid waste, commercial
solid waste, and industrial solid waste disposed of in a
municipal solid waste landfill unit (as such terms are
defined in regulations promulgated under subtitle D of the
Solid Waste Disposal Act (42 U.S.C. 6941 et seq.)).
``(5) Poultry waste.--The term `poultry waste' means
poultry manure and litter, including wood shavings, straw,
rice hulls, and other bedding material for the disposition of
manure.''
(c) Special Rules.--Section 45(d) (relating to definitions
and special rules) is amended by adding at the end the
following new paragraphs:
``(6) Credit eligibility in the case of government-owned
facilities using poultry waste.--In the case of a facility
using poultry waste to produce electricity and owned by a
governmental unit, the person eligible for the credit under
subsection (a) is the lessor or the operator of such
facility.
``(7) Proportional credit for facility using coal to co-
fire with biomass.--In the case of a qualified facility
described in subparagraph (B) or (C) of subsection (c)(6)
using coal to co-fire with biomass, the amount of the credit
determined under subsection (a) for the taxable year shall be
reduced by the percentage coal comprises (on a Btu basis) of
the average fuel input of the facility for the taxable year.
``(8) Denial of double benefit.--No credit shall be allowed
under this section with respect to a facility for any taxable
year if the credit under section 29 is allowed in such year
or has been allowed in any preceding taxable year with
respect to any fuel produced from such facility.''
[[Page S13510]]
(d) Conforming Amendment.--Section 29(d) (relating to other
definitions and special rules) is amended by adding at the
end the following new paragraph:
``(9) Denial of double benefit.--No credit shall be allowed
under this section with respect to any fuel produced from a
facility for any taxable year if the credit under section 45
is allowed in such year or has been allowed in any preceding
taxable year with respect to such facility.''
(e) Effective Date.--The amendments made by this section
shall take effect on the date of the enactment of this Act.
SEC. 108. EXPANSION OF BROWNFIELDS ENVIRONMENTAL REMEDIATION.
(a) In General.--Section 198(c) is amended to read as
follows:
``(c) Qualified Contaminated Site.--For purposes of this
section--
``(1) In general.--The term `qualified contaminated site'
means any area--
``(A) 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, and
``(B) at or on which there has been a release (or threat of
release) or disposal of any hazardous substance.
``(2) 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).
``(3) 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 environmental
agency of the State in which such area is located that such
area meets the requirement of paragraph (1)(B).
``(4) Appropriate state agency.--For purposes of paragraph
(3), the chief executive officer of each State may, in
consultation with the Administrator of the Environmental
Protection Agency, designate the appropriate State
environmental agency within 60 days of the date of the
enactment of this section. If the chief executive officer of
a State has not designated an appropriate State environmental
agency within such 60-day period, the appropriate
environmental agency for such State shall be designated by
the Administrator of the Environmental Protection Agency.''
(b) Effective Date.--The amendment made by this section
shall apply to expenditures paid or incurred after December
31, 1999.
SEC. 109. TEMPORARY INCREASE IN AMOUNT OF RUM EXCISE TAX
COVERED OVER TO PUERTO RICO AND VIRGIN ISLANDS.
(a) In General.--Section 7652(f)(1) (relating to limitation
on cover over of tax on distilled spirits) is amended to read
as follows:
``(1) $10.50 ($13.50 in the case of distilled spirits
brought into the United States after June 30, 1999, and
before January 1, 2001), or''.
(b) Effective Date.--
(1) In general.--The amendment made by this section shall
take effect on July 1, 1999.
(2) Special rule.--
(A) In general.--For the period beginning after June 30,
1999, and before January 1, 2001, the treasury of Puerto Rico
shall make a Conservation Trust Fund transfer within 30 days
from the date of each cover over payment made during such
period to such treasury under section 7652(e) of the Internal
Revenue Code of 1986.
(B) Conservation trust fund transfer.--
(i) In general.--For purposes of this paragraph, the term
``Conservation Trust Fund transfer'' means a transfer to the
Puerto Rico Conservation Trust Fund of an amount equal to 50
cents per proof gallon of the taxes imposed under section
5001 or section 7652 of such Code on distilled spirits that
are covered over to the treasury of Puerto Rico under section
7652(e) of such Code.
(ii) Treatment of transfer.--Each Conservation Trust Fund
transfer shall be treated as principal for an endowment, the
income from which to be available for use by the Puerto Rico
Conservation Trust Fund for the purposes for which the Trust
Fund was established.
(iii) Result of nontransfer.--
(I) In general.--Upon notification by the Secretary of the
Interior that a Conservation Trust Fund transfer has not been
made by the treasury of Puerto Rico during the period
described in subparagraph (A), the Secretary of the Treasury
shall, except as provided in subclause (II), deduct and
withhold from the next cover over payment to be made to the
treasury of Puerto Rico under section 7652(e) of such Code an
amount equal to the appropriate Conservation Trust Fund
transfer and interest thereon at the underpayment rate
established under section 6621 of such Code as of the due
date of such transfer. The Secretary of the Treasury shall
transfer such amount deducted and withheld, and the interest
thereon, directly to the Puerto Rico Conservation Trust Fund.
(II) Good cause exception.--If the Secretary of the
Interior finds, after consultation with the Governor of
Puerto Rico, that the failure by the treasury of Puerto
Rico to make a required transfer was for good cause, and
notifies the Secretary of the Treasury of the finding of
such good cause before the due date of the next cover over
payment following the notification of nontransfer, then
the Secretary of the Treasury shall not deduct the amount
of such nontransfer from any cover over payment.
(C) Puerto rico conservation trust fund.--For purposes of
this paragraph, the term ``Puerto Rico Conservation Trust
Fund'' means the fund established pursuant to a Memorandum of
Understanding between the United States Department of the
Interior and the Commonwealth of Puerto Rico, dated December
24, 1968.
SEC. 110. DELAY REQUIREMENT THAT REGISTERED MOTOR FUELS
TERMINALS OFFER DYED FUEL AS A CONDITION OF
REGISTRATION.
Subsection (f)(2) of section 1032 of the Taxpayer Relief
Act of 1997, as amended by section 9008 of the Transportation
Equity Act for the 21st Century, is amended by striking
``July 1, 2000'' and inserting ``January 1, 2001''.
SEC. 111. EXTENSION OF PRODUCTION CREDIT FOR FUEL PRODUCED BY
CERTAIN GASIFICATION FACILITIES.
(a) In General.--Section 29(g)(1)(A) (relating to extension
for certain facilities) is amended by striking ``July 1,
1998'' and inserting ``July 1, 2000''.
(b) Effective Date.--The amendment made by this section
shall apply to fuels produced on and after July 1, 1998.
(c) Special Rule.--
(1) In general.--For purposes of the Internal Revenue Code
of 1986, the credit determined under section 29 of such Code
which is otherwise allowable under such Code by reason of the
amendment made by subsection (a) and which is attributable to
the suspension period shall not be taken into account prior
to October 1, 2004. On or after such date, such credit may be
taken into account through the filing of an amended return,
an application for expedited refund, an adjustment of
estimated taxes, or other means allowed by such Code.
Interest shall not be allowed under section 6511(a) of such
Code on any overpayment attributable to such credit for any
period before the 45th day after the credit is taken into
account under the preceding sentence.
(2) Suspension period.--For purposes of this subsection,
the suspension period is the period beginning on July 1,
1998, and ending on September 30, 2004.
(3) Expedited refunds.--
(A) In general.--If there is an overpayment of tax with
respect to a taxable year by reason of paragraph (1), the
taxpayer may file an application for a tentative refund of
such overpayment. Such application shall be in such manner
and form, and contain such information, as the Secretary may
prescribe.
(B) Deadline for applications.--Subparagraph (A) shall
apply only to applications filed before October 1, 2005.
(C) Allowance of adjustments.--Not later than 90 days after
the date on which an application is filed under this
paragraph, the Secretary shall--
(i) review the application,
(ii) determine the amount of the overpayment, and
(iii) apply, credit, or refund such overpayment,
in a manner similar to the manner provided in section 6411(b)
of such Code.
(D) Consolidated returns.--The provisions of section
6411(c) of such Code shall apply to an adjustment under this
paragraph in such manner as the Secretary may provide.
(4) Credit attributable to suspension period.--For purposes
of this subsection, in the case of a taxable year which
includes a portion of the suspension period, the amount of
credit determined under section 29 of such Code for such
taxable year which is attributable to such period is the
amount which bears the same ratio to the amount of credit
determined under such section 29 for such taxable year as the
number of months in the suspension period which are during
such taxable year bears to the number of months in such
taxable year.
(5) Waiver of statute of limitations.--If, on October 1,
2004 (or at any time within the 1-year period beginning on
such date) credit or refund of any overpayment of tax
resulting from the provisions of this subsection 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 October 1, 2004.
(6) Secretary.--For purposes of this subsection, the term
``Secretary'' means the Secretary of the Treasury (or such
Secretary's delegate).
TITLE II--REVENUE OFFSET PROVISIONS
Subtitle A--General Provisions
SEC. 201. MODIFICATION OF INDIVIDUAL ESTIMATED TAX SAFE
HARBOR.
(a) In General.--The table contained in clause (i) of
section 6654(d)(1)(C) (relating to limitation on use of
preceding year's tax) is amended by striking all matter
beginning with the item relating to 1999 or 2000 and
inserting the following new items:
``1999.....................................................110.5 ....
2000.........................................................106 ....
2001.........................................................112 ....
2002.........................................................110 ....
2003.........................................................112 ....
2004 or thereafter.........................................110''.....
(b) Effective Date.--The amendment made by this section
shall apply with respect to any installment payment for
taxable years beginning after December 31, 1999.
[[Page S13511]]
SEC. 202. MODIFICATION OF FOREIGN TAX CREDIT CARRYOVER RULES.
(a) In General.--Section 904(c) (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, 1999.
SEC. 203. CLARIFICATION OF TAX TREATMENT OF INCOME AND LOSS
ON DERIVATIVES.
(a) In General.--Section 1221 (defining capital assets) is
amended--
(1) by striking ``For purposes'' and inserting the
following:
``(a) In General.--For purposes'',
(2) by striking the period at the end of paragraph (5) and
inserting a semicolon, and
(3) by adding at the end the following:
``(6) any commodities derivative financial instrument held
by a commodities derivatives dealer, unless--
``(A) it is established to the satisfaction of the
Secretary that such instrument has no connection to the
activities of such dealer as a dealer, and
``(B) such instrument is clearly identified in such
dealer's records as being described in subparagraph (A)
before the close of the day on which it was acquired,
originated, or entered into (or such other time as the
Secretary may by regulations prescribe);
``(7) any hedging transaction which is clearly identified
as such before the close of the day on which it was acquired,
originated, or entered into (or such other time as the
Secretary may by regulations prescribe); or
``(8) supplies of a type regularly used or consumed by the
taxpayer in the ordinary course of a trade or business of the
taxpayer.
``(b) Definitions and Special Rules.--
``(1) Commodities derivative financial instruments.--For
purposes of subsection (a)(6)--
``(A) Commodities derivatives dealer.--The term
`commodities derivatives dealer' means a person which
regularly offers to enter into, assume, offset, assign, or
terminate positions in commodities derivative financial
instruments with customers in the ordinary course of a trade
or business.
