[Congressional Record Volume 146, Number 121 (Tuesday, October 3, 2000)]
[Senate]
[Pages S9703-S9746]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. ROTH (for himself, Mr. Moynihan, Mr. Grassley, Mr. Baucus, 
        Mr. Hatch, Mr. Rockefeller, Mr. Murkowski, Mr. Breaux, Mr. 
        Jeffords, Mr. Conrad, Mr. Mack, Mr. Graham, Mr. Thompson, Mr. 
        Kerrey, Mr. Robb, and Mr. Bryan):
  S. 3152. A bill to amend the Internal Revenue Code of 1986 to provide 
tax incentives for distressed areas, and for other purposes; read the 
first time.


             community renewal and new markets act of 2000

  Mr. ROTH. Mr. President, today I am, along with 14 cosponsors from 
the Finance Committee, introducing a Community Renewal tax reduction 
bill that will help all America benefit from today's economic boom.
  As you know, the House bill embodies an agreement between the House 
and the Administration. Personally, I think that it would be wrong for 
the Senate to be silent in this process. It is important for this body 
to at least have a voice in crafting this legislation.
  While I would have preferred that this legislation to have been 
reported from the Finance Committee, I believe my bill represents the 
Committee's will. It is largely composed of the Chairman's mark and 
amendments submitted by the Committee's members. Every Member of the 
Finance Committee had input into this bill. In the regular course of 
Finance Committee business, we would have reported this bill out of the 
Committee with an overwhelming vote in support. And the fact that 15 
members on both sides of the aisle have joined me as original 
cosponsors, I believe, attests to the Finance Committee's approval of 
this legislation.
  It goes without saying that America's communities are important. I 
believe that there are many ways in which we can extend help to them. I 
also feel that any time we can work together with the Administration to 
cut taxes we must try and see it to fruition.
  While I listened to the concerns of every senator--both on and off 
the Finance committee--who approached me with a provision in which they 
were interested, I did not incorporate them all. I did not because I 
could not without the cost of the bill growing out of control. It is 
important that we not forget communities that may not have received as 
much as others from America's economic boom. However, it is also 
important that we consider the size of this bill in the context of 
other tax relief priorities that remain. These other priorities are 
marriage tax relief, retirement security, education, estate tax relief, 
small business tax relief, and other items. Community renewal tax 
relief must fit within the overall framework of the tax relief agenda.
  This Finance Committee bill is fair and it is in line with the 
revenue loss of the package, proposed by Senators Santorum, Abraham, 
and Lieberman, which was considered earlier this year in the Senate. In 
designing this bill, members of the Finance Committee decided not to 
turn this bill into a grab bag of special interest provisions.
  This Finance Committee bill includes a variety of proposals that will 
further the bill's goals of community renewal--rationalizing and 
simplifying what was and, was proposed to be, a hodge-podge of often 
conflicting provisions. It includes an immediate--let me emphasize 
immediate--increase in the volume caps for low-income housing tax 
credits and private activity bonds. It also addresses many, many 
important problems left out of the House and Administration proposal. 
Among other things, this package contains an energy and conservation 
component, a farm relief component, an Individual Development Account 
proposal, an extension of the adoption credit and the enhanced 
deduction for computer donations, a program to develop high speed rail 
around the country, and a broadband Internet incentive that will make 
sure that no one gets left on the wrong side of the digital divide.
  One provision that I particularly want to talk about is the tax 
credit for renovating historic homes. This was one of Senator John 
Chafee's signature items and I am pleased to include it in the Finance 
Committee bill, not only because I support it, but as a tribute to our 
good friend. We all know that if he were here, he would have fought 
hard for this tax incentive.
  In fact, Senator Lincoln Chafee came to see me earlier this year. 
Lincoln told that in his dad's last speech, John talked about the 
importance of the tax credit and said that it was something he wanted 
to get done before he left the Senate. Unfortunately, he is not with us 
today, but hopefully we can complete this unfinished business for him.
  This is a fair package and a generous package. I believe it is one 
that this Senate should feel comfortable embracing. I hope each of you 
who has not done so, will do so.
  Mr. MOYNIHAN. Mr. President, last week the Finance Committee was 
scheduled to mark up the ``Community Renewal and New Markets Act of 
2000,'' but the legislation became burdened by extraneous matters, and 
the Committee was unable to complete the mark-up. I rise today to join 
my good friend and Chairman of the Finance Committee, Senator Roth, in 
introducing the ``Community Renewal and New Markets Act of 2000'' as an 
original bill with 15 cosponsors from the Finance Committee.
  Sir, we all should be grateful for Senator Roth's leadership in this 
matter. Community renewal is an effort to rebuild American communities, 
which is based on an agreement reached between the President and the 
Speaker of the House that this is legislation we ought to have. The 
signals are clear: the legislation will be enacted this year with or 
without us. Today, Senator Roth and I give a voice in this process to 
the Finance Committee and the Senate.
  Mr. President, this bill represents the will of the Finance 
Committee. It incorporates the worthwhile ideas of its members, 
including the work of my good friend, Senator Robb, who, along with 
Senator Rockefeller, has worked tirelessly to provide meaningful 
incentives for investment in distressed communities.
  I also take a moment of the Senate's time to echo Senator Roth's 
tribute to Senator John Chafee. It is fitting that we should enact, in 
a bipartisan bill, the tax credit for renovating historic homes in 
honor of a great Senator.
  Substantively, the Community Renewal legislation is significant in 
several respects. First, it provides a notable measure of tax 
simplification, even as it accomplishes a worthwhile goal--tax benefits 
for investment in poor communities. While the bill designates 30 new 
``Renewal Zones,'' it also conforms the tax incentives available to 
individuals and businesses investing in any of the zone designations, 
current or future. Our legislation smartly unifies these Empowerment 
and Renewal Zones and creates a common set of incentives. This is the 
right kind of legislation.
  I also note, Mr. President, with some appreciation, two provisions 
that will make transportation and data transmission very quick indeed. 
The bill includes provisions to accelerate and expand access to high-
technology infrastructure for all communities. First, it authorizes $10 
billion of tax credit bonds for Amtrak to develop high-speed railways. 
High-speed railways have the potential to connect the very communities 
targeted by this legislation and provide them with greater access to 
information.
  Second, the bill includes a proposal that I first introduced on June 
8, 2000. That proposal, which now has 52 Senate supporters, provides 
graduated tax credits for deployment of high-speed communications--
called ``broadband''--to residential and rural communities. Current 
market forces are driving deployment of broadband technology almost 
exclusively to urban businesses and wealthy households. The proposal in 
the bill will encourage broadband providers to act quickly to deploy 
broadband to Americans in all communities.
  Mr. President, if you will allow me one further observation, as I am 
compelled to compliment the bill in one other respect. Consistent with 
the purpose of this legislation, it includes a

[[Page S9704]]

tax incentive for investment in labor in Puerto Rico. The provision 
does not accomplish all that I had hoped it would, but I believe it 
represents a positive step forward. It extends to Puerto Rico tax 
incentives for job creation similar to the ones in other areas of the 
bill, and it does so, quite simply, through an existing tax-code 
provision, the Puerto Rico economic activity credit.
  Mr. President, I again applaud the leadership of our revered Chairman 
and proudly join him in introducing the Community Renewal and New 
Markets Act of 2000.
  Mr. MACK. Mr. President, as a co-sponsor of the Community Renewal and 
New Markets Act of 2000, I want to commend Chairman Roth for his usual 
fine work in assembling a bill that garners the support of such a large 
number of our Finance Committee colleagues. I am pleased that a number 
of items in this bill are provisions that are extremely important to 
me, and I would like to speak briefly concerning them.
  But I also want to draw attention to some provisions in this bill 
that I do not favor. As this bill stands in the place of what would 
have been a bill reported out of the Committee on Finance, it reflects 
the compromises that are inherent in the committee process. Unlike 
typical bills, of which it is reasonable to assume that every provision 
is supported by every co-sponsor, probably every co-sponsor of this 
bill can find provisions contained in it that he does not support. Of 
many, there are two that I find most troubling: the ``new markets tax 
credit,'' and the ``individual development accounts.''
  These two provisions are appropriations masquerading as tax cuts. 
Under the new markets tax credit, the Secretary of the Treasury would 
annually pay dividends to investors in ``community development 
entities,'' which must be certified by the Treasury Department and 
which must have as their primary mission investing in low-income people 
or communities. This proposal is premised on the belief that an entity 
that lacks a profit-motive, under federal bureaucratic supervision, 
will be an attractive investment for people if dividends are 
guaranteed. It is the sort of scheme that could only be dreamed up by 
people who have spent their entire careers in government. A simpler way 
to direct capital to investment-starved pockets is by eliminating the 
tax on capital gains--this is the decentralized, market-oriented 
approach.
  The ``individual development accounts'' would launder government-
matching funds for low income savers through financial institutions. 
This new entitlement cannot be justified. It is true that, by some 
measures, the savings rate in the United States appears low. Simple 
logic dictates that the savings rate have been lowered due to federal 
tax policies, which impose several layers of taxation upon income that 
is saved. It is one thing to address this problem at the source, by 
removing the extra taxation on savings--a we do to the extent that 
people can make deductible contributions to traditional IRAs and 
contributions to Roth IRAs. But to give people money to reward them for 
saving is pure income redistribution, a misuse of the taxpayers' money.
  Despite my disagreement with some of the provisions of this bill, I 
am pleased that the bill contains several initiatives that I have 
proposed over the past few Congresses. The Low Income Housing Tax 
Credit is boosted to make up for over a decade's worth of inflation, 
and is indexed to prevent this problem from reoccurring. The First-Time 
Homebuyer Tax Credit for the District of Columbia is extended and the 
marriage penalty in the credit is eliminated. Section 1706 of the Tax 
Reform Act of 1986, which discriminates against high technology workers 
and the companies that hire them, is repealed. Not-for-hire disaster 
insurance funds, in my state of Florida and several others, are made 
tax-exempt entities.
  I am most encouraged by the extension of my zero percent capital 
gains tax rate proposal to businesses in the entire District of 
Columbia, and to businesses in all empowerment and renewal zones. 
Although I am concerned that the lengthy, five-year holding period is 
unwise and undermines the power of the proposal, I am nevertheless 
pleased that the idea is spreading and people are coming to see 
capitalism as the only true cure for poverty.
  Mr. ROTH. Mr. President, along with Senator Moynihan and the other 
members of the committee I ask unanimous consent that S. 3152, the 
Community Renewal and New Markets Act of 2000 be printed in the Record. 
I also ask unanimous consent that a technical explanation of S. 3152, 
which has been prepared by the Joint Committee on Taxation, be printed 
in the Record, at a cost of $4,290.00, immediately following the text 
of the bill.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                S. 3152