``(B) Commodities derivative financial instrument.--
``(i) In general.--The term `commodities derivative
financial instrument' means any contract or financial
instrument with respect to commodities (other than a share of
stock in a corporation, a beneficial interest in a
partnership or trust, a note, bond, debenture, or other
evidence of indebtedness, or a section 1256 contract (as
defined in section 1256(b)), the value or settlement price of
which is calculated by or determined by reference to a
specified index.
``(ii) Specified index.--The term `specified index' means
any one or more or any combination of--
``(I) a fixed rate, price, or amount, or
``(II) a variable rate, price, or amount,
which is based on any current, objectively determinable
financial or economic information with respect to commodities
which is not within the control of any of the parties to the
contract or instrument and is not unique to any of the
parties' circumstances.
``(2) Hedging transaction.--
``(A) In general.--For purposes of this section, the term
`hedging transaction' means any transaction entered into by
the taxpayer in the normal course of the taxpayer's trade or
business primarily--
``(i) to manage risk of price changes or currency
fluctuations with respect to ordinary property which is held
or to be held by the taxpayer,
``(ii) to manage risk of interest rate or price changes or
currency fluctuations with respect to borrowings made or to
be made, or ordinary obligations incurred or to be incurred,
by the taxpayer, or
``(iii) to manage such other risks as the Secretary may
prescribe in regulations.
``(B) Treatment of nonidentification or improper
identification of hedging transactions.--Notwithstanding
subsection (a)(7), the Secretary shall prescribe regulations
to properly characterize any income, gain, expense, or loss
arising from a transaction--
``(i) which is a hedging transaction but which was not
identified as such in accordance with subsection (a)(7), or
``(ii) which was so identified but is not a hedging
transaction.
``(3) Regulations.--The Secretary shall prescribe such
regulations as are appropriate to carry out the purposes of
paragraph (6) and (7) of subsection (a) in the case of
transactions involving related parties.''.
(b) Management of Risk.--
(1) Section 475(c)(3) is amended by striking ``reduces''
and inserting ``manages''.
(2) Section 871(h)(4)(C)(iv) is amended by striking ``to
reduce'' and inserting ``to manage''.
(3) Clauses (i) and (ii) of section 988(d)(2)(A) are each
amended by striking ``to reduce'' and inserting ``to
manage''.
(4) Paragraph (2) of section 1256(e) is amended to read as
follows:
``(2) Definition of hedging transaction.--For purposes of
this subsection, the term `hedging transaction' means any
hedging transaction (as defined in section 1221(b)(2)(A))
if, before the close of the day on which such transaction
was entered into (or such earlier time as the Secretary
may prescribe by regulations), the taxpayer clearly
identifies such transaction as being a hedging
transaction.''.
(c) Conforming Amendments.--
(1) Each of the following sections are amended by striking
``section 1221'' and inserting ``section 1221(a)'':
(A) Section 170(e)(3)(A).
(B) Section 170(e)(4)(B).
(C) Section 367(a)(3)(B)(i).
(D) Section 818(c)(3).
(E) Section 865(i)(1).
(F) Section 1092(a)(3)(B)(ii)(II).
(G) Subparagraphs (C) and (D) of section 1231(b)(1).
(H) Section 1234(a)(3)(A).
(2) Each of the following sections are amended by striking
``section 1221(1)'' and inserting ``section 1221(a)(1)'':
(A) Section 198(c)(1)(A)(i).
(B) Section 263A(b)(2)(A).
(C) Clauses (i) and (iii) of section 267(f )(3)(B).
(D) Section 341(d)(3).
(E) Section 543(a)(1)(D)(i).
(F) Section 751(d)(1).
(G) Section 775(c).
(H) Section 856(c)(2)(D).
(I) Section 856(c)(3)(C).
(J) Section 856(e)(1).
(K) Section 856( j)(2)(B).
(L) Section 857(b)(4)(B)(i).
(M) Section 857(b)(6)(B)(iii).
(N) Section 864(c)(4)(B)(iii).
(O) Section 864(d)(3)(A).
(P) Section 864(d)(6)(A).
(Q) Section 954(c)(1)(B)(iii).
(R) Section 995(b)(1)(C).
(S) Section 1017(b)(3)(E)(i).
(T) Section 1362(d)(3)(C)(ii).
(U) Section 4662(c)(2)(C).
(V) Section 7704(c)(3).
(W) Section 7704(d)(1)(D).
(X) Section 7704(d)(1)(G).
(Y) Section 7704(d)(5).
(3) Section 818(b)(2) is amended by striking ``section
1221(2)'' and inserting ``section 1221(a)(2)''.
(4) Section 1397B(e)(2) is amended by striking ``section
1221(4)'' and inserting ``section 1221(a)(4)''.
(d) Effective Date.--The amendments made by this section
shall apply to any instrument held, acquired, or entered
into, any transaction entered into, and supplies held or
acquired on or after the date of the enactment of this Act.
SEC. 204. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS
PNEUMONIAE TO LIST OF TAXABLE VACCINES.
(a) Inclusion of Vaccines.--
(1) In general.--Section 4132(a)(1) (defining taxable
vaccine) is amended by adding at the end the following new
subparagraph:
``(L) Any conjugate vaccine against streptococcus
pneumoniae.''
(2) Effective date.--
(A) Sales.--The amendment made by this subsection shall
apply to vaccine sales beginning on the day after the date on
which the Centers for Disease Control makes a final
recommendation for routine administration to children of any
conjugate vaccine against streptococcus pneumoniae, but shall
not take effect if subsection (b) does not take effect.
(B) Deliveries.--For purposes of subparagraph (A), in the
case of sales on or before the date described in such
subparagraph for which delivery is made after such date, the
delivery date shall be considered the sale date.
(b) Vaccine Tax and Trust Fund Amendments.--
(1) Sections 1503 and 1504 of the Vaccine Injury
Compensation Program Modification Act (and the amendments
made by such sections) are hereby repealed.
(2) Subparagraph (A) of section 9510(c)(1) is amended by
striking ``August 5, 1997'' and inserting ``October 21,
1998''.
(3) The amendments made by this subsection shall take
effect as if included in the provisions of the Omnibus
Consolidated and Emergency Supplemental Appropriations Act,
1999 to which they relate.
(c) Report.--Not later than January 31, 2000, the
Comptroller General of the United States shall prepare and
submit a report to the Committee on Ways and Means of the
House of Representatives and the Committee on Finance of the
Senate on the operation of the Vaccine Injury Compensation
Trust Fund and on the adequacy of such Fund to meet future
claims made under the Vaccine Injury Compensation Program.
SEC. 205. EXPANSION OF REPORTING OF CANCELLATION OF
INDEBTEDNESS INCOME.
(a) In General.--Paragraph (2) of section 6050P(c)
(relating to definitions and special rules) 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 inserting after subparagraph (C) the following
new subparagraph:
``(D) any organization a significant trade or business of
which is the lending of money.''
(b) Effective Date.--The amendment made by subsection (a)
shall apply to discharges of indebtedness after December 31,
1999.
SEC. 206. IMPOSITION OF LIMITATION ON PREFUNDING OF CERTAIN
EMPLOYEE BENEFITS.
(a) Benefits to Which Exception Applies.--Section
419A(f)(6)(A) (relating to exception for 10 or more employer
plans) is amended to read as follows:
``(A) In general.--This subpart shall not apply to a
welfare benefit fund which is part
[[Page S13512]]
of a 10 or more employer plan if the only benefits provided
through the fund are 1 or more of the following:
``(i) Medical benefits.
``(ii) Disability benefits.
``(iii) Group term life insurance benefits which do not
provide directly or indirectly for any cash surrender value
or other money that can be paid, assigned, borrowed, or
pledged for collateral for a loan.
The preceding sentence shall not apply to any plan which
maintains experience-rating arrangements with respect to
individual employers.''
(b) Limitation on Use of Amounts for Other Purposes.--
Section 4976(b) (defining disqualified benefit) is amended by
adding at the end the following new paragraph:
``(5) Special rule for 10 or more employer plans exempted
from prefunding limits.--For purposes of paragraph (1)(C),
if--
``(A) subpart D of part I of subchapter D of chapter 1 does
not apply by reason of section 419A(f)(6) to contributions to
provide 1 or more welfare benefits through a welfare benefit
fund under a 10 or more employer plan, and
``(B) any portion of the welfare benefit fund attributable
to such contributions is used for a purpose other than that
for which the contributions were made,
then such portion shall be treated as reverting to the
benefit of the employers maintaining the fund.''
(c) Effective Date.--The amendments made by this section
shall apply to contributions paid or accrued after June 9,
1999, in taxable years ending after such date.
SEC. 207. INCREASE IN ELECTIVE WITHHOLDING RATE FOR
NONPERIODIC DISTRIBUTIONS FROM DEFERRED
COMPENSATION PLANS.
(a) In General.--Section 3405(b)(1) (relating to
withholding) is amended by striking ``10 percent'' and
inserting ``15 percent''.
(b) Effective Date.--The amendment made by subsection (a)
shall apply to distributions after December 31, 2000.
SEC. 208. LIMITATION ON CONVERSION OF CHARACTER OF INCOME
FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.
(a) In General.--Part IV of subchapter P of chapter 1
(relating to special rules for determining capital gains and
losses) is amended by inserting after section 1259 the
following new section:
``SEC. 1260. GAINS FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.
``(a) In General.--If the taxpayer has gain from a
constructive ownership transaction with respect to any
financial asset and such gain would (without regard to this
section) be treated as a long-term capital gain--
``(1) such gain shall be treated as ordinary income to the
extent that such gain exceeds the net underlying long-term
capital gain, and
``(2) to the extent such gain is treated as a long-term
capital gain after the application of paragraph (1), the
determination of the capital gain rate (or rates) applicable
to such gain under section 1(h) shall be determined on the
basis of the respective rate (or rates) that would have been
applicable to the net underlying long-term capital gain.
``(b) Interest Charge on Deferral of Gain Recognition.--
``(1) In general.--If any gain is treated as ordinary
income for any taxable year by reason of subsection (a)(1),
the tax imposed by this chapter for such taxable year shall
be increased by the amount of interest determined under
paragraph (2) with respect to each prior taxable year during
any portion of which the constructive ownership transaction
was open. Any amount payable under this paragraph shall be
taken into account in computing the amount of any deduction
allowable to the taxpayer for interest paid or accrued during
such taxable year.
``(2) Amount of interest.--The amount of interest
determined under this paragraph with respect to a prior
taxable year is the amount of interest which would have been
imposed under section 6601 on the underpayment of tax for
such year which would have resulted if the gain (which is
treated as ordinary income by reason of subsection (a)(1))
had been included in gross income in the taxable years in
which it accrued (determined by treating the income as
accruing at a constant rate equal to the applicable Federal
rate as in effect on the day the transaction closed). The
period during which such interest shall accrue shall end on
the due date (without extensions) for the return of tax
imposed by this chapter for the taxable year in which such
transaction closed.
``(3) Applicable federal rate.--For purposes of paragraph
(2), the applicable Federal rate is the applicable Federal
rate determined under 1274(d) (compounded semiannually) which
would apply to a debt instrument with a term equal to the
period the transaction was open.
``(4) No credits against increase in tax.--Any increase in
tax under paragraph (1) shall not be treated as tax imposed
by this chapter for purposes of determining--
``(A) the amount of any credit allowable under this
chapter, or
``(B) the amount of the tax imposed by section 55.
``(c) Financial Asset.--For purposes of this section--
``(1) In general.--The term `financial asset' means--
``(A) any equity interest in any pass-thru entity, and
``(B) to the extent provided in regulations--
``(i) any debt instrument, and
``(ii) any stock in a corporation which is not a pass-thru
entity.
``(2) Pass-thru entity.--For purposes of paragraph (1), the
term `pass-thru entity' means--
``(A) a regulated investment company,
``(B) a real estate investment trust,
``(C) an S corporation,
``(D) a partnership,
``(E) a trust,
``(F) a common trust fund,
``(G) a passive foreign investment company (as defined in
section 1297 without regard to subsection (e) thereof),
``(H) a foreign personal holding company,
``(I) a foreign investment company (as defined in section
1246(b)), and
``(J) a REMIC.
``(d) Constructive Ownership Transaction.--For purposes of
this section--
``(1) In general.--The taxpayer shall be treated as having
entered into a constructive ownership transaction with
respect to any financial asset if the taxpayer--
``(A) holds a long position under a notional principal
contract with respect to the financial asset,
``(B) enters into a forward or futures contract to acquire
the financial asset,
``(C) is the holder of a call option, and is the grantor of
a put option, with respect to the financial asset and such
options have substantially equal strike prices and
substantially contemporaneous maturity dates, or
``(D) to the extent provided in regulations prescribed by
the Secretary, enters into one or more other transactions (or
acquires one or more positions) that have substantially the
same effect as a transaction described in any of the
preceding subparagraphs.
``(2) Exception for positions which are marked to market.--
This section shall not apply to any constructive ownership
transaction if all of the positions which are part of such
transaction are marked to market under any provision of this
title or the regulations thereunder.
``(3) Long position under notional principal contract.--A
person shall be treated as holding a long position under a
notional principal contract with respect to any financial
asset if such person--
``(A) has the right to be paid (or receive credit for) all
or substantially all of the investment yield (including
appreciation) on such financial asset for a specified period,
and
``(B) is obligated to reimburse (or provide credit for) all
or substantially all of any decline in the value of such
financial asset.
``(4) Forward contract.--The term `forward contract' means
any contract to acquire in the future (or provide or receive
credit for the future value of) any financial asset.
``(e) Net Underlying Long-Term Capital Gain.--For purposes
of this section, in the case of any constructive ownership
transaction with respect to any financial asset, the term
`net underlying long-term capital gain' means the aggregate
net capital gain that the taxpayer would have had if--
``(1) the financial asset had been acquired for fair market
value on the date such transaction was opened and sold for
fair market value on the date such transaction was closed,
and
``(2) only gains and losses that would have resulted from
the deemed ownership under paragraph (1) were taken into
account.
The amount of the net underlying long-term capital gain with
respect to any financial asset shall be treated as zero
unless the amount thereof is established by clear and
convincing evidence.
``(f ) Special Rule Where Taxpayer Takes Delivery.--Except
as provided in regulations prescribed by the Secretary, if a
constructive ownership transaction is closed by reason of
taking delivery, this section shall be applied as if the
taxpayer had sold all the contracts, options, or other
positions which are part of such transaction for fair market
value on the closing date. The amount of gain recognized
under the preceding sentence shall not exceed the amount of
gain treated as ordinary income under subsection (a). Proper
adjustments shall be made in the amount of any gain or loss
subsequently realized for gain recognized and treated as
ordinary income under this subsection.
``(g) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this section, including regulations--
``(1) to permit taxpayers to mark to market constructive
ownership transactions in lieu of applying this section, and
``(2) to exclude certain forward contracts which do not
convey substantially all of the economic return with respect
to a financial asset.''
(b) 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. 1260. Gains from constructive ownership transactions.''
(c) Effective Date.--The amendments made by this section
shall apply to transactions entered into after July 11, 1999.
SEC. 209. TREATMENT OF EXCESS PENSION ASSETS USED FOR RETIREE
HEALTH BENEFITS.
(a) Extension.--
(1) In general.--Paragraph (5) of section 420(b) (relating
to expiration) is amended by
[[Page S13513]]
striking ``in any taxable year beginning after December 31,
2000'' and inserting ``made after September 30, 2009''.
(2) Conforming amendments.--
(A) Section 101(e)(3) of the Employee Retirement Income
Security Act of 1974 (29 U.S.C. 1021(e)(3)) is amended by
striking ``January 1, 1995'' and inserting ``the date of the
enactment of the Tax Relief Extension Act of 1999''.
(B) Section 403(c)(1) of such Act (29 U.S.C. 1103(c)(1)) is
amended by striking ``January 1, 1995'' and inserting ``the
date of the enactment of the Tax Relief Extension Act of
1999''.
(C) Paragraph (13) of section 408(b) of such Act (29 U.S.C.
1108(b)(13)) is amended--
(i) by striking ``in a taxable year beginning before
January 1, 2001'' and inserting ``made before October 1,
2009'', and
(ii) by striking ``January 1, 1995'' and inserting ``the
date of the enactment of the Tax Relief Extension Act of
1999''.
(b) Application of Minimum Cost Requirements.--
(1) In general.--Paragraph (3) of section 420(c) is amended
to read as follows:
``(3) Minimum cost requirements.--
``(A) In general.--The requirements of this paragraph are
met if each group health plan or arrangement under which
applicable health benefits are provided provides that the
applicable employer cost for each taxable year during the
cost maintenance period shall not be less than the higher of
the applicable employer costs for each of the 2 taxable years
immediately preceding the taxable year of the qualified
transfer.
``(B) Applicable employer cost.--For purposes of this
paragraph, the term `applicable employer cost' means, with
respect to any taxable year, the amount determined by
dividing--
``(i) the qualified current retiree health liabilities of
the employer for such taxable year determined--
``(I) without regard to any reduction under subsection
(e)(1)(B), and
``(II) in the case of a taxable year in which there was no
qualified transfer, in the same manner as if there had been
such a transfer at the end of the taxable year, by
``(ii) the number of individuals to whom coverage for
applicable health benefits was provided during such taxable
year.
``(C) Election to compute cost separately.--An employer may
elect to have this paragraph applied separately with respect
to individuals eligible for benefits under title XVIII of the
Social Security Act at any time during the taxable year and
with respect to individuals not so eligible.
``(D) Cost maintenance period.--For purposes of this
paragraph, the term `cost maintenance period' means the
period of 5 taxable years beginning with the taxable year in
which the qualified transfer occurs. If a taxable year is in
two or more overlapping cost maintenance periods, this
paragraph shall be applied by taking into account the highest
applicable employer cost required to be provided under
subparagraph (A) for such taxable year.''.
(2) Conforming amendments.--
(A) Clause (iii) of section 420(b)(1)(C) is amended by
striking ``benefits'' and inserting ``cost''.
(B) Subparagraph (D) of section 420(e)(1) is amended by
striking ``and shall not be subject to the minimum benefit
requirements of subsection (c)(3)'' and inserting ``or in
calculating applicable employer cost under subsection
(c)(3)(B)''.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to qualified transfers occurring after the date of the
enactment of this Act.
(2) Transition rule.--If the cost maintenance period for
any qualified transfer after the date of the enactment of
this Act includes any portion of a benefit maintenance period
for any qualified transfer on or before such date, the
amendments made by subsection (b) shall not apply to such
portion of the cost maintenance period (and such portion
shall be treated as a benefit maintenance period).
SEC. 210. MODIFICATION OF INSTALLMENT METHOD AND REPEAL OF
INSTALLMENT METHOD FOR ACCRUAL METHOD
TAXPAYERS.
(a) Repeal of Installment Method for Accrual Basis
Taxpayers.--
(1) In general.--Subsection (a) of section 453 (relating to
installment method) is amended to read as follows:
``(a) Use of Installment Method.--
``(1) In general.--Except as otherwise provided in this
section, income from an installment sale shall be taken into
account for purposes of this title under the installment
method.
``(2) Accrual method taxpayer.--The installment method
shall not apply to income from an installment sale if such
income would be reported under an accrual method of
accounting without regard to this section. The preceding
sentence shall not apply to a disposition described in
subparagraph (A) or (B) of subsection (l)(2).''
(2) Conforming amendments.--Sections 453(d)(1), 453(i)(1),
and 453(k) are each amended by striking ``(a)'' each place it
appears and inserting ``(a)(1)''.
(b) Modification of Pledge Rules.--Paragraph (4) of section
453A(d) (relating to pledges, etc., of installment
obligations) is amended by adding at the end the following:
``A payment shall be treated as directly secured by an
interest in an installment obligation to the extent an
arrangement allows the taxpayer to satisfy all or a portion
of the indebtedness with the installment obligation.''
(c) Effective Date.--The amendments made by this section
shall apply to sales or other dispositions occurring on or
after the date of the enactment of this Act.
SEC. 211. LIMITATION ON USE OF NONACCRUAL EXPERIENCE METHOD
OF ACCOUNTING.
(a) In General.--Section 448(d)(5) (relating to special
rule for services) is amended--
(1) by inserting ``in fields described in paragraph
(2)(A)'' after ``services by such person'', and
(2) by inserting ``certain personal'' before ``services''
in the heading.
(b) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after the date of the enactment
of this Act.
(2) Change in method of accounting.--In the case of any
taxpayer required by the amendments made by this section to
change its method of accounting for its first taxable year
ending after the date of the enactment of this Act--
(A) such change shall be treated as initiated by the
taxpayer,
(B) such change shall be treated as made with the consent
of the Secretary of the Treasury, and
(C) the net amount of the adjustments required to be taken
into account by the taxpayer under section 481 of the
Internal Revenue Code of 1986 shall be taken into account
over a period (not greater than 4 taxable years) beginning
with such first taxable year.
SEC. 212. DENIAL OF CHARITABLE CONTRIBUTION DEDUCTION FOR
TRANSFERS ASSOCIATED WITH SPLIT-DOLLAR
INSURANCE ARRANGEMENTS.
(a) In General.--Subsection (f ) of section 170 (relating
to disallowance of deduction in certain cases and special
rules) is amended by adding at the end the following new
paragraph:
``(10) Split-dollar life insurance, annuity, and endowment
contracts.--
``(A) In general.--Nothing in this section or in section
545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 shall
be construed to allow a deduction, and no deduction shall be
allowed, for any transfer to or for the use of an
organization described in subsection (c) if in connection
with such transfer--
``(i) the organization directly or indirectly pays, or has
previously paid, any premium on any personal benefit contract
with respect to the transferor, or
``(ii) there is an understanding or expectation that any
person will directly or indirectly pay any premium on any
personal benefit contract with respect to the transferor.