       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 ``Community 
     Renewal and New Markets Act of 2000''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Table of Contents.--

Sec. 1. Short title; etc.

             TITLE I--INCENTIVES FOR DISTRESSED COMMUNITIES

         Subtitle A--Designation and Treatment of Renewal Zones

Sec. 101. Designation and treatment of renewal zones.

      Subtitle B--Modification of Incentives for Empowerment Zones

Sec. 111. Extension of empowerment zone treatment through 2009.
Sec. 112. 15 percent employment credit for all empowerment zones
Sec. 113. Increased expensing under section 179.
Sec. 114. Higher limits on tax-exempt empowerment zone facility bonds.
Sec. 115. Empowerment zone capital gain.
Sec. 116. Funding for Round II empowerment zones.

         Subtitle C--Modification of Tax Incentives for DC Zone

Sec. 121. Extension of DC zone through 2006.
Sec. 122. Extension of DC zero percent capital gains rate.
Sec. 123. Gross income test for DC zone businesses.
Sec. 124. Expansion of DC homebuyer tax credit.

                   Subtitle D--New Markets Tax Credit

Sec. 131. New markets tax credit.

       Subtitle E--Modification of Tax Incentives for Puerto Rico

Sec. 141. Modification of Puerto Rico economic activity tax credit.

              Subtitle F--Individual Development Accounts

Sec. 151. Definitions.
Sec. 152. Structure and administration of qualified individual 
              development account programs.
Sec. 153. Procedures for opening an individual development account and 
              qualifying for matching funds.
Sec. 154. Contributions to individual development accounts.
Sec. 155. Deposits by qualified individual development account 
              programs.
Sec. 156. Withdrawal procedures.
Sec. 157. Certification and termination of qualified individual 
              development account programs.
Sec. 158. Reporting, monitoring, and evaluation.
Sec. 159. Account funds of program participants disregarded for 
              purposes of certain means-tested Federal programs.
Sec. 160. Matching funds for individual development accounts provided 
              through a tax credit for qualified financial 
              institutions.
Sec. 161. Designation of earned income tax credit payments for deposit 
              to individual development accounts.

                   Subtitle G--Additional Incentives

Sec. 171. Exclusion of certain amounts received under the National 
              Health Service Corps Scholarship Program and the F. 
              Edward Hebert Armed Forces Health Professions Scholarship 
              and Financial Assistance Program.
Sec. 172. Extension of enhanced deduction for corporate donations of 
              computer technology.
Sec. 173. Extension of adoption tax credit.
Sec. 174. Tax treatment of Alaska Native Settlement Trusts.
Sec. 175. Treatment of Indian tribal governments under Federal 
              Unemployment Tax Act.
Sec. 176. Increase in social services block grant for FY 2001.

            TITLE II--TAX INCENTIVES FOR AFFORDABLE HOUSING

                 Subtitle A--Low-Income Housing Credit

Sec. 201. Modification of State ceiling on low-income housing credit.

[[Page S9705]]

Sec. 202. Modification to rules relating to basis of building which is 
              eligible for credit.

                       Subtitle B--Historic Homes

Sec. 211. Tax credit for renovating historic homes.

               Subtitle C--Forgiven Mortgage Obligations

Sec. 221. Exclusion from gross income for certain forgiven mortgage 
              obligations.

                   Subtitle D--Mortgage Revenue Bonds

Sec. 231. Increase in purchase price limitation under mortgage subsidy 
              bond rules based on median family income.
Sec. 232. Mortgage financing for residences located in presidentially 
              declared disaster areas.

              Subtitle E--Property and Casualty Insurance

Sec. 241. Exemption from income tax for State-created organizations 
              providing property and casualty insurance for property 
              for which such coverage is otherwise unavailable.

      TITLE III--TAX INCENTIVES FOR URBAN AND RURAL INFRASTRUCTURE

Sec. 301. Increase in State ceiling on private activity bonds.
Sec. 302. Modifications to expensing of environmental remediation 
              costs.
Sec. 303. Broadband internet access tax credit.
Sec. 304. Credit to holders of qualified Amtrak bonds.
Sec. 305. Clarification of contribution in aid of construction.
Sec. 306. Recovery period for depreciation of certain leasehold 
              improvements.

                    TITLE IV--TAX RELIEF FOR FARMERS

Sec. 401. Farm, fishing, and ranch risk management accounts.
Sec. 402. Written agreement relating to exclusion of certain farm 
              rental income from net earnings from self-employment.
Sec. 403. Treatment of conservation reserve program payments as rentals 
              from real estate.
Sec. 404. Exemption of agricultural bonds from State volume cap.
Sec. 405. Modifications to section 512(b)(13).
Sec. 406. Charitable deduction for contributions of food inventory.
Sec. 407. Income averaging for farmers and fishermen not to increase 
              alternative minimum tax liability.
Sec. 408. Cooperative marketing includes value-added processing through 
              animals.
Sec. 409. Declaratory judgment relief for section 521 cooperatives.
Sec. 410. Small ethanol producer credit.
Sec. 411. Payment of dividends on stock of cooperatives without 
              reducing patronage dividends.

          TITLE V--TAX INCENTIVES FOR THE PRODUCTION OF ENERGY

Sec. 501. Election to expense geological and geophysical expenditures.
Sec. 502. Election to expense delay rental payments
Sec. 503. 5-year net operating loss carryback for losses attributable 
              to operating mineral interests of independent oil and gas 
              producers.
Sec. 504. Temporary suspension of percentage of depletion deduction 
              limitation based on 65 percent of taxable income.
Sec. 505. Tax credit for marginal domestic oil and natural gas well 
              production.
Sec. 506. Natural gas gathering lines treated as 7-year property.
Sec. 507. Clarification of treatment of pipeline transportation income.

               TITLE VI--TAX INCENTIVES FOR CONSERVATION

Sec. 601. Exclusion of 50 percent of gain on sales of land or interests 
              in land or water to eligible entities for conservation 
              purposes.
Sec. 602. Expansion of estate tax exclusion for real property subject 
              to qualified conservation easement.
Sec. 603. Tax exclusion for cost-sharing payments under partners for 
              wildlife program.
Sec. 604. Incentive for certain energy efficient property used in 
              business.
Sec. 605. Extension and modification of tax credit for electricity 
              produced from biomass.
Sec. 606. Tax credit for certain energy efficient motor vehicles.

                  TITLE VII--ADDITIONAL TAX PROVISIONS

Sec. 701. Limitation on use of nonaccrual experience method of 
              accounting.
Sec. 702. Repeal of section 530(d) of the Revenue Act of 1978.
Sec. 703. Expansion of exemption from personal holding company tax for 
              lending or finance companies.
Sec. 704. Charitable contribution deduction for certain expenses 
              incurred in support of Native Alaskan subsistence 
              whaling.
Sec. 705. Imposition of excise tax on persons who acquire structured 
              settlement payments in factoring transactions.

             TITLE I--INCENTIVES FOR DISTRESSED COMMUNITIES

         Subtitle A--Designation and Treatment of Renewal Zones

     SEC. 101. DESIGNATION AND TREATMENT OF RENEWAL ZONES.

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

       ``Subchapter X--Designation and Treatment of Renewal Zones

``Sec. 1400E. Designation and treatment of renewal zones.

     ``SEC. 1400E. DESIGNATION AND TREATMENT OF RENEWAL ZONES.