``(B) Personal benefit contract.--For purposes of
subparagraph (A), the term `personal benefit contract' means,
with respect to the transferor, any life insurance, annuity,
or endowment contract if any direct or indirect beneficiary
under such contract is the transferor, any member of the
transferor's family, or any other person (other than an
organization described in subsection (c)) designated by the
transferor.
``(C) Application to charitable remainder trusts.--In the
case of a transfer to a trust referred to in subparagraph
(E), references in subparagraphs (A) and (F) to an
organization described in subsection (c) shall be treated as
a reference to such trust.
``(D) Exception for certain annuity contracts.--If, in
connection with a transfer to or for the use of an
organization described in subsection (c), such organization
incurs an obligation to pay a charitable gift annuity (as
defined in section 501(m)) and such organization purchases
any annuity contract to fund such obligation, persons
receiving payments under the charitable gift annuity shall
not be treated for purposes of subparagraph (B) as indirect
beneficiaries under such contract if--
``(i) such organization possesses all of the incidents of
ownership under such contract,
``(ii) such organization is entitled to all the payments
under such contract, and
``(iii) the timing and amount of payments under such
contract are substantially the same as the timing and amount
of payments to each such person under such obligation (as
such obligation is in effect at the time of such transfer).
``(E) Exception for certain contracts held by charitable
remainder trusts.--A person shall not be treated for purposes
of subparagraph (B) as an indirect beneficiary under any life
insurance, annuity, or endowment contract held by a
charitable remainder annuity trust or a charitable remainder
unitrust (as defined in section 664(d)) solely by reason of
being entitled to any payment referred to in paragraph (1)(A)
or (2)(A) of section 664(d) if--
``(i) such trust possesses all of the incidents of
ownership under such contract, and
``(ii) such trust is entitled to all the payments under
such contract.
``(F) Excise tax on premiums paid.--
``(i) In general.--There is hereby imposed on any
organization described in subsection (c) an excise tax equal
to the premiums paid by such organization on any life
insurance, annuity, or endowment contract if the payment of
premiums on such contract is in
[[Page S13514]]
connection with a transfer for which a deduction is not
allowable under subparagraph (A), determined without regard
to when such transfer is made.
``(ii) Payments by other persons.--For purposes of clause
(i), payments made by any other person pursuant to an
understanding or expectation referred to in subparagraph (A)
shall be treated as made by the organization.
``(iii) Reporting.--Any organization on which tax is
imposed by clause (i) with respect to any premium shall file
an annual return which includes--
``(I) the amount of such premiums paid during the year and
the name and TIN of each beneficiary under the contract to
which the premium relates, and
``(II) such other information as the Secretary may require.
The penalties applicable to returns required under section
6033 shall apply to returns required under this clause.
Returns required under this clause shall be furnished at such
time and in such manner as the Secretary shall by forms or
regulations require.
``(iv) Certain rules to apply.--The tax imposed by this
subparagraph shall be treated as imposed by chapter 42 for
purposes of this title other than subchapter B of chapter 42.
``(G) Special rule where state requires specification of
charitable gift annuitant in contract.--In the case of an
obligation to pay a charitable gift annuity referred to in
subparagraph (D) which is entered into under the laws of a
State which requires, in order for the charitable gift
annuity to be exempt from insurance regulation by such State,
that each beneficiary under the charitable gift annuity be
named as a beneficiary under an annuity contract issued by an
insurance company authorized to transact business in such
State, the requirements of clauses (i) and (ii) of
subparagraph (D) shall be treated as met if--
``(i) such State law requirement was in effect on February
8, 1999,
``(ii) each such beneficiary under the charitable gift
annuity is a bona fide resident of such State at the time the
obligation to pay a charitable gift annuity is entered into,
and
``(iii) the only persons entitled to payments under such
contract are persons entitled to payments as beneficiaries
under such obligation on the date such obligation is entered
into.
``(H) Member of family.--For purposes of this paragraph, an
individual's family consists of the individual's
grandparents, the grandparents of such individual's spouse,
the lineal descendants of such grandparents, and any spouse
of such a lineal descendant.
``(I) Regulations.--The Secretary shall prescribe such
regulations as may be necessary or appropriate to carry out
the purposes of this paragraph, including regulations to
prevent the avoidance of such purposes.''
(b) Effective Date.--
(1) In general.--Except as otherwise provided in this
section, the amendment made by this section shall apply to
transfers made after February 8, 1999.
(2) Excise tax.--Except as provided in paragraph (3) of
this subsection, section 170(f )(10)(F) of the Internal
Revenue Code of 1986 (as added by this section) shall apply
to premiums paid after the date of the enactment of this Act.
(3) Reporting.--Clause (iii) of such section 170(f )(10)(F)
shall apply to premiums paid after February 8, 1999
(determined as if the tax imposed by such section applies to
premiums paid after such date).
SEC. 213. PREVENTION OF DUPLICATION OF LOSS THROUGH
ASSUMPTION OF LIABILITIES GIVING RISE TO A
DEDUCTION.
(a) In General.--Section 358 (relating to basis to
distributees) is amended by adding at the end the following
new subsection:
``(h) Special Rules for Assumption of Liabilities To Which
Subsection (d) Does Not Apply.--
``(1) In general.--If, after application of the other
provisions of this section to an exchange or series of
exchanges, the basis of property to which subsection (a)(1)
applies exceeds the fair market value of such property, then
such basis shall be reduced (but not below such fair market
value) by the amount (determined as of the date of the
exchange) of any liability--
``(A) which is assumed in exchange for such property, and
``(B) with respect to which subsection (d)(1) does not
apply to the assumption.
``(2) Exception.--Paragraph (1) shall not apply to any
liability if the trade or business giving rise to the
liability is transferred to the person assuming the liability
as part of the exchange.
``(3) Liability.--For purposes of this subsection, the term
`liability' shall include any obligation to make payment,
without regard to whether the obligation is fixed or
contingent or otherwise taken into account for purposes of
this title.
``(4) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the provisions
of this subsection.''
(b) Application of Comparable Rules to Partnerships.--The
Secretary of the Treasury or his delegate shall prescribe
rules which provide appropriate adjustments under subchapter
K of chapter 1 of the Internal Revenue Code of 1986 to
prevent the acceleration or duplication of losses through the
assumption of (or transfer of assets subject to) liabilities
described in section 358(h)(3) of such Code (as added by
subsection (a)) in transactions involving partnerships.
(c) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to assumptions of liability after October 18, 1999.
(2) Rules.--The rules prescribed under subsection (b) shall
apply to assumptions of liability after October 18, 1999, or
such later date as may be prescribed in such rules.
SEC. 214. CONSISTENT TREATMENT AND BASIS ALLOCATION RULES FOR
TRANSFERS OF INTANGIBLES IN CERTAIN
NONRECOGNITION TRANSACTIONS.
(a) Transfers to Corporations.--Section 351 (relating to
transfer to corporation controlled by transferor) is amended
by redesignating subsection (h) as subsection (i) and by
inserting after subsection (g) the following new subsection:
``(h) Treatment of Transfers of Intangible Property.--
``(1) Transfers of less than all substantial rights.
``(A) In general.--A transfer of an interest in intangible
property (as defined in section 936(h)(3)(B)) shall be
treated under this section as a transfer of property even if
the transfer is of less than all of the substantial rights of
the transferor in the property.
``(B) Allocation of basis.--In the case of a transfer of
less than all of the substantial rights of the transferor in
the intangible property, the transferor's basis immediately
before the transfer shall be allocated among the rights
retained by the transferor and the rights transferred on the
basis of their respective fair market values.
``(2) Nonrecognition not to apply to intangible property
developed for transferee.--This section shall not apply to a
transfer of intangible property developed by the transferor
or any related person if such development was pursuant to an
arrangement with the transferee.''
(b) Transfers to Partnerships.--Subsection (d) of section
721 is amended to read as follows:
``(d) Transfers of Intangible Property.--
``(1) In general.--Rules similar to the rules of section
351(h) shall apply for purposes of this section.
``(2) Transfers to foreign partnerships.--For regulatory
authority to treat intangibles transferred to a partnership
as sold, see section 367(d)(3).''
(c) Effective Date.--The amendments made by this section
shall apply to transfers on or after the date of the
enactment of this Act.
SEC. 215. DISTRIBUTIONS BY A PARTNERSHIP TO A CORPORATE
PARTNER OF STOCK IN ANOTHER CORPORATION.
(a) In General.--Section 732 (relating to basis of
distributed property other than money) is amended by adding
at the end the following new subsection:
``(f) Corresponding Adjustment to Basis of Assets of a
Distributed Corporation Controlled by a Corporate Partner.--
``(1) In general.--If--
``(A) a corporation (hereafter in this subsection referred
to as the `corporate partner') receives a distribution from a
partnership of stock in another corporation (hereafter in
this subsection referred to as the `distributed
corporation'),
``(B) the corporate partner has control of the distributed
corporation immediately after the distribution or at any time
thereafter, and
``(C) the partnership's adjusted basis in such stock
immediately before the distribution exceeded the corporate
partner's adjusted basis in such stock immediately after the
distribution,
then an amount equal to such excess shall be applied to
reduce (in accordance with subsection (c)) the basis of
property held by the distributed corporation at such time
(or, if the corporate partner does not control the
distributed corporation at such time, at the time the
corporate partner first has such control).
``(2) Exception for certain distributions before control
acquired.--Paragraph (1) shall not apply to any distribution
of stock in the distributed corporation if--
``(A) the corporate partner does not have control of such
corporation immediately after such distribution, and
``(B) the corporate partner establishes to the satisfaction
of the Secretary that such distribution was not part of a
plan or arrangement to acquire control of the distributed
corporation.
``(3) Limitations on basis reduction.--
``(A) In general.--The amount of the reduction under
paragraph (1) shall not exceed the amount by which the sum of
the aggregate adjusted bases of the property and the amount
of money of the distributed corporation exceeds the corporate
partner's adjusted basis in the stock of the distributed
corporation.
``(B) Reduction not to exceed adjusted basis of property.--
No reduction under paragraph (1) in the basis of any property
shall exceed the adjusted basis of such property (determined
without regard to such reduction).
``(4) Gain recognition where reduction limited.--If the
amount of any reduction under paragraph (1) (determined after
the application of paragraph (3)(A)) exceeds the aggregate
adjusted bases of the property of the distributed
corporation--
``(A) such excess shall be recognized by the corporate
partner as long-term capital gain, and
[[Page S13515]]
``(B) the corporate partner's adjusted basis in the stock
of the distributed corporation shall be increased by such
excess.
``(5) Control.--For purposes of this subsection, the term
`control' means ownership of stock meeting the requirements
of section 1504(a)(2).
``(6) Indirect distributions.--For purposes of paragraph
(1), if a corporation acquires (other than in a distribution
from a partnership) stock the basis of which is determined in
whole or in part by reference to subsection (a)(2) or (b),
the corporation shall be treated as receiving a distribution
of such stock from a partnership.
``(7) Special rule for stock in controlled corporation.--If
the property held by a distributed corporation is stock in a
corporation which the distributed corporation controls, this
subsection shall be applied to reduce the basis of the
property of such controlled corporation. This subsection
shall be reapplied to any property of any controlled
corporation which is stock in a corporation which it
controls.
``(8) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection, including regulations to avoid double
counting and to prevent the abuse of such purposes.''
(b) Effective Date.--
(1) In general.--Except as provided in paragraph (2), the
amendment made by this section shall apply to distributions
made after July 14, 1999.
(2) Partnerships in existence on July 14, 1999.--In the
case of a corporation which is a partner in a partnership as
of July 14, 1999, the amendment made by this section shall
apply to distributions made to such partner from such
partnership after the date of the enactment of this Act.
SEC. 216. PROHIBITED ALLOCATIONS OF STOCK IN S CORPORATION
ESOP.
(a) In General.--Section 409 (relating to qualifications
for tax credit employee stock ownership plans) is amended by
redesignating subsection (p) as subsection (q) and by
inserting after subsection (o) the following new subsection:
``(p) Prohibited Allocations of Securities in an S
Corporation.--
``(1) In general.--An employee stock ownership plan holding
employer securities consisting of stock in an S corporation
shall provide that no portion of the assets of the plan
attributable to (or allocable in lieu of) such employer
securities may, during a nonallocation year, accrue (or be
allocated directly or indirectly under any plan of the
employer meeting the requirements of section 401(a)) for the
benefit of any disqualified person.
``(2) Failure to meet requirements.--
``(A) In general.--If a plan fails to meet the requirements
of paragraph (1), the plan shall be treated as having
distributed to any disqualified person the amount allocated
to the account of such person in violation of paragraph (1)
at the time of such allocation.
``(B) Cross reference.--
``For excise tax relating to violations of paragraph (1) and
ownership of synthetic equity, see section 4979A.
``(3) Nonallocation year.--For purposes of this
subsection--
``(A) In general.--The term `nonallocation year' means any
plan year of an employee stock ownership plan if, at any time
during such plan year--
``(i) such plan holds employer securities consisting of
stock in an S corporation, and
``(ii) disqualified persons own at least 50 percent of the
number of shares of stock in the S corporation.
``(B) Attribution rules.--For purposes of subparagraph
(A)--
``(i) In general.--The rules of section 318(a) shall apply
for purposes of determining ownership, except that--
``(I) in applying paragraph (1) thereof, the members of an
individual's family shall include members of the family
described in paragraph (4)(D), and
``(II) paragraph (4) thereof shall not apply.
``(ii) Deemed-owned shares.--Notwithstanding the employee
trust exception in section 318(a)(2)(B)(i), individual shall
be treated as owning deemed-owned shares of the individual.
Solely for purposes of applying paragraph (5), this
subparagraph shall be applied after the attribution rules of
paragraph (5) have been applied.
``(4) Disqualified person.--For purposes of this
subsection--
``(A) In general.--The term `disqualified person' means any
person if--
``(i) the aggregate number of deemed-owned shares of such
person and the members of such person's family is at least 20
percent of the number of deemed-owned shares of stock in the
S corporation, or
``(ii) in the case of a person not described in clause (i),
the number of deemed-owned shares of such person is at least
10 percent of the number of deemed-owned shares of stock in
such corporation.
``(B) Treatment of family members.--In the case of a
disqualified person described in subparagraph (A)(i), any
member of such person's family with deemed-owned shares shall
be treated as a disqualified person if not otherwise treated
as a disqualified person under subparagraph (A).
``(C) Deemed-owned shares.--
``(i) In general.--The term `deemed-owned shares' means,
with respect to any person--
``(I) the stock in the S corporation constituting employer
securities of an employee stock ownership plan which is
allocated to such person under the plan, and
``(II) such person's share of the stock in such corporation
which is held by such plan but which is not allocated under
the plan to participants.
``(ii) Person's share of unallocated stock.--For purposes
of clause (i)(II), a person's share of unallocated S
corporation stock held by such plan is the amount of the
unallocated stock which would be allocated to such person
if the unallocated stock were allocated to all
participants in the same proportions as the most recent
stock allocation under the plan.
``(D) Member of family.--For purposes of this paragraph,
the term `member of the family' means, with respect to any
individual--
``(i) the spouse of the individual,
``(ii) an ancestor or lineal descendant of the individual
or the individual's spouse,
``(iii) a brother or sister of the individual or the
individual's spouse and any lineal descendant of the brother
or sister, and
``(iv) the spouse of any individual described in clause
(ii) or (iii).
A spouse of an individual who is legally separated from such
individual under a decree of divorce or separate maintenance
shall not be treated as such individual's spouse for purposes
of this subparagraph.
``(5) Treatment of synthetic equity.--For purposes of
paragraphs (3) and (4), in the case of a person who owns
synthetic equity in the S corporation, except to the extent
provided in regulations, the shares of stock in such
corporation on which such synthetic equity is based shall be
treated as outstanding stock in such corporation and deemed-
owned shares of such person if such treatment of synthetic
equity of 1 or more such persons results in--
``(A) the treatment of any person as a disqualified person,
or
``(B) the treatment of any year as a nonallocation year.
For purposes of this paragraph, synthetic equity shall be
treated as owned by a person in the same manner as stock is
treated as owned by a person under the rules of paragraphs
(2) and (3) of section 318(a). If, without regard to this
paragraph, a person is treated as a disqualified person or a
year is treated as a nonallocation year, this paragraph shall
not be construed to result in the person or year not being so
treated.
``(6) Definitions.--For purposes of this subsection--
``(A) Employee stock ownership plan.--The term `employee
stock ownership plan' has the meaning given such term by
section 4975(e)(7).
``(B) Employer securities.--The term `employer security'
has the meaning given such term by section 409(l).
``(C) Synthetic equity.--The term `synthetic equity' means
any stock option, warrant, restricted stock, deferred
issuance stock right, or similar interest or right that gives
the holder the right to acquire or receive stock of the S
corporation in the future. Except to the extent provided in
regulations, synthetic equity also includes a stock
appreciation right, phantom stock unit, or similar right to a
future cash payment based on the value of such stock or
appreciation in such value.
``(7) Regulations.--The Secretary shall prescribe such
regulations as may be necessary to carry out the purposes of
this subsection.''
(b) Coordination With Section 4975(e)(7).--The last
sentence of section 4975(e)(7) (defining employee stock
ownership plan) is amended by inserting ``, section 409(p),''
after ``409(n)''.
(c) Excise Tax.--
(1) Application of tax.--Subsection (a) of section 4979A
(relating to tax on certain prohibited allocations of
employer securities) is amended--
(A) by striking ``or'' at the end of paragraph (1),
(B) by striking the period at the end of paragraph (2) and
inserting a comma, and
(C) by striking all that follows paragraph (2) and
inserting the following:
``(3) there is any allocation of employer securities which
violates the provisions of section 409(p), or a nonallocation
year described in subsection (c)(2)(C) with respect to an
employee stock ownership plan, or
``(4) any synthetic equity is owned by a disqualified
person in any nonallocation year,
there is hereby imposed a tax on such allocation or ownership
equal to 50 percent of the amount involved.''
(2) Liability.--Section 4979A(c) (defining liability for
tax) is amended to read as follows:
``(c) Liability for Tax.--The tax imposed by this section
shall be paid--
``(1) in the case of an allocation referred to in paragraph
(1) or (2) of subsection (a), by--
``(A) the employer sponsoring such plan, or
``(B) the eligible worker-owned cooperative,
which made the written statement described in section
664(g)(1)(E) or in section 1042(b)(3)(B) (as the case may
be), and
``(2) in the case of an allocation or ownership referred to
in paragraph (3) or (4) of subsection (a), by the S
corporation the stock in which was so allocated or owned.''
(3) Definitions.--Section 4979A(e) (relating to
definitions) is amended to read as follows:
``(e) Definitions and Special Rules.--For purposes of this
section--
``(1) Definitions.--Except as provided in paragraph (2),
terms used in this section have the same respective meanings
as when used in sections 409 and 4978.
[[Page S13516]]
``(2) Special rules relating to tax imposed by reason of
paragraph (3) or (4) of subsection (a).--
``(A) Prohibited allocations.--The amount involved with
respect to any tax imposed by reason of subsection (a)(3) is
the amount allocated to the account of any person in
violation of section 409(p)(1).
``(B) Synthetic equity.--The amount involved with respect
to any tax imposed by reason of subsection (a)(4) is the
value of the shares on which the synthetic equity is based.
``(C) Special rule during first nonallocation year.--For
purposes of subparagraph (A), the amount involved for the
first nonallocation year of any employee stock ownership plan
shall be determined by taking into account the total value of
all the deemed-owned shares of all disqualified persons with
respect to such plan.
``(D) Statute of limitations.--The statutory period for the
assessment of any tax imposed by this section by reason of
paragraph (3) or (4) of subsection (a) shall not expire
before the date which is 3 years from the later of--
``(i) the allocation or ownership referred to in such
paragraph giving rise to such tax, or
``(ii) the date on which the Secretary is notified of such
allocation or ownership.''
(d) Effective Dates.--
(1) In general.--The amendments made by this section shall
apply to plan years beginning after December 31, 2000.
(2) Exception for certain plans.--In the case of any--
(A) employee stock ownership plan established after July
14, 1999, or
(B) employee stock ownership plan established on or before
such date if employer securities held by the plan consist of
stock in a corporation with respect to which an election
under section 1362(a) of the Internal Revenue Code of 1986 is
not in effect on such date,
the amendments made by this section shall apply to plan years
ending after July 14, 1999.
Subtitle B--Provisions Relating to Real Estate Investment Trusts
PART I--TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT
SUBSIDIARIES
SEC. 221. MODIFICATIONS TO ASSET DIVERSIFICATION TEST.
(a) In General.--Subparagraph (B) of section 856(c)(4) is
amended to read as follows:
``(B)(i) not more than 25 percent of the value of its total
assets is represented by securities (other than those
includible under subparagraph (A)),
``(ii) not more than 20 percent of the value of its total
assets is represented by securities of 1 or more taxable REIT
subsidiaries, and
``(iii) except with respect to a taxable REIT subsidiary
and securities includible under subparagraph (A)--
``(I) not more than 5 percent of the value of its total
assets is represented by securities of any one issuer,
``(II) the trust does not hold securities possessing more
than 10 percent of the total voting power of the outstanding
securities of any one issuer, and
``(III) the trust does not hold securities having a value
of more than 10 percent of the total value of the outstanding
securities of any one issuer.''.
(b) Exception for Straight Debt Securities.--Subsection (c)
of section 856 is amended by adding at the end the following
new paragraph:
``(7) Straight debt safe harbor in applying paragraph
(4).--Securities of an issuer which are straight debt (as
defined in section 1361(c)(5) without regard to subparagraph
(B)(iii) thereof) shall not be taken into account in applying
paragraph (4)(B)(ii)(III) if--
``(A) the issuer is an individual, or
``(B) the only securities of such issuer which are held by
the trust or a taxable REIT subsidiary of the trust are
straight debt (as so defined), or
``(C) the issuer is a partnership and the trust holds at
least a 20 percent profits interest in the partnership.''.
SEC. 222. TREATMENT OF INCOME AND SERVICES PROVIDED BY
TAXABLE REIT SUBSIDIARIES.