       ``(a) Treatment of Designation.--For purposes of this 
     title, any area designated as a renewal zone under this 
     section shall be treated as an empowerment zone.
       ``(b) Designation.--
       ``(1) Renewal zone defined.--For purposes of this title, 
     the term `renewal zone' means any area--
       ``(A) which is nominated by one or more local governments 
     and the State or States in which it is located for 
     designation as a renewal zone (hereafter in this section 
     referred to as a `nominated area'), and
       ``(B) which the appropriate Secretary designates as a 
     renewal zone.
       ``(2) Number of designations.--
       ``(A) In general.--The appropriate Secretaries may 
     designate not more than 30 nominated areas as renewal zones.
       ``(B) Minimum designation in rural areas.--Of the areas 
     designated under subparagraph (A), at least 6 must be areas--
       ``(i) which are within a local government jurisdiction or 
     jurisdictions with a population of less than 50,000, or
       ``(ii) which satisfy the requirements of section 
     1393(a)(2).
       ``(3) Areas designated based on degree of poverty, etc.--
       ``(A) In general.--Except as otherwise provided in this 
     section, the nominated areas designated as renewal zones 
     under this subsection shall be those nominated areas with the 
     highest average ranking with respect to the criteria 
     described in subparagraphs (B), (C), and (D) of subsection 
     (d)(3). For purposes of the preceding sentence, an area shall 
     be ranked within each such criterion on the basis of the 
     amount by which the area exceeds such criterion, with the 
     area which exceeds such criterion by the greatest amount 
     given the highest ranking.
       ``(B) Exception where inadequate course of action, etc.--An 
     area shall not be designated under subparagraph (A) if the 
     appropriate Secretary determines that the course of action 
     described in subsection (e)(2) with respect to such area is 
     inadequate.
       ``(C) Priority for 1 nominated area in each state.--For 
     purposes of this subchapter, 1 nominated area within each 
     State without any area designated as an empowerment zone 
     under section 1391 or 1400 shall be treated for purposes of 
     this paragraph as having the highest average with respect to 
     the criteria described in subparagraphs (B), (C), and (D) of 
     subsection (d)(3).
       ``(4) Limitation on designations.--
       ``(A) Publication of regulations.--The Secretary of Housing 
     and Urban Development shall prescribe by regulation not later 
     than 4 months after the date of the enactment of this 
     section, after consultation with the Secretary of 
     Agriculture--
       ``(i) the procedures for nominating an area under paragraph 
     (1)(A),
       ``(ii) the parameters relating to the size and population 
     characteristics of a renewal zone, and
       ``(iii) the manner in which nominated areas will be 
     evaluated based on the criteria specified in subsection (e).
       ``(B) Time limitations.--The appropriate Secretaries may 
     designate nominated areas as renewal zones only during the 
     period beginning on the first day of the first month 
     following the month in which the regulations described in 
     subparagraph (A) are prescribed and ending on December 31, 
     2001.
       ``(C) Procedural rules.--The appropriate Secretary shall 
     not make any designation of a nominated area as a renewal 
     zone under paragraph (2) unless--
       ``(i) the local governments and the States in which the 
     nominated area is located have the authority--

       ``(I) to nominate such area for designation as a renewal 
     zone,
       ``(II) to make the State and local commitments described in 
     subsection (e), and
       ``(III) to provide assurances satisfactory to the 
     appropriate Secretary that such commitments will be 
     fulfilled,

       ``(ii) a nomination regarding such area is submitted in 
     such a manner and in such form, and contains such 
     information, as the appropriate Secretary shall by regulation 
     prescribe, and
       ``(iii) the appropriate Secretary determines that any 
     information furnished is reasonably accurate.
       ``(5) Nomination process for indian reservations.--For 
     purposes of this subchapter, in the case of a nominated area 
     on an Indian reservation, the reservation governing body (as 
     determined by the Secretary of the Interior) shall be treated 
     as being both the State and local governments with respect to 
     such area.
       ``(c) Period for Which Designation Is in Effect.--
       ``(1) In general.--Any designation of an area as a renewal 
     zone shall remain in effect during the period beginning on 
     January 1, 2002, and ending on the earliest of--
       ``(A) December 31, 2009,

[[Page S9706]]

       ``(B) the termination date designated by the State and 
     local governments in their nomination, or
       ``(C) the date the appropriate Secretary revokes such 
     designation.
       ``(2) Revocation of designation.--The appropriate Secretary 
     may revoke the designation under this section of an area if 
     such Secretary determines that the local government or the 
     State in which the area is located--
       ``(A) has modified the boundaries of the area, or
       ``(B) is not complying substantially with, or fails to make 
     progress in achieving, the State or local commitments, 
     respectively, described in subsection (e).
       ``(d) Area and Eligibility Requirements.--
       ``(1) In general.--The appropriate Secretary may designate 
     a nominated area as a renewal zone under subsection (b) only 
     if the area meets the requirements of paragraphs (2) and (3) 
     of this subsection.
       ``(2) Area requirements.--A nominated area meets the 
     requirements of this paragraph if--
       ``(A) the area is within the jurisdiction of one or more 
     local governments,
       ``(B) the boundary of the area is continuous, and
       ``(C) the area--
       ``(i) has a population of not more than 200,000 and at 
     least--

       ``(I) 4,000 if any portion of such area (other than a rural 
     area described in subsection (b)(2)(B)(i)) is located within 
     a metropolitan statistical area (within the meaning of 
     section 143(k)(2)(B)) which has a population of 50,000 or 
     greater, or
       ``(II) 1,000 in any other case, or

       ``(ii) is entirely within an Indian reservation (as 
     determined by the Secretary of the Interior).
       ``(3) Eligibility requirements.--A nominated area meets the 
     requirements of this paragraph if the State and the local 
     governments in which it is located certify in writing (and 
     the appropriate Secretary, after such review of supporting 
     data as such Secretary deems appropriate, accepts such 
     certification) that--
       ``(A) the area is one of pervasive poverty, unemployment, 
     and general distress,
       ``(B) the unemployment rate in the area, as determined by 
     the most recent available data, was at least 1\1/2\ times the 
     national unemployment rate for the period to which such data 
     relate,
       ``(C) the poverty rate for each population census tract 
     within the nominated area is at least 20 percent, and
       ``(D) in the case of an urban area, at least 70 percent of 
     the households living in the area have incomes below 80 
     percent of the median income of households within the 
     jurisdiction of the local government (determined in the same 
     manner as under section 119(b)(2) of the Housing and 
     Community Development Act of 1974).
       ``(4) Consideration of other factors.--The appropriate 
     Secretary, in selecting any nominated area for designation as 
     a renewal zone under this section--
       ``(A) shall take into account--
       ``(i) the extent to which such area has a high incidence of 
     crime,
       ``(ii) if such area has census tracts identified in the May 
     12, 1998, report of the General Accounting Office regarding 
     the identification of economically distressed areas, or
       ``(iii) if such area (or portion thereof) has previously 
     been designated as an enterprise community under section 
     1391, and
       ``(B) with respect to 1 of the areas to be designated under 
     subsection (b)(2)(B), may, in lieu of any criteria described 
     in paragraph (3), take into account the existence of 
     outmigration from the area.
       ``(e) Required State and Local Commitments.--
       ``(1) In general.--The appropriate Secretary may designate 
     any nominated area as a renewal zone under subsection (b) 
     only if the local government and the State in which the area 
     is located agree in writing that, during any period during 
     which the area is a renewal zone, such governments will 
     follow a specified course of action which meets the 
     requirements of paragraph (2) and is designed to reduce the 
     various burdens borne by employers or employees in such area.
       ``(2) Course of action.--
       ``(A) In general.--A course of action meets the 
     requirements of this paragraph if such course of action is a 
     written document, signed by a State (or local government) and 
     neighborhood organizations, which evidences a partnership 
     between such State or government and community-based 
     organizations and which commits each signatory to specific 
     and measurable goals, actions, and timetables. Such course of 
     action shall include at least 4 of the following:
       ``(i) A reduction of tax rates or fees applying within the 
     renewal zone.
       ``(ii) An increase in the level of efficiency of local 
     services within the renewal zone.
       ``(iii) Crime reduction strategies, such as crime 
     prevention (including the provision of crime prevention 
     services by nongovernmental entities).
       ``(iv) Actions to reduce, remove, simplify, or streamline 
     governmental requirements applying within the renewal zone.
       ``(v) Involvement in the program by private entities, 
     organizations, neighborhood organizations, and community 
     groups, particularly those in the renewal zone, including a 
     commitment from such private entities to provide jobs and job 
     training for, and technical, financial, or other assistance 
     to, employers, employees, and residents from the renewal 
     zone.
       ``(vi) The gift (or sale at below fair market value) of 
     surplus real property (such as land, homes, and commercial or 
     industrial structures) in the renewal zone to neighborhood 
     organizations, community development corporations, or private 
     companies.
       ``(B) Recognition of past efforts.--For purposes of this 
     section, in evaluating the course of action agreed to by any 
     State or local government, the appropriate Secretary shall 
     take into account the past efforts of such State or local 
     government in reducing the various burdens borne by employers 
     and employees in the area involved.
       ``(f) Coordination With Treatment of Enterprise 
     Communities.--For purposes of this title, the designation 
     under section 1391 of any area as an enterprise community 
     shall cease to be in effect as of the date that the 
     designation of any portion of such area as a renewal zone 
     takes effect.
       ``(g) Definitions and Special Rules.--For purposes of this 
     subchapter--
       ``(1) Appropriate secretary.--The term `appropriate 
     Secretary' has the meaning given such term by section 
     1393(a)(1).
       ``(2) Governments.--If more than one government seeks to 
     nominate an area as a renewal zone, any reference to, or 
     requirement of, this section shall apply to all such 
     governments.
       ``(3) Local government.--The term `local government' 
     means--
       ``(A) any county, city, town, township, parish, village, or 
     other general purpose political subdivision of a State, and
       ``(B) any combination of political subdivisions described 
     in subparagraph (A) recognized by the appropriate Secretary.
       ``(4) Application of rules relating to census tracts.--The 
     rules of section 1392(b)(4) shall apply.
       ``(5) Census data.--Population and poverty rate shall be 
     determined by using 1990 census data.''.
       (b) Audit and Report.--Not later than January 31 of 2004, 
     2007, and 2010, the Comptroller General of the United States 
     shall, pursuant to an audit of the renewal zone program 
     established under section 1400E of the Internal Revenue Code 
     of 1986 (as added by subsection (a)), report to Congress on 
     such program and its effect on poverty, unemployment, and 
     economic growth within the designated renewal zones.
       (c) Clerical Amendment.--The table of subchapters for 
     chapter 1 is amended by adding at the end the following new 
     item:

     ``Subchapter X. Designation and Treatment of Renewal Zones.''.

      Subtitle B--Modification of Incentives for Empowerment Zones

     SEC. 111. EXTENSION OF EMPOWERMENT ZONE TREATMENT THROUGH 
                   2009.

       Subparagraph (A) of section 1391(d)(1) (relating to period 
     for which designation is in effect) is amended to read as 
     follows:
       ``(A)(i) in the case of an empowerment zone, December 31, 
     2009, or
       ``(ii) in the case of an enterprise community, the close of 
     the 10th calendar year beginning on or after such date of 
     designation,''.

     SEC. 112. 15 PERCENT EMPLOYMENT CREDIT FOR ALL EMPOWERMENT 
                   ZONES

       (a) 15 Percent Credit.--Subsection (b) of section 1396 
     (relating to empowerment zone employment credit) is amended--
       (1) by striking paragraph (1) and inserting the following 
     new paragraph:
       ``(1) In general.--Except as provided in paragraph (2), the 
     applicable percentage is 15 percent.'',
       (2) by inserting ``and thereafter'' after ``2005'' in the 
     table contained in paragraph (2), and
       (3) by striking the items relating to calendar years 2006 
     and 2007 in such table.
       (b) All Empowerment Zones Eligible for Credit.--Section 
     1396 is amended by striking subsection (e).
       (c) Conforming Amendment.--Subsection (d) of section 1400 
     is amended to read as follows:
       ``(d) Special Rule for Application of Employment Credit.--
     With respect to the DC Zone, section 1396(d)(1)(B) (relating 
     to empowerment zone employment credit) shall be applied by 
     substituting `the District of Columbia' for `such empowerment 
     zone'.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to wages paid or incurred after December 31, 
     2001.

     SEC. 113. INCREASED EXPENSING UNDER SECTION 179.

       (a) In General.--Subparagraph (A) of section 1397A(a)(1) is 
     amended by striking ``$20,000'' and inserting ``$35,000''.
       (b) Expensing for Property Used in Developable Sites.--
     Section 1397A is amended by striking subsection (c).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 114. HIGHER LIMITS ON TAX-EXEMPT EMPOWERMENT ZONE 
                   FACILITY BONDS.

       (a) In General.--Paragraph (3) of section 1394(f) (relating 
     to bonds for empowerment zones designated under section 
     1391(g)) is amended to read as follows:
       ``(3) Empowerment zone facility bond.--For purposes of this 
     subsection, the term `empowerment zone facility bond' means 
     any bond which would be described in subsection (a) if--

[[Page S9707]]

       ``(A) in the case of obligations issued before January 1, 
     2002, only empowerment zones designated under section 1391(g) 
     were taken into account under sections 1397C and 1397D, and
       ``(B) in the case of obligations issued after December 31, 
     2001, all empowerment zones (other than the District of 
     Columbia) were taken into account under sections 1397C and 
     1397D.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after December 31, 2001.

     SEC. 115. EMPOWERMENT ZONE CAPITAL GAIN.

       (a) In General.--Part III of subchapter U of chapter 1 is 
     amended--
       (1) by redesignating subpart C as subpart D;
       (2) by redesignating sections 1397B and 1397C as sections 
     1397C and 1397D, respectively; and
       (3) by inserting after subpart B the following new subpart:

               ``Subpart C--Empowerment Zone Capital Gain

``Sec. 1397B. Empowerment zone capital gain.

     ``SEC. 1397B. EMPOWERMENT ZONE CAPITAL GAIN.

       ``(a) General Rule.--Gross income shall not include 
     qualified capital gain from the sale or exchange of any 
     qualified empowerment zone asset held for more than 5 years.
       ``(b) Per Taxpayer Limitation.--
       ``(1) In general.--The amount of eligible gain which may be 
     taken into account under subsection (a) for the taxable year 
     with respect to any taxpayer shall not exceed $25,000,000, 
     reduced by the aggregate amount of eligible gain taken into 
     account under subsection (a) for prior taxable years with 
     respect to such taxpayer.
       ``(2) Eligible gain.--For purposes of this subsection, 
     `eligible gain'' means any gain from the sale or exchange of 
     a qualified empowerment zone asset held for more than 5 
     years.
       ``(3) Treatment of married individuals.--
       ``(A) Separate returns.--In the case of a separate return 
     by a married individual, paragraph (1) shall be applied by 
     substituting `$12,500,000' for `$25,000,000'.
       ``(B) Allocation of exclusion.--In the case of a joint 
     return, the amount of gain taken into account under 
     subsection (a) shall be allocated equally between the spouses 
     for purposes of applying this subsection to subsequent 
     taxable years.
       ``(C) Marital status.--For purposes of this subsection, 
     marital status shall be determined under section 7703.
       ``(4) Treatment of corporate taxpayers.--For purposes of 
     this subsection--
       ``(A) all corporations which are members of the same 
     controlled group of corporations (within the meaning of 
     section 52(a)) shall be treated as 1 taxpayer, and
       ``(B) any gain excluded under subsection (a) by a 
     predecessor of any C corporation shall be treated as having 
     been excluded by such C corporation.
       ``(c) Qualified Empowerment Zone Asset.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified empowerment zone 
     asset' means--
       ``(A) any qualified empowerment zone stock,
       ``(B) any qualified empowerment zone partnership interest, 
     and
       ``(C) any qualified empowerment zone business property.
       ``(2) Qualified empowerment zone stock.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `qualified empowerment zone stock' means any stock 
     in a domestic corporation if--
       ``(i) such stock is acquired by the taxpayer after the date 
     of the enactment of this section (December 31, 2001, in the 
     case of a renewal zone) and before January 1, 2010, at its 
     original issue (directly or through an underwriter) from the 
     corporation solely in exchange for cash,
       ``(ii) as of the time such stock was issued, such 
     corporation was an enterprise zone business (or, in the case 
     of a new corporation, such corporation was being organized 
     for purposes of being an enterprise zone business), and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such stock, such corporation qualified as an 
     enterprise zone business.
       ``(B) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this paragraph.
       ``(3) Qualified empowerment zone partnership interest.--The 
     term `qualified empowerment zone partnership interest' means 
     any capital or profits interest in a domestic partnership 
     if--
       ``(A) such interest is acquired by the taxpayer after the 
     date of the enactment of this section (December 31, 2001, in 
     the case of a renewal zone) and before January 1, 2010, from 
     the partnership solely in exchange for cash,
       ``(B) as of the time such interest was acquired, such 
     partnership was an enterprise zone business (or, in the case 
     of a new partnership, such partnership was being organized 
     for purposes of being an enterprise zone business), and
       ``(C) during substantially all of the taxpayer's holding 
     period for such interest, such partnership qualified as an 
     enterprise zone business.

     A rule similar to the rule of section 1202(c)(3) shall apply 
     for purposes of this paragraph.
       ``(4) Qualified empowerment zone business property.--
       ``(A) In general.--The term `qualified empowerment zone 
     business property' means tangible property if--
       ``(i) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)) after the date of 
     the enactment of this section (December 31, 2001, in the case 
     of a renewal zone) and before January 1, 2010,
       ``(ii) the original use of such property in the empowerment 
     zone commences with the taxpayer, and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such property, substantially all of the use of 
     such property was in an enterprise zone business of the 
     taxpayer.
       ``(B) Special rule for substantial improvements.--The 
     requirements of clauses (i) and (ii) of subparagraph (A) 
     shall be treated as satisfied with respect to--
       ``(i) property which is substantially improved by the 
     taxpayer before January 1, 2010, and
       ``(ii) any land on which such property is located.