(a) Income From Taxable REIT Subsidiaries Not Treated as
Impermissible Tenant Service Income.--Clause (i) of section
856(d)(7)(C) (relating to exceptions to impermissible tenant
service income) is amended by inserting ``or through a
taxable REIT subsidiary of such trust'' after ``income''.
(b) Certain Income From Taxable REIT Subsidiaries Not
Excluded From Rents From Real Property.--
(1) In general.--Subsection (d) of section 856 (relating to
rents from real property defined) is amended by adding at the
end the following new paragraphs:
``(8) Special rule for taxable reit subsidiaries.--For
purposes of this subsection, amounts paid to a real estate
investment trust by a taxable REIT subsidiary of such trust
shall not be excluded from rents from real property by reason
of paragraph (2)(B) if the requirements of either of the
following subparagraphs are met:
``(A) Limited rental exception.--The requirements of this
subparagraph are met with respect to any property if at least
90 percent of the leased space of the property is rented to
persons other than taxable REIT subsidiaries of such trust
and other than persons described in section 856(d)(2)(B). The
preceding sentence shall apply only to the extent that the
amounts paid to the trust as rents from real property (as
defined in paragraph (1) without regard to paragraph (2)(B))
from such property are substantially comparable to such rents
made by the other tenants of the trust's property for
comparable space.
``(B) Exception for certain lodging facilities.--The
requirements of this subparagraph are met with respect to an
interest in real property which is a qualified lodging
facility leased by the trust to a taxable REIT subsidiary of
the trust if the property is operated on behalf of such
subsidiary by a person who is an eligible independent
contractor.
``(9) Eligible independent contractor.--For purposes of
paragraph (8)(B)--
``(A) In general.--The term `eligible independent
contractor' means, with respect to any qualified lodging
facility, any independent contractor if, at the time such
contractor enters into a management agreement or other
similar service contract with the taxable REIT subsidiary to
operate the facility, such contractor (or any related person)
is actively engaged in the trade or business of operating
qualified lodging facilities for any person who is not a
related person with respect to the real estate investment
trust or the taxable REIT subsidiary.
``(B) Special rules.--Solely for purposes of this paragraph
and paragraph (8)(B), a person shall not fail to be treated
as an independent contractor with respect to any qualified
lodging facility by reason of any of the following:
``(i) The taxable REIT subsidiary bears the expenses for
the operation of the facility pursuant to the management
agreement or other similar service contract.
``(ii) The taxable REIT subsidiary receives the revenues
from the operation of such facility, net of expenses for such
operation and fees payable to the operator pursuant to such
agreement or contract.
``(iii) The real estate investment trust receives income
from such person with respect to another property that is
attributable to a lease of such other property to such person
that was in effect as of the later of--
``(I) January 1, 1999, or
``(II) the earliest date that any taxable REIT subsidiary
of such trust entered into a management agreement or other
similar service contract with such person with respect to
such qualified lodging facility.
``(C) Renewals, etc., of existing leases.--For purposes of
subparagraph (B)(iii)--
``(i) a lease shall be treated as in effect on January 1,
1999, without regard to its renewal after such date, so long
as such renewal is pursuant to the terms of such lease as in
effect on whichever of the dates under subparagraph (B)(iii)
is the latest, and
``(ii) a lease of a property entered into after whichever
of the dates under subparagraph (B)(iii) is the latest shall
be treated as in effect on such date if--
``(I) on such date, a lease of such property from the trust
was in effect, and
``(II) under the terms of the new lease, such trust
receives a substantially similar or lesser benefit in
comparison to the lease referred to in subclause (I).
``(D) Qualified lodging facility.--For purposes of this
paragraph--
``(i) In general.--The term `qualified lodging facility'
means any lodging facility unless wagering activities are
conducted at or in connection with such facility by any
person who is engaged in the business of accepting wagers and
who is legally authorized to engage in such business at or in
connection with such facility.
``(ii) Lodging facility.--The term `lodging facility' means
a hotel, motel, or other establishment more than one-half of
the dwelling units in which are used on a transient basis.
``(iii) Customary amenities and facilities.--The term
`lodging facility' includes customary amenities and
facilities operated as part of, or associated with, the
lodging facility so long as such amenities and facilities are
customary for other properties of a comparable size and class
owned by other owners unrelated to such real estate
investment trust.
``(E) Operate includes manage.--References in this
paragraph to operating a property shall be treated as
including a reference to managing the property.
``(F) Related person.--Persons shall be treated as related
to each other if such persons are treated as a single
employer under subsection (a) or (b) of section 52.''.
(2) Conforming amendment.--Subparagraph (B) of section
856(d)(2) is amended by inserting ``except as provided in
paragraph (8),'' after ``(B)''.
(3) Determining rents from real property.--
(A)(i) Paragraph (1) of section 856(d) is amended by
striking ``adjusted bases'' each place it occurs and
inserting ``fair market values''.
(ii) The amendment made by this subparagraph shall apply to
taxable years beginning after December 31, 2000.
(B)(i) Clause (i) of section 856(d)(2)(B) is amended by
striking ``number'' and inserting ``value''.
(ii) The amendment made by this subparagraph shall apply to
amounts received or accrued in taxable years beginning after
December 31, 2000, except for amounts paid pursuant to leases
in effect on July 12, 1999, or pursuant to a binding contract
in effect on such date and at all times thereafter.
[[Page S13517]]
SEC. 223. TAXABLE REIT SUBSIDIARY.
(a) In General.--Section 856 is amended by adding at the
end the following new subsection:
``(l) Taxable REIT Subsidiary.--For purposes of this part--
``(1) In general.--The term `taxable REIT subsidiary'
means, with respect to a real estate investment trust, a
corporation (other than a real estate investment trust) if--
``(A) such trust directly or indirectly owns stock in such
corporation, and
``(B) such trust and such corporation jointly elect that
such corporation shall be treated as a taxable REIT
subsidiary of such trust for purposes of this part.
Such an election, once made, shall be irrevocable unless both
such trust and corporation consent to its revocation. Such
election, and any revocation thereof, may be made without the
consent of the Secretary.
``(2) 35 percent ownership in another taxable reit
subsidiary.--The term `taxable REIT subsidiary' includes,
with respect to any real estate investment trust, any
corporation (other than a real estate investment trust) with
respect to which a taxable REIT subsidiary of such trust owns
directly or indirectly--
``(A) securities possessing more than 35 percent of the
total voting power of the outstanding securities of such
corporation, or
``(B) securities having a value of more than 35 percent of
the total value of the outstanding securities of such
corporation.
The preceding sentence shall not apply to a qualified REIT
subsidiary (as defined in subsection (i)(2)). The rule of
section 856(c)(7) shall apply for purposes of subparagraph
(B).
``(3) Exceptions.--The term `taxable REIT subsidiary' shall
not include--
``(A) any corporation which directly or indirectly operates
or manages a lodging facility or a health care facility, and
``(B) any corporation which directly or indirectly provides
to any other person (under a franchise, license, or
otherwise) rights to any brand name under which any lodging
facility or health care facility is operated.
Subparagraph (B) shall not apply to rights provided to an
eligible independent contractor to operate or manage a
lodging facility if such rights are held by such corporation
as a franchisee, licensee, or in a similar capacity and such
lodging facility is either owned by such corporation or is
leased to such corporation from the real estate investment
trust.
``(4) Definitions.--For purposes of paragraph (3)--
``(A) Lodging facility.--The term `lodging facility' has
the meaning given to such term by paragraph (9)(D)(ii).
``(B) Health care facility.--The term `health care
facility' has the meaning given to such term by subsection
(e)(6)(D)(ii).''.
(b) Conforming Amendment.--Paragraph (2) of section 856(i)
is amended by adding at the end the following new sentence:
``Such term shall not include a taxable REIT subsidiary.''.
SEC. 224. LIMITATION ON EARNINGS STRIPPING.
Paragraph (3) of section 163( j) (relating to limitation on
deduction for interest on certain indebtedness) 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) any interest paid or accrued (directly or indirectly)
by a taxable REIT subsidiary (as defined in section 856(l))
of a real estate investment trust to such trust.''.
SEC. 225. 100 PERCENT TAX ON IMPROPERLY ALLOCATED AMOUNTS.
(a) In General.--Subsection (b) of section 857 (relating to
method of taxation of real estate investment trusts and
holders of shares or certificates of beneficial interest) is
amended by redesignating paragraphs (7) and (8) as paragraphs
(8) and (9), respectively, and by inserting after paragraph
(6) the following new paragraph:
``(7) Income from redetermined rents, redetermined
deductions, and excess interest.--
``(A) Imposition of tax.--There is hereby imposed for each
taxable year of the real estate investment trust a tax equal
to 100 percent of redetermined rents, redetermined
deductions, and excess interest.
``(B) Redetermined rents.--
``(i) In general.--The term `redetermined rents' means
rents from real property (as defined in subsection 856(d))
the amount of which would (but for subparagraph (E)) be
reduced on distribution, apportionment, or allocation under
section 482 to clearly reflect income as a result of services
furnished or rendered by a taxable REIT subsidiary of the
real estate investment trust to a tenant of such trust.
``(ii) Exception for certain services.--Clause (i) shall
not apply to amounts received directly or indirectly by a
real estate investment trust for services described in
paragraph (1)(B) or (7)(C)(i) of section 856(d).
``(iii) Exception for de minimis amounts.--Clause (i) shall
not apply to amounts described in section 856(d)(7)(A) with
respect to a property to the extent such amounts do not
exceed the one percent threshold described in section
856(d)(7)(B) with respect to such property.
``(iv) Exception for comparably priced services.--Clause
(i) shall not apply to any service rendered by a taxable REIT
subsidiary of a real estate investment trust to a tenant of
such trust if--
``(I) such subsidiary renders a significant amount of
similar services to persons other than such trust and tenants
of such trust who are unrelated (within the meaning of
section 856(d)(8)(F)) to such subsidiary, trust, and tenants,
but
``(II) only to the extent the charge for such service so
rendered is substantially comparable to the charge for the
similar services rendered to persons referred to in subclause
(I).
``(v) Exception for certain separately charged services.--
Clause (i) shall not apply to any service rendered by a
taxable REIT subsidiary of a real estate investment trust to
a tenant of such trust if--
``(I) the rents paid to the trust by tenants (leasing at
least 25 percent of the net leasable space in the trust's
property) who are not receiving such service from such
subsidiary are substantially comparable to the rents paid by
tenants leasing comparable space who are receiving such
service from such subsidiary, and
``(II) the charge for such service from such subsidiary is
separately stated.
``(vi) Exception for certain services based on subsidiary's
income from the services.--Clause (i) shall not apply to any
service rendered by a taxable REIT subsidiary of a real
estate investment trust to a tenant of such trust if the
gross income of such subsidiary from such service is not less
than 150 percent of such subsidiary's direct cost in
furnishing or rendering the service.
``(vii) Exceptions granted by secretary.--The Secretary may
waive the tax otherwise imposed by subparagraph (A) if the
trust establishes to the satisfaction of the Secretary that
rents charged to tenants were established on an arms' length
basis even though a taxable REIT subsidiary of the trust
provided services to such tenants.