     The determination of whether a property is substantially 
     improved shall be made under clause (ii) of section 
     1400B(b)(4)(B), except that `the date of the enactment of 
     this section' shall be substituted for `December 31, 1997' in 
     such clause.
       ``(c) Qualified Capital Gain.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the term `qualified capital gain` means any gain 
     recognized on the sale or exchange of--
       ``(A) a capital asset, or
       ``(B) property used in the trade or business (as defined in 
     section 1231(b)).
       ``(2) Gain before effective date or after 2014 not 
     qualified.--The term `qualified capital gain' shall not 
     include any gain attributable to periods before the date of 
     the enactment of this section (January 1, 2002, in the case 
     of a renewal zone) or after December 31, 2014.
       ``(3) Certain rules to apply.--Rules similar to the rules 
     of paragraphs (3), (4), and (5) of section 1400B(e) shall 
     apply for purposes of this subsection.
       ``(d) Certain Rules To Apply.--For purposes of this 
     section, rules similar to the rules of paragraphs (5), (6), 
     and (7) of subsection (b), and subsections (f ) and (g), of 
     section 1400B shall apply; except that for such purposes 
     section 1400B(g)(2) shall be applied by substituting--
       ``(1) `the day after the date of the enactment of section 
     1397B' for `January 1, 1998', and
       ``(2) `December 31, 2014' for `December 31, 2011'.
       ``(e) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out the purposes 
     of this section, including regulations to prevent the 
     avoidance of the purposes of this section.''.
       (b) Conforming Amendments.--
       (1) Paragraph (2) of section 1394(b) is amended--
       (A) by striking ``section 1397C'' and inserting ``section 
     1397D''; and
       (B) by striking ``section 1397C(a)(2)'' and inserting 
     ``section 1397D(a)(2)''.
       (2) Paragraph (3) of section 1394(b) is amended--
       (A) by striking ``section 1397B'' each place it appears and 
     inserting ``section 1397C''; and
       (B) by striking ``section 1397B(d)'' and inserting 
     ``section 1397C(d)''.
       (3) Sections 1400(e) and 1400B(c) are each amended by 
     striking ``section 1397B'' each place it appears and 
     inserting ``section 1397C''.
       (4) The table of subparts for part III of subchapter U of 
     chapter 1 is amended by striking the last item and inserting 
     the following new items:

``Subpart C. Empowerment zone capital gain.
``Subpart D. General provisions.''.

       (5) The table of sections for subpart D of such part III is 
     amended to read as follows:

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

       (c) Effective Date.--The amendments made by this section 
     shall apply to qualified empowerment zone assets acquired 
     after the date of the enactment of this Act.

     SEC. 116. FUNDING FOR ROUND II EMPOWERMENT ZONES.

       (a) Entitlement.--Section 2007(a)(1) of the Social Security 
     Act (42 U.S.C. 1397f(a)(1)) is amended--
       (1) in subparagraph (A), by striking ``in the State; and'' 
     and inserting ``that is in the State and is designated 
     pursuant to section 1391(b) of the Internal Revenue Code of 
     1986;''; and
       (2) by adding after subparagraph (B) the following new 
     subparagraphs:
       ``(C)(i) 1 grant under this section for each qualified 
     empowerment zone that is in an urban area in the State and is 
     designated pursuant to section 1391(g) of such Code; and
       ``(ii) 1 grant under this section for each qualified 
     empowerment zone that is in a rural area in the State and is 
     designated pursuant to section 1391(g) of such Code; and
       ``(D) 1 grant under this section for each qualified 
     enterprise community that is in the State, is designated 
     pursuant to section 1391(b)(1) of such Code, and is in 
     existence on the date of enactment of this subparagraph.''.
       (b) Amount of Grants.--Section 2007(a)(2) of the Social 
     Security Act (42 U.S.C. 1397f(a)(2)) is amended--

[[Page S9708]]

       (1) in the heading of subparagraph (A), by inserting 
     ``Original'' before ``Empowerment'';
       (2) in subparagraph (A), in the matter preceding clause 
     (i), by inserting ``referred to in paragraph (1)(A)'' after 
     ``empowerment zone'';
       (3) by redesignating subparagraph (C) as subparagraph (F); 
     and
       (4) by inserting after subparagraph (B) the following new 
     subparagraphs:
       ``(C) Additional empowerment grants.--The amount of the 
     grant to a State under this section for a qualified 
     empowerment zone referred to in paragraph (1)(C) shall be--
       ``(i) if the zone is in an urban area, $5,000,000 for 
     fiscal year 2001; or
       ``(ii) if the zone is in a rural area, $2,000,000 for 
     fiscal year 2001.
       ``(D) Additional enterprise community grants.--The amount 
     of the grant to a State under this section for a qualified 
     enterprise community referred to in paragraph (1)(D) shall be 
     $250,000.''.
       (c) Timing of Grants.--Section 2007(a)(3) of the Social 
     Security Act (42 U.S.C. 1397f(a)(3)) is amended--
       (1) in the heading of subparagraph (A), by inserting 
     ``Original'' before ``Qualified'';
       (2) in subparagraph (A), in the matter preceding clause 
     (i), by inserting ``referred to in paragraph (1)(A)'' after 
     ``empowerment zone''; and
       (3) by adding after subparagraph (B) the following new 
     subparagraphs:
       ``(C) Additional qualified empowerment zones.--With respect 
     to each qualified empowerment zone referred to in paragraph 
     (1)(C), the Secretary shall make 1 grant under this section 
     to the State in which the zone lies, on January 1, 2002.
       ``(D) Additional qualified enterprise communities.--With 
     respect to each qualified enterprise community referred to in 
     paragraph (1)(D), the Secretary shall make 1 grant under this 
     section to the State in which the community lies on January 
     1, 2002.''.
       (d) Funding.--Section 2007(a)(4) of the Social Security Act 
     (42 U.S.C. 1397f(a)(4)) is amended--
       (1) by striking ``(4) Funding.--$1,000,000,000'' and 
     inserting the following:
       ``(4) Funding.--
       ``(A) Original grants.--$1,000,000,000'';
       (2) by inserting ``for empowerment zones and enterprise 
     communities described in subparagraphs (A) and (B) of 
     paragraph (1)'' before the period; and
       (3) by adding after and below the end the following new 
     subparagraphs:
       ``(B) Additional empowerment zone grants.--$85,000,000 
     shall be made available to the Secretary for grants under 
     this section for empowerment zones referred to in paragraph 
     (1)(C).
       ``(C) Additional enterprise community grants.--$22,000,000 
     shall be made available to the Secretary for grants under 
     this section for enterprise communities referred to in 
     paragraph (1)(D).''.
       (e) Direct Funding for Indian Tribes.--
       (1) In general.--Section 2007(a) of the Social Security Act 
     (42 U.S.C. 1397f(a)) is amended by adding at the end the 
     following new paragraph:
       ``(5) Direct funding for indian tribes.--
       ``(A) In general.--The Secretary may make a grant under 
     this section directly to the governing body of an Indian 
     tribe if--
       ``(i) the tribe is identified in the strategic plan of a 
     qualified empowerment zone or qualified enterprise community 
     as the entity that assumes sole or primary responsibility for 
     carrying out activities and projects under the grant; and
       ``(ii) the grant is to be used for activities and projects 
     that are--

       ``(I) included in the strategic plan of the qualified 
     empowerment zone or qualified enterprise community, 
     consistent with this section; and
       ``(II) approved by the Secretary of Agriculture, in the 
     case of a qualified empowerment zone or qualified enterprise 
     community in a rural area, or the Secretary of Housing and 
     Urban Development, in the case of a qualified empowerment 
     zone or qualified enterprise community in an urban area.

       ``(B) Rules of interpretation.--
       ``(i) If grant under this section is made directly to the 
     governing body of an Indian tribe under subparagraph (A), the 
     tribe shall be considered a State for purposes of this 
     section.
       ``(ii) This subparagraph shall not be construed as making 
     applicable to this section the provisions of the Indian Self-
     Determination and Education Assistance Act.''.
       (2) Definitions.--Section 2007(f) of such Act (42 U.S.C. 
     1397f(f)) is amended by adding at the end the following new 
     paragraph:
       ``(7) Indian tribe.--The term `Indian tribe' means any 
     Indian tribe, band, nation, or other organized group or 
     community, including any Alaska Native village or regional or 
     village corporation as defined in or established pursuant to 
     the Alaska Native Claims Settlement Act, which is recognized 
     as eligible for the special programs and services provided by 
     the United States to Indians because of their status as 
     Indians.''.

         Subtitle C--Modification of Tax Incentives for DC Zone

     SEC. 121. EXTENSION OF DC ZONE THROUGH 2006.

       (a) In General.--The following provisions are amended by 
     striking ``2002'' each place it appears and inserting 
     ``2006'':
       (1) Section 1400(f).
       (2) Section 1400A(b).
       (b) Zero Capital Gains Rate.--Section 1400B (relating to 
     zero percent capital gains rate) is amended--
       (1) by striking ``2003'' each place it appears and 
     inserting ``2007'', and
       (2) by striking ``2007'' each place it appears and 
     inserting ``2011''.

     SEC. 122. EXTENSION OF DC ZERO PERCENT CAPITAL GAINS RATE.

       (a) In General.--Section 1400B (relating to zero percent 
     capital gains rate) is amended by adding at the end the 
     following new subsection:
       ``(h) Extension to Entire District of Columbia.--In 
     applying this section to any stock or partnership interest 
     which is originally issued after December 31, 2000, or any 
     tangible property acquired by the taxpayer by purchase after 
     December 31, 2000--
       ``(1) subsection (d) shall be applied without regard to 
     paragraph (2) thereof, and
       ``(2) subsections (e)(2) and (g)(2) shall be applied by 
     substituting `January 1, 2001' for `January 1, 1998'.''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on January 1, 2001.

     SEC. 123. GROSS INCOME TEST FOR DC ZONE BUSINESSES.

       (a) In General.--Section 1400B(c) (defining DC Zone 
     business) is amended by adding ``and'' at the end of 
     paragraph (1), by striking paragraph (2), and by 
     redesignating paragraph (3) as paragraph (2).
       (b) Effective Date.--The amendment made by this section 
     shall apply to stock and partnership interests originally 
     issued after, and property originally acquired by the 
     taxpayer after, December 31, 2000.

     SEC. 124. EXPANSION OF DC HOMEBUYER TAX CREDIT.

       (a) Extension.--Section 1400C(i) (relating to application 
     of section) is amended by striking ``2002'' and inserting 
     ``2004''.
       (b) Expansion of Income Limitation.--Section 1400C(b)(1) 
     (relating to limitation based on modified adjusted gross 
     income) is amended--
       (1) by striking ``$110,000'' in subparagraph (A)(i) and 
     inserting ``$140,000'', and
       (2) by inserting ``($40,000 in the case of a joint 
     return)'' after ``$20,000'' in subparagraph (B).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

                   Subtitle D--New Markets Tax Credit

     SEC. 131. NEW MARKETS TAX CREDIT.

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

     ``SEC. 45D. NEW MARKETS TAX CREDIT.

       ``(a) Allowance of Credit.--
       ``(1) In general.--For purposes of section 38, in the case 
     of a taxpayer who holds a qualified equity investment on a 
     credit allowance date of such investment which occurs during 
     the taxable year, the new markets tax credit determined under 
     this section for such taxable year is an amount equal to the 
     applicable percentage of the amount paid to the qualified 
     community development entity for such investment at its 
     original issue.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage is--
       ``(A) 5 percent with respect to the first three credit 
     allowance dates, and
       ``(B) 6 percent with respect to the remainder of the credit 
     allowance dates.
       ``(3) Credit allowance date.--For purposes of paragraph 
     (1), the term `credit allowance date' means, with respect to 
     any qualified equity investment--
       ``(A) the date on which such investment is initially made, 
     and
       ``(B) each of the six anniversary dates of such date 
     thereafter.
       ``(b) Qualified Equity Investment.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified equity investment' 
     means any equity investment in a qualified community 
     development entity if--
       ``(A) such investment is acquired by the taxpayer at its 
     original issue (directly or through an underwriter) solely in 
     exchange for cash,
       ``(B) substantially all of such cash is used by the 
     qualified community development entity to make qualified low-
     income community investments, and
       ``(C) such investment is designated for purposes of this 
     section by the qualified community development entity.

     Such term shall not include any equity investment issued by a 
     qualified community development entity more than 5 years 
     after the date that such entity receives an allocation under 
     subsection (f). Any allocation not used within such 5-year 
     period may be reallocated by the Secretary under subsection 
     (f).
       ``(2) Limitation.--The maximum amount of equity investments 
     issued by a qualified community development entity which may 
     be designated under paragraph (1)(C) by such entity shall not 
     exceed the portion of the limitation amount allocated under 
     subsection (f) to such entity.
       ``(3) Safe harbor for determining use of cash.--The 
     requirement of paragraph (1)(B) shall be treated as met if at 
     least 85 percent of the aggregate gross assets of the 
     qualified community development entity are invested in 
     qualified low-income community investments.
       ``(4) Treatment of subsequent purchasers.--The term 
     `qualified equity investment' includes any equity investment 
     which would (but for paragraph (1)(A)) be a qualified equity 
     investment in the hands of the taxpayer if such investment 
     was a qualified

[[Page S9709]]

     equity investment in the hands of a prior holder.
       ``(5) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this subsection.
       ``(6) Equity investment.--The term `equity investment' 
     means--
       ``(A) any stock (other than nonqualified preferred stock as 
     defined in section 351(g)(2)) in an entity which is a 
     corporation, and
       ``(B) any capital interest in an entity which is a 
     partnership.
       ``(c) Qualified Community Development Entity.--For purposes 
     of this section--
       ``(1) In general.--The term `qualified community 
     development entity' means any domestic corporation or 
     partnership if--
       ``(A) the primary mission of the entity is serving, or 
     providing investment capital for, low-income communities or 
     low-income persons,
       ``(B) the entity maintains accountability to residents of 
     low-income communities through their representation on any 
     governing board of the entity or on any advisory boards to 
     the entity, and
       ``(C) the entity is certified by the Secretary for purposes 
     of this section as being a qualified community development 
     entity.
       ``(2) Special rules for certain organizations.--The 
     requirements of paragraph (1) shall be treated as met by--
       ``(A) any specialized small business investment company (as 
     defined in section 1044(c)(3)), and
       ``(B) any community development financial institution (as 
     defined in section 103 of the Community Development Banking 
     and Financial Institutions Act of 1994 (12 U.S.C. 4702)).
       ``(d) Qualified Low-Income Community Investments.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified low-income community 
     investment' means--
       ``(A) any capital or equity investment in, or loan to, any 
     qualified active low-income community business,
       ``(B) the purchase from another community development 
     entity of any loan made by such entity which is a qualified 
     low-income community investment,
       ``(C) financial counseling and other services specified in 
     regulations prescribed by the Secretary to businesses located 
     in, and residents of, low-income communities, and
       ``(D) any equity investment in, or loan to, any qualified 
     community development entity.
       ``(2) Qualified active low-income community business.--
       ``(A) In general.--For purposes of paragraph (1), the term 
     `qualified active low-income community business' means, with 
     respect to any taxable year, any corporation (including a 
     nonprofit corporation) or partnership if for such year--
       ``(i) at least 50 percent of the total gross income of such 
     entity is derived from the active conduct of a qualified 
     business within any low-income community,
       ``(ii) a substantial portion of the use of the tangible 
     property of such entity (whether owned or leased) is within 
     any low-income community,
       ``(iii) a substantial portion of the services performed for 
     such entity by its employees are performed in any low-income 
     community,
       ``(iv) less than 5 percent of the average of the aggregate 
     unadjusted bases of the property of such entity is 
     attributable to collectibles (as defined in section 
     408(m)(2)) other than collectibles that are held primarily 
     for sale to customers in the ordinary course of such 
     business, and
       ``(v) less than 5 percent of the average of the aggregate 
     unadjusted bases of the property of such entity is 
     attributable to nonqualified financial property (as defined 
     in section 1397C(e)).
       ``(B) Proprietorship.--Such term shall include any business 
     carried on by an individual as a proprietor if such business 
     would meet the requirements of subparagraph (A) were it 
     incorporated.
       ``(C) Portions of business may be qualified active low-
     income community business.--The term `qualified active low-
     income community business' includes any trades or businesses 
     which would qualify as a qualified active low-income 
     community business if such trades or businesses were 
     separately incorporated.
       ``(3) Qualified business.--For purposes of this subsection, 
     the term `qualified business' has the meaning given to such 
     term by section 1397C(d); except that--
       ``(A) in lieu of applying paragraph (2)(B) thereof, the 
     rental to others of real property located in any low-income 
     community shall be treated as a qualified business if there 
     are substantial improvements located on such property, and
       ``(B) paragraph (3) thereof shall not apply.
       ``(e) Low-Income Community.--For purposes of this section--
       ``(1) In general.--The term `low-income community' means 
     any population census tract if--
       ``(A) the poverty rate for such tract is at least 20 
     percent, or
       ``(B)(i) in the case of a tract not located within a 
     metropolitan area, the median family income for such tract 
     does not exceed 80 percent of statewide median family income, 
     or
       ``(ii) in the case of a tract located within a metropolitan 
     area, the median family income for such tract does not exceed 
     80 percent of the greater of statewide median family income 
     or the metropolitan area median family income.
       ``(2) Targeted areas.--The Secretary may designate any area 
     within any census tract as a low-income community if--
       ``(A) the boundary of such area is continuous,
       ``(B) the area would satisfy the requirements of paragraph 
     (1) if it were a census tract, and
       ``(C) an inadequate access to investment capital exists in 
     such area.
       ``(3) Areas not within census tracts.--In the case of an 
     area which is not tracted for population census tracts, the 
     equivalent county divisions (as defined by the Bureau of the 
     Census for purposes of defining poverty areas) shall be used 
     for purposes of determining poverty rates and median family 
     income.
       ``(f) National Limitation on Amount of Investments 
     Designated.--
       ``(1) In general.--There is a new markets tax credit 
     limitation for each calendar year. Such limitation is--
       ``(A) $1,000,000,000 for 2002, and
       ``(B) $1,500,000,000 for 2003, 2004, 2005, and 2006.
       ``(2) Allocation of limitation.--The limitation under 
     paragraph (1) shall be allocated by the Secretary among 
     qualified community development entities selected by the 
     Secretary. In making allocations under the preceding 
     sentence, the Secretary shall give priority to any entity--
       ``(A) with a record of having successfully provided capital 
     or technical assistance to disadvantaged businesses or 
     communities, or
       ``(B) which intends to satisfy the requirement under 
     subsection (b)(1)(B) by making qualified low-income community 
     investments in 1 or more businesses in which persons 
     unrelated to such entity (within the meaning of section 
     267(b) or 707(b)(1)) hold the majority equity interest.
       ``(3) Carryover of unused limitation.--If the new markets 
     tax credit limitation for any calendar year exceeds the 
     aggregate amount allocated under paragraph (2) for such year, 
     such limitation for the succeeding calendar year shall be 
     increased by the amount of such excess. No amount may be 
     carried under the preceding sentence to any calendar year 
     after 2013.
       ``(g) Recapture of Credit In Certain Cases.--
       ``(1) In general.--If, at any time during the 7-year period 
     beginning on the date of the original issue of a qualified 
     equity investment in a qualified community development 
     entity, there is a recapture event with respect to such 
     investment, then the tax imposed by this chapter for the 
     taxable year in which such event occurs shall be increased by 
     the credit recapture amount.
       ``(2) Credit recapture amount.--For purposes of paragraph 
     (1), the credit recapture amount is an amount equal to the 
     sum of--
       ``(A) the aggregate decrease in the credits allowed to the 
     taxpayer under section 38 for all prior taxable years which 
     would have resulted if no credit had been determined under 
     this section with respect to such investment, plus
       ``(B) interest at the underpayment rate established under 
     section 6621 on the amount determined under subparagraph (A) 
     for each prior taxable year for the period beginning on the 
     due date for filing the return for the prior taxable year 
     involved.
     No deduction shall be allowed under this chapter for interest 
     described in subparagraph (B).
       ``(3) Recapture event.--For purposes of paragraph (1), 
     there is a recapture event with respect to an equity 
     investment in a qualified community development entity if--
       ``(A) such entity ceases to be a qualified community 
     development entity,
       ``(B) the proceeds of the investment cease to be used as 
     required of subsection (b)(1)(B), or
       ``(C) such investment is redeemed by such entity.
       ``(4) Special rules.--
       ``(A) Tax benefit rule.--The tax for the taxable year shall 
     be increased under paragraph (1) only with respect to credits 
     allowed by reason of this section which were used to reduce 
     tax liability. In the case of credits not so used to reduce 
     tax liability, the carryforwards and carrybacks under section 
     39 shall be appropriately adjusted.
       ``(B) No credits against tax.--Any increase in tax under 
     this subsection shall not be treated as a tax imposed by this 
     chapter for purposes of determining the amount of any credit 
     under this chapter or for purposes of section 55.
       ``(h) Basis Reduction.--The basis of any qualified equity 
     investment shall be reduced by the amount of any credit 
     determined under this section with respect to such 
     investment. This subsection shall not apply for purposes of 
     sections 1202, 1397B, and 1400B.
       ``(i) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section, 
     including regulations--
       ``(1) which limit the credit for investments which are 
     directly or indirectly subsidized by other Federal tax 
     benefits (including the credit under section 42 and the 
     exclusion from gross income under section 103),
       ``(2) which prevent the abuse of the purposes of this 
     section,
       ``(3) which provide rules for determining whether the 
     requirement of subsection (b)(1)(B) is treated as met,
       ``(4) which impose appropriate reporting requirements, and
       ``(5) which apply the provisions of this section to newly 
     formed entities.''.