``(C) Redetermined deductions.--The term `redetermined
deductions' means deductions (other than redetermined rents)
of a taxable REIT subsidiary of a real estate investment
trust if the amount of such deductions would (but for
subparagraph (E)) be decreased on distribution,
apportionment, or allocation under section 482 to clearly
reflect income as between such subsidiary and such trust.
``(D) Excess interest.--The term `excess interest' means
any deductions for interest payments by a taxable REIT
subsidiary of a real estate investment trust to such trust to
the extent that the interest payments are in excess of a rate
that is commercially reasonable.
``(E) Coordination with section 482.--The imposition of tax
under subparagraph (A) shall be in lieu of any distribution,
apportionment, or allocation under section 482.
``(F) Regulatory authority.--The Secretary shall prescribe
such regulations as may be necessary or appropriate to carry
out the purposes of this paragraph. Until the
Secretary prescribes such regulations, real estate
investment trusts and their taxable REIT subsidiaries may
base their allocations on any reasonable method.''.
(b) Amount Subject to Tax Not Required To Be Distributed.--
Subparagraph (E) of section 857(b)(2) (relating to real
estate investment trust taxable income) is amended by
striking ``paragraph (5)'' and inserting ``paragraphs (5) and
(7)''.
SEC. 226. EFFECTIVE DATE.
(a) In General.--The amendments made by this part shall
apply to taxable years beginning after December 31, 2000.
(b) Transitional Rules Related to Section 221.--
(1) Existing arrangements.--
(A) In general.--Except as otherwise provided in this
paragraph, the amendment made by section 221 shall not apply
to a real estate investment trust with respect to--
(i) securities of a corporation held directly or indirectly
by such trust on July 12, 1999,
(ii) securities of a corporation held by an entity on July
12, 1999, if such trust acquires control of such entity
pursuant to a written binding contract in effect on such date
and at all times thereafter before such acquisition,
(iii) securities received by such trust (or a successor) in
exchange for, or with respect to, securities described in
clause (i) or (ii) in a transaction in which gain or loss is
not recognized, and
(iv) securities acquired directly or indirectly by such
trust as part of a reorganization (as defined in section
368(a)(1) of the Internal Revenue Code of 1986) with respect
to such trust if such securities are described in clause (i),
(ii), or (iii) with respect to any other real estate
investment trust.
(B) New trade or business or substantial new assets.--
Subparagraph (A) shall cease to apply to securities of a
corporation as of the first day after July 12, 1999, on which
such corporation engages in a substantial new line of
business, or acquires any substantial asset, other than--
(i) pursuant to a binding contract in effect on such date
and at all times thereafter before the acquisition of such
asset,
(ii) in a transaction in which gain or loss is not
recognized by reason of section 1031 or 1033 of the Internal
Revenue Code of 1986, or
(iii) in a reorganization (as so defined) with another
corporation the securities of which are described in
paragraph (1)(A) of this subsection.
(C) Limitation on transition rules.--Subparagraph (A) shall
cease to apply to securities of a corporation held, acquired,
or received, directly or indirectly, by a real estate
investment trust as of the first day after July 12, 1999, on
which such trust acquires any additional securities of such
corporation other than--
[[Page S13518]]
(i) pursuant to a binding contract in effect on July 12,
1999, and at all times thereafter, or
(ii) in a reorganization (as so defined) with another
corporation the securities of which are described in
paragraph (1)(A) of this subsection.
(2) Tax-free conversion.--If--
(A) at the time of an election for a corporation to become
a taxable REIT subsidiary, the amendment made by section 221
does not apply to such corporation by reason of paragraph
(1), and
(B) such election first takes effect before January 1,
2004,
such election shall be treated as a reorganization qualifying
under section 368(a)(1)(A) of such Code.
PART II--HEALTH CARE REITS
SEC. 231. HEALTH CARE REITS.
(a) Special Foreclosure Rule for Health Care Properties.--
Subsection (e) of section 856 (relating to special rules for
foreclosure property) is amended by adding at the end the
following new paragraph:
``(6) Special rule for qualified health care properties.--
For purposes of this subsection--
``(A) Acquisition at expiration of lease.--The term
`foreclosure property' shall include any qualified health
care property acquired by a real estate investment trust as
the result of the termination of a lease of such property
(other than a termination by reason of a default, or the
imminence of a default, on the lease).
``(B) Grace period.--In the case of a qualified health care
property which is foreclosure property solely by reason of
subparagraph (A), in lieu of applying paragraphs (2) and
(3)--
``(i) the qualified health care property shall cease to be
foreclosure property as of the close of the second taxable
year after the taxable year in which such trust acquired such
property, and
``(ii) if the real estate investment trust establishes to
the satisfaction of the Secretary that an extension of the
grace period in clause (i) is necessary to the orderly
leasing or liquidation of the trust's interest in such
qualified health care property, the Secretary may grant one
or more extensions of the grace period for such qualified
health care property.
Any such extension shall not extend the grace period beyond
the close of the 6th year after the taxable year in which
such trust acquired such qualified health care property.
``(C) Income from independent contractors.--For purposes of
applying paragraph (4)(C) with respect to qualified health
care property which is foreclosure property by reason of
subparagraph (A) or paragraph (1), income derived or received
by the trust from an independent contractor shall be
disregarded to the extent such income is attributable to--
``(i) any lease of property in effect on the date the real
estate investment trust acquired the qualified health care
property (without regard to its renewal after such date so
long as such renewal is pursuant to the terms of such lease
as in effect on such date), or
``(ii) any lease of property entered into after such date
if--
``(I) on such date, a lease of such property from the trust
was in effect, and
``(II) under the terms of the new lease, such trust
receives a substantially similar or lesser benefit in
comparison to the lease referred to in subclause (I).
``(D) Qualified health care property.--
``(i) In general.--The term `qualified health care
property' means any real property (including interests
therein), and any personal property incident to such real
property, which--
``(I) is a health care facility, or
``(II) is necessary or incidental to the use of a health
care facility.
``(ii) Health care facility.--For purposes of clause (i),
the term `health care facility' means a hospital, nursing
facility, assisted living facility, congregate care facility,
qualified continuing care facility (as defined in section
7872(g)(4)), or other licensed facility which extends medical
or nursing or ancillary services to patients and which,
immediately before the termination, expiration, default, or
breach of the lease of or mortgage secured by such facility,
was operated by a provider of such services which was
eligible for participation in the medicare program under
title XVIII of the Social Security Act with respect to such
facility.''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2000.
PART III--CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES
SEC. 241. CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES.
(a) Distribution Requirement.--Clauses (i) and (ii) of
section 857(a)(1)(A) (relating to requirements applicable to
real estate investment trusts) are each amended by striking
``95 percent (90 percent for taxable years beginning before
January 1, 1980)'' and inserting ``90 percent''.
(b) Imposition of Tax.--Clause (i) of section 857(b)(5)(A)
(relating to imposition of tax in case of failure to meet
certain requirements) is amended by striking ``95 percent (90
percent in the case of taxable years beginning before January
1, 1980)'' and inserting ``90 percent''.
(c) Effective Date.--The amendments made by this section
shall apply to taxable years beginning after December 31,
2000.
PART IV--CLARIFICATION OF EXCEPTION FROM IMPERMISSIBLE TENANT SERVICE
INCOME
SEC. 251. CLARIFICATION OF EXCEPTION FOR INDEPENDENT
OPERATORS.
(a) In General.--Paragraph (3) of section 856(d) (relating
to independent contractor defined) is amended by adding at
the end the following flush sentence:
``In the event that any class of stock of either the real
estate investment trust or such person is regularly traded on
an established securities market, only persons who own,
directly or indirectly, more than 5 percent of such class of
stock shall be taken into account as owning any of the stock
of such class for purposes of applying the 35 percent
limitation set forth in subparagraph (B) (but all of the
outstanding stock of such class shall be considered
outstanding in order to compute the denominator for purpose
of determining the applicable percentage of ownership).''.
(b) Effective Date.--The amendment made by this section
shall apply to taxable years beginning after December 31,
2000.
PART V--MODIFICATION OF EARNINGS AND PROFITS RULES
SEC. 261. MODIFICATION OF EARNINGS AND PROFITS RULES.
(a) Rules for Determining Whether Regulated Investment
Company Has Earnings and Profits From Non-RIC Year.--
Subsection (c) of section 852 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 earnings and
profits accumulated in any taxable year to which the
provisions of this part did not apply 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)(D) and
section 855.''.
(b) Clarification of Application of REIT Spillover Dividend
Rules to Distributions To Meet Qualification Requirement.--
Subparagraph (B) of section 857(d)(3) is amended by inserting
before the period ``and section 858''.
(c) Application of Deficiency Dividend Procedures.--
Paragraph (1) of section 852(e) is amended by adding at the
end the following new sentence: ``If the determination under
subparagraph (A) is solely as a result of the failure to meet
the requirements of subsection (a)(2), the preceding sentence
shall also apply for purposes of applying subsection (a)(2)
to the non-RIC year.''.
(d) Effective Date.--The amendments made by this section
shall apply to distributions after December 31, 2000.
PART VI--MODIFICATION OF ESTIMATED TAX RULES
SEC. 271. MODIFICATION OF ESTIMATED TAX RULES FOR CLOSELY
HELD REAL ESTATE INVESTMENT TRUSTS.
(a) In General.--Subsection (e) of section 6655 (relating
to estimated tax by corporations) is amended by adding at the
end the following new paragraph:
``(5) Treatment of certain reit dividends.--
``(A) In general.--Any dividend received from a closely
held real estate investment trust by any person which owns
(after application of subsections (d)(5) and (l)(3)(B) of
section 856) 10 percent or more (by vote or value) of the
stock or beneficial interests in the trust shall be taken
into account in computing annualized income installments
under paragraph (2) in a manner similar to the manner under
which partnership income inclusions are taken into account.
``(B) Closely held reit.--For purposes of subparagraph (A),
the term `closely held real estate investment trust' means a
real estate investment trust with respect to which 5 or fewer
persons own (after application of subsections (d)(5) and
(l)(3)(B) of section 856) 50 percent or more (by vote or
value) of the stock or beneficial interests in the trust.''
(b) Effective Date.--The amendment made by subsection (a)
shall apply to estimated tax payments due on or after
November 15, 1999.
PART VII--MODIFICATION OF TREATMENT OF CLOSELY-HELD REITS
SEC. 281. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.
(a) In General.--Subsection (a) of section 856 (relating to
definition of real estate investment trust) is amended by
striking ``and'' at the end of paragraph (6), by
redesignating paragraph (7) as paragraph (8), and by
inserting after paragraph (6) the following new paragraph:
``(7) which is not a controlled entity (as defined in
subsection (l)); and''.
(b) Controlled Entity.--Section 856 is amended by adding at
the end the following new subsection:
``(l) Controlled Entity.--
``(1) In general.--For purposes of subsection (a)(7), an
entity is a controlled entity if, at any time during the
taxable year, one person (other than a qualified entity)--
``(A) in the case of a corporation, owns stock--
``(i) possessing at least 50 percent of the total voting
power of the stock of such corporation, or
[[Page S13519]]
``(ii) having a value equal to at least 50 percent of the
total value of the stock of such corporation, or
``(B) in the case of a trust, owns beneficial interests in
the trust which would meet the requirements of subparagraph
(A) if such interests were stock.