[[Page S9710]]

       (b) Credit Made Part of General Business Credit.--
       (1) In general.--Subsection (b) of section 38 is amended by 
     striking ``plus'' at the end of paragraph (11), by striking 
     the period at the end of paragraph (12) and inserting ``, 
     plus'', and by adding at the end the following new paragraph:
       ``(13) the new markets tax credit determined under section 
     45D(a).''.
       (2) Limitation on carryback.--Subsection (d) of section 39 
     is amended by adding at the end the following new paragraph:
       ``(9) No carryback of new markets tax credit before january 
     1, 2002.--No portion of the unused business credit for any 
     taxable year which is attributable to the credit under 
     section 45D may be carried back to a taxable year ending 
     before January 1, 2002.''.
       (c) Deduction for Unused Credit.--Subsection (c) of section 
     196 is amended by striking ``and'' at the end of paragraph 
     (7), by striking the period at the end of paragraph (8) and 
     inserting ``, and'', and by adding at the end the following 
     new paragraph:
       ``(9) the new markets tax credit determined under section 
     45D(a).''.
       (d) Clerical Amendment.--The table of sections for subpart 
     D of part IV of subchapter A of chapter 1 is amended by 
     adding at the end the following new item:

``Sec. 45D. New markets tax credit.''.

       (e) Effective Date.--The amendments made by this section 
     shall apply to investments made after December 31, 2001.
       (f) Regulations on Allocation of National Limitation.--Not 
     later than 120 days after the date of the enactment of this 
     Act, the Secretary of the Treasury or the Secretary's 
     delegate shall prescribe regulations which specify--
       (1) how entities shall apply for an allocation under 
     section 45D(f)(2) of the Internal Revenue Code of 1986, as 
     added by this section;
       (2) the competitive procedure through which such 
     allocations are made; and
       (3) the actions that such Secretary or delegate shall take 
     to ensure that such allocations are properly made to 
     appropriate entities.
       (g) Audit and Report.--Not later than January 31 of 2004 
     and 2007, the Comptroller General of the United States shall, 
     pursuant to an audit of the new markets tax credit program 
     established under section 45D of the Internal Revenue Code of 
     1986 (as added by subsection (a)), report to Congress on such 
     program, including all qualified community development 
     entities that receive an allocation under the new markets 
     credit under such section.

       Subtitle E--Modification of Tax Incentives for Puerto Rico

     SEC. 141. MODIFICATION OF PUERTO RICO ECONOMIC ACTIVITY TAX 
                   CREDIT.

       (a) Corporations Eligible To Claim Credit.--Section 
     30A(a)(2) (defining qualified domestic corporation) is 
     amended to read as follows:
       ``(2) Qualified domestic corporation.--For purposes of 
     paragraph (1)--
       ``(A) In general.--A domestic corporation shall be treated 
     as a qualified domestic corporation for a taxable year if it 
     is actively conducting within Puerto Rico during the taxable 
     year--
       ``(i) a line of business with respect to which the domestic 
     corporation is an existing credit claimant under section 
     936(j)(9), or
       ``(ii) with respect to taxable years ending after December 
     31, 2000, an eligible line of business not described in 
     clause (i) with respect to which the domestic corporation is 
     an existing credit claimant under section 936(j)(9) 
     (determined without regard to subparagraph (B) thereof).
       ``(B) Limitation to lines of business.--A domestic 
     corporation shall be treated as a qualified domestic 
     corporation under subparagraph (A) only with respect to the 
     lines of business described in subparagraph (A) which it is 
     actively conducting in Puerto Rico during the taxable year.
       ``(C) Exception for corporations electing reduced credit.--
     A domestic corporation shall not be treated as a qualified 
     domestic corporation if such corporation (or any predecessor) 
     had an election in effect under section 936(a)(4)(B)(iii) for 
     any taxable year beginning after December 31, 1996.''.
       (b) Application on Separate Line of Business Basis; 
     Eligible Line of Business.--Section 30A is amended by 
     redesignating subsection (g) as subsection (h) and by 
     inserting after subsection (f) the following new subsection:
       ``(g) Application on Line of Business Basis; Eligible Lines 
     of Business.--For purposes of this section--
       ``(1) Application to separate line of business.--
       ``(A) In general.--In determining the amount of the credit 
     under subsection (a), this section shall be applied 
     separately with respect to each substantial line of business 
     of the qualified domestic corporation described in subsection 
     (a)(2)(A)(ii).
       ``(B) Allocation.--The Secretary shall prescribe rules 
     necessary to carry out the purposes of this paragraph, 
     including rules--
       ``(i) for the allocation of items of income, gain, 
     deduction, and loss for purposes of determining taxable 
     income under subsection (a), and
       ``(ii) for the allocation of wages, fringe benefit 
     expenses, and depreciation allowances for purposes of 
     applying the limitations under subsection (d).
       ``(2) Eligible line of business.--The term `eligible line 
     of business' means a substantial line of business established 
     by a qualified domestic corporation described in subsection 
     (a)(2)(A)(ii) after December 31, 2000.''.
       (c) Modification of Base Period Cap for Existing 
     Claimants.--The last sentence of section 30A(a)(1) (relating 
     to allowance of credit) is amended--
       (1) by striking ``In'' and inserting ``With respect to any 
     qualified domestic corporation described in paragraph 
     (2)(A)(i), in'',
       (2) by inserting ``the greater of'' after ``exceed'', and
       (3) by inserting ``, or such income multiplied by the ratio 
     of the average number of full-time employees of such 
     taxpayers during the taxable year to the average number of 
     such full-time employees in 1995 and 1996'' after ``section 
     936(j)''.
       (d) Credit Taken Over 5-Year Period.--Section 30A, as 
     amended by subsection (b), is amended by redesignating 
     subsection (h) as subsection (i) and by inserting after 
     subsection (g) the following new subsection:
       ``(h) Credit Taken Over 5-Year Period.--In the case of any 
     qualified domestic corporation described in paragraph 
     (2)(A)(ii), the aggregate amount of the credit otherwise 
     determined under subsection (a) for any taxable year shall be 
     allowed ratably over the 5-taxable year period beginning with 
     such taxable year.''.
       (e) Conforming Amendments.--
       (1) Section 30A(a)(3) is amended by striking ``an existing 
     credit claimant'' and inserting ``a qualified domestic 
     corporation''.
       (2) Section 30A(b) is amended by striking ``within a 
     possession'' each place it appears and inserting ``within 
     Puerto Rico''.
       (3) Section 30A(d) is amended by striking ``possession'' 
     each place it appears.
       (4) Section 30A(f) is amended to read as follows:
       ``(f) Definitions.--For purposes of this section--
       ``(1) Qualified income taxes.--The qualified income taxes 
     for any taxable year allocable to nonsheltered income shall 
     be determined in the same manner as under section 936(i)(3).
       ``(2) Qualified wages.--The qualified wages for any taxable 
     year shall be determined in the same manner as under section 
     936(i)(1).
       ``(3) Other terms.--Any term used in this section which is 
     also used in section 936 shall have the same meaning given 
     such term by section 936.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after December 31, 2000.