``(2) Qualified entity.--For purposes of paragraph (1), the
term `qualified entity' means--
``(A) any real estate investment trust, and
``(B) any partnership in which one real estate investment
trust owns at least 50 percent of the capital and profits
interests in the partnership.
``(3) Attribution rules.--For purposes of this paragraphs
(1) and (2)--
``(A) In general.--Rules similar to the rules of
subsections (d)(5) and (h)(3) shall apply; except that
section 318(a)(3)(C) shall not be applied under such rules to
treat stock owned by a qualified entity as being owned by a
person which is not a qualified entity.
``(B) Stapled entities.--A group of entities which are
stapled entities (as defined in section 269B(c)(2)) shall be
treated as one person.
``(4) Exception for certain new reits.--
``(A) In general.--The term `controlled entity' shall not
include an incubator REIT.
``(B) Incubator reit.--A corporation shall be treated as an
incubator REIT for any taxable year during the eligibility
period if it meets all the following requirements for such
year:
``(i) The corporation elects to be treated as an incubator
REIT.
``(ii) The corporation has only voting common stock
outstanding.
``(iii) Not more than 50 percent of the corporation's real
estate assets consist of mortgages.
``(iv) From not later than the beginning of the last half
of the second taxable year, at least 10 percent of the
corporation's capital is provided by lenders or equity
investors who are unrelated to the corporation's largest
shareholder.
``(v) The corporation annually increases the value of its
real estate assets by at least 10 percent.
``(vi) The directors of the corporation adopt a resolution
setting forth an intent to engage in a going public
transaction.
No election may be made with respect to any REIT if an
election under this subsection was in effect for any
predecessor of such REIT. The requirement of clause (ii)
shall not fail to be met merely because a going public
transaction is accomplished through a transaction described
in section 368(a)(1) with another corporation which had
another class of stock outstanding prior to the transaction.
``(C) Eligibility period.--
``(i) In general.--The eligibility period (for which an
incubator REIT election can be made) begins with the REIT's
second taxable year and ends at the close of the REIT's third
taxable year, except that the REIT may, subject to clauses
(ii), (iii), and (iv), elect to extend such period for an
additional 2 taxable years.
``(ii) Going public transaction.--A REIT may not elect to
extend the eligibility period under clause (i) unless it
enters into an agreement with the Secretary that if it does
not engage in a going public transaction by the end of the
extended eligibility period, it shall pay Federal income
taxes for the 2 years of the extended eligibility period as
if it had not made an incubator REIT election and had ceased
to qualify as a REIT for those 2 taxable years.
``(iii) Returns, interest, and notice.--
``(I) Returns.--In the event the corporation ceases to be
treated as a REIT by operation of clause (ii), the
corporation shall file any appropriate amended returns
reflecting the change in status within 3 months of the close
of the extended eligibility period.
``(II) Interest.--Interest shall be payable on any tax
imposed by reason of clause (ii) for any taxable year but,
unless there was a finding under subparagraph (D), no
substantial underpayment penalties shall be imposed.
``(III) Notice.--The corporation shall, at the same time it
files its returns under subclause (I), notify its
shareholders and any other persons whose tax position is, or
may reasonably be expected to be, affected by the change in
status so they also may file any appropriate amended returns
to conform their tax treatment consistent with the
corporation's loss of REIT status.
``(IV) Regulations.--The Secretary shall provide
appropriate regulations setting forth transferee liability
and other provisions to ensure collection of tax and the
proper administration of this provision.
``(iv) Clauses (ii) and (iii) shall not apply if the
corporation allows its incubator REIT status to lapse at the
end of the initial 2-year eligibility period without engaging
in a going public transaction if the corporation is not a
controlled entity as of the beginning of its fourth taxable
year. In such a case, the corporation's directors may still
be liable for the penalties described in subparagraph (D)
during the eligibility period.
``(D) Special penalties.--If the Secretary determines that
an incubator REIT election was filed for a principal purpose
other than as part of a reasonable plan to undertake a going
public transaction, an excise tax of $20,000 shall be imposed
on each of the corporation's directors for each taxable year
for which an election was in effect.
``(E) Going public transaction.--For purposes of this
paragraph, a going public transaction means--
``(i) a public offering of shares of the stock of the
incubator REIT;
``(ii) a transaction, or series of transactions, that
results in the stock of the incubator REIT being regularly
traded on an established securities market and that results
in at least 50 percent of such stock being held by
shareholders who are unrelated to persons who held such stock
before it began to be so regularly traded; or
``(iii) any transaction resulting in ownership of the REIT
by 200 or more persons (excluding the largest single
shareholder) who in the aggregate own at least 50 percent of
the stock of the REIT.
For the purposes of this subparagraph, the rules of paragraph
(3) shall apply in determining the ownership of stock.
``(F) Definitions.--The term `established securities
market' shall have the meaning set forth in the regulations
under section 897.''
(c) Conforming Amendment.--Paragraph (2) of section 856(h)
is amended by striking ``and (6)'' each place it appears and
inserting ``, (6), and (7)''.
(d) Effective Date.--
(1) In general.--The amendments made by this section shall
apply to taxable years ending after July 14, 1999.
(2) Exception for existing controlled entities.--The
amendments made by this section shall not apply to any entity
which is a controlled entity (as defined in section 856(l) of
the Internal Revenue Code of 1986, as added by this section)
as of July 14, 1999, which is a real estate investment trust
for the taxable year which includes such date, and which has
significant business assets or activities as of such date.
For purposes of the preceding sentence, an entity shall be
treated as such a controlled entity on July 14, 1999, if it
becomes such an entity after such date in a transaction--
(A) made pursuant to a written agreement which was binding
on such date and at all times thereafter, or
(B) described on or before such date in a filing with the
Securities and Exchange Commission required solely by reason
of the transaction.
TITLE III--BUDGET PROVISION
SEC. 301. EXCLUSION FROM PAYGO SCORECARD.
Any net deficit increase or net surplus increase resulting
from the enactment of this Act shall not be counted for
purposes of section 252 of the Balanced Budget and Emergency
Deficit Control Act of 1985 (2 U.S.C. 902).
Mr. ROTH. Mr. President, today I am pleased to join the distinguished
ranking member of the Finance Committee, Senator Moynihan, in
discussing Senate passage of the Tax Relief Extension Act of 1999.
The bill the Senate passed today is a consensus package of extensions
of expiring tax provisions, known as ``extenders.'' Working together,
Senator Moynihan and I produced a package that was reported out of the
Finance Committee unanimously.
In order to get a package that could be approved by unanimous
consent, we had to achieve a fair compromise. Every Member would
probably differ in the way he or she would write an extenders bill.
Fortunately, Members of the Senate realize the importance of
addressing these expiring provisions. The evidence of that importance
is demonstrated by the unanimous consent agreement for passage that we
entered into today.
The most important of the expiring provisions, as Senator Moynihan
noted, is the exclusion of nonrefundable tax credits from the
alternative minimum taxes (``AMT''). The Finance Committee bill insures
that middle income families will receive the benefits of the $500 per
child tax credit, HOPE Scholarship credit, Lifetime Learning credit,
adoption credit, and dependent care tax credit. This relief is extended
through December 31, 2000.
There are other important expiring tax provisions the Finance
Committee bill addresses. Included is the research and development
(``R&D'') tax credit, the tax-free treatment of employer-provided
educational assistance, the work opportunity tax credit, the welfare-
to-work tax credit, the active finance exception to Subpart F, and the
extension and modification of the tax credit for production of
electricity from wind and biomass, including poultry waste. There are
several other important extenders in this legislation.
Mr. President, I urge the House to pass its extenders bill. We will
then proceed to a conference and work out the differences between the
two bills. It is important that we work quickly and produce a
conference agreement that addresses these important matters.
Mr. MOYNIHAN. Mr. President, I have just a couple of points to make
about this extender bill. First, my congratulations to our revered
chairman
[[Page S13520]]
of the Finance Committee, who brought all sides together in a consensus
bill that accomplishes our objective--extend expiring provisions that
command support from all Senators. This was not a simple task.
Tax extenders were part of the large tax bill that began working its
way through the Congress in July--a bill that in my view needed to be
and was vetoed. This fall, Senator Roth returned to the task and
presented a chairman's mark focused on extenders. He built bipartisan
support for the bill, and that is why we are here on the Senate floor
so soon, ready to pass the legislation by unanimous consent.
This bill is a paid-for extenders package. As such, it meets the
standards of Members on both sides of the aisle. It is a bill that can
pass this Congress and can be signed by the President.
And it is important that we pass legislation that can be signed. If
we do not, approximately 1.1 million Americans will find out that they
will lose part or all of the $500 child credit or the HOPE scholarship
credit when they sit down to complete their 1999 tax return. That is
because these credits have not yet been permanently exempted from what
we call the alternative minimum tax. This legislation will exempt these
credits from the alternative minimum tax for 1999 and 2000.
The American people ask us to be responsible in managing our tax
laws. To not pass this bill would be irresponsible and contribute to a
perception that Members of Congress who agree on what should be done
cannot sit down and figure out a way to do them.
Again, my congratulations to the chairman, and let's move
expeditiously to a conference with the House of Representatives as soon
as they pass similar legislation.
The PRESIDING OFFICER. The Democratic leader is recognized.
Mr. DASCHLE. Mr. President, I appreciate the cooperation we have had
on both sides of the aisle to get to this point. A number of Senators
have expressed a desire to offer amendments and to change, in some way,
the package as it has been presented and passed this morning. We will
work with our colleagues to find ways in which to address many of these
issues, whether it is in conference or on other vehicles.
There are a number of issues I care about as well, and I share the
concerns expressed to me by some of our colleagues. It is very
important that before the end of the session we pass this legislation
out and get to conference within a time where we might be able to move
it further along.
I strongly support the action the Senate has just taken. My only
regret is that these matters aren't permanent law and that they require
extension at all. There should come a time when we pass them
permanently so we aren't required to come back year after year. Having
said that, again, I appreciate the work of the majority leader.
I yield the floor.
Mr. LOTT. Mr. President, I agree with that. I might say that there
are some permanent provisions in the House Ways and Means version of
this bill. They would make permanent the extender with regard to the
alternative minimum tax and how it affects the low- and middle-income
people and others. Also, I have a bill at the desk to express my strong
feeling on this subject that would make the R&D tax credit permanent. I
think to come back every year, 2 years, or even every 5 years, causes
concern and insecurity with regard to those tax credits. I hope we will
make it either permanent, or as long as possible, in the conference.
I know there is at least one Senator who has provisions he hopes will
be considered in the conference, and I think they should be. On our
side, I have one Senator who feels very strongly that there are three
parts of this bill that affect permanent law, which is not extenders. I
agree. I think those permanent law issues should be dealt with by the
regular committees. One has to do with brownfields, one with a rum
provision, maybe in the Virgin Islands--not that you might want to be
for them; I am just questioning whether or not they should be in a bill
that is supposed to be tax credit extenders. We have other good
provisions in here, a welfare-to-work tax credit, and others. So I am
glad we are going to get this done before we leave. I thank Senators
for the cooperation on both sides.
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