              Subtitle F--Individual Development Accounts

     SEC. 151. DEFINITIONS.

       As used in this subtitle:
       (1) Eligible individual.--
       (A) In general.--The term ``eligible individual'' means an 
     individual who--
       (i) has attained the age of 18 years;
       (ii) is a citizen or legal resident of the United States; 
     and
       (iii) is a member of a household--

       (I) the gross income of which does not exceed 60 percent of 
     the national median family income (as published by the Bureau 
     of the Census), as adjusted for family size; and
       (II) the net worth of which does not exceed $10,000.

       (B) Household.--The term ``household'' means all 
     individuals who share use of a dwelling unit as primary 
     quarters for living and eating separate from other 
     individuals.
       (C) Determination of net worth.--
       (i) In general.--For purposes of subparagraph (A)(iii)(II), 
     the net worth of a household is the amount equal to--

       (I) the aggregate fair market value of all assets that are 
     owned in whole or in part by any member of a household, minus
       (II) the obligations or debts of any member of the 
     household.

       (ii) Certain assets disregarded.--For purposes of 
     determining the net worth of a household, a household's 
     assets shall not be considered to include--

       (I) the primary dwelling unit;
       (II) 1 motor vehicle owned by the household; and
       (III) the sum of all contributions by an eligible 
     individual (including earnings thereon) to any Individual 
     Development Account, plus the matching deposits made on 
     behalf of such individual (including earnings thereon) in any 
     parallel account.

       (2) Individual development account.--The term ``Individual 
     Development Account'' means an account established for an 
     eligible individual as part of a qualified individual 
     development account program, but only if the written 
     governing instrument creating the account meets the following 
     requirements:
       (A) The sole owner of the account is the eligible 
     individual.
       (B) No contribution will be accepted unless it is in cash, 
     by check, by electronic fund transfer, or by electronic money 
     order.
       (C) The holder of the account is a qualified financial 
     institution, a qualified nonprofit organization, or an Indian 
     tribe.
       (D) The assets of the account will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       (E) Except as provided in section 156(b), any amount in the 
     account may be paid out only for the purpose of paying the 
     qualified expenses of the eligible individual.
       (3) Parallel account.--The term ``parallel account'' means 
     a separate, parallel individual or pooled account for all 
     matching funds and earnings dedicated to an eligible 
     individual as part of a qualified individual

[[Page S9711]]

     development account program, the sole owner of which is a 
     qualified financial institution, a qualified nonprofit 
     organization, or an Indian tribe.
       (4) Qualified financial institution.--
       (A) In general.--The term ``qualified financial 
     institution'' means any person authorized to be a trustee of 
     any individual retirement account under section 408(a)(2).
       (B) Rule of construction.--Nothing in this paragraph shall 
     be construed as preventing a person described in subparagraph 
     (A) from collaborating with 1 or more contractual affiliates, 
     qualified nonprofit organizations, or Indian tribes to carry 
     out an individual development account program established 
     under section 152.
       (5) Qualified nonprofit organization.--The term ``qualified 
     nonprofit organization'' means--
       (A) any organization described in section 501(c)(3) of the 
     Internal Revenue Code of 1986 and exempt from taxation under 
     section 501(a) of such Code;
       (B) any community development financial institution 
     certified by the Community Development Financial Institution 
     Fund; or
       (C) any credit union chartered under Federal or State law 
     and certified by the National Credit Union Administration,

     that meets standards for financial management and fiduciary 
     responsibility as defined by the Secretary or an organization 
     designated by the Secretary.
       (6) Indian tribe.--The term ``Indian tribe'' means any 
     Indian tribe as defined in section 4(12) of the Native 
     American Housing Assistance and Self-Determination Act of 
     1996 (25 U.S.C. 4103(12), and includes any tribal subsidiary, 
     subdivision, or other wholly owned tribal entity.
       (7) Qualified individual development account program.--The 
     term ``qualified individual development account program'' 
     means a program established under section 152 under which--
       (A) Individual Development Accounts and parallel accounts 
     are held by a qualified financial institution, a qualified 
     nonprofit organization, or an Indian tribe; and
       (B) additional activities determined by the Secretary, or 
     an organization designated by the Secretary, as necessary to 
     responsibly develop and administer accounts, including 
     recruiting, providing financial education and other training 
     to account holders, and regular program monitoring, are 
     carried out by such qualified financial institution, 
     qualified nonprofit organization, or Indian tribe.
       (8) Qualified expense distribution.--
       (A) In general.--The term ``qualified expense 
     distribution'' means any amount paid (including through 
     electronic payments) or distributed out of an Individual 
     Development Account and a parallel account established for an 
     eligible individual if such amount--
       (i) is used exclusively to pay the qualified expenses of 
     such individual or such individual's spouse or dependents;
       (ii) is paid by the qualified financial institution, 
     qualified nonprofit organization, or Indian tribe directly to 
     the person to whom the amount is due or to another Individual 
     Development Account; and
       (iii) is paid after the holder of the Individual 
     Development Account has completed a financial education 
     course as required under section 153(b).
       (B) Qualified expenses.--
       (i) In general.--The term ``qualified expenses'' means any 
     of the following:

       (I) Qualified higher education expenses.
       (II) Qualified first-time homebuyer costs.
       (III) Qualified business capitalization or expansion costs.
       (IV) Qualified rollovers.

       (ii) Qualified higher education expenses.--

       (I) In general.--The term ``qualified higher education 
     expenses'' has the meaning given such term by section 
     72(t)(7) of the Internal Revenue Code of 1986, determined by 
     treating postsecondary vocational educational schools as 
     eligible educational institutions.
       (II) Postsecondary vocational education school.--The term 
     ``postsecondary vocational educational school'' means an area 
     vocational education school (as defined in subparagraph (C) 
     or (D) of section 521(4) of the Carl D. Perkins Vocational 
     and Applied Technology Education Act (20 U.S.C. 2471(4))) 
     which is in any State (as defined in section 521(33) of such 
     Act), as such sections are in effect on the date of the 
     enactment of this Act.
       (III) Coordination with other benefits.--The amount of 
     qualified higher education expenses for any taxable year 
     shall be reduced as provided in section 25A(g)(2) of such 
     Code and by the amount of such expenses for which a credit or 
     exclusion is allowed under chapter 1 of such Code for such 
     taxable year.

       (iii) Qualified first-time homebuyer costs.--The term 
     ``qualified first-time homebuyer costs'' means qualified 
     acquisition costs (as defined in section 72(t)(8) of such 
     Code without regard to subparagraph (B) thereof) with respect 
     to a principal residence (within the meaning of section 121 
     of such Code) for a qualified first-time homebuyer (as 
     defined in section 72(t)(8) of such Code).
       (iv) Qualified business capitalization or expansion 
     costs.--

       (I) In general.--The term ``qualified business 
     capitalization or expansion costs'' means qualified 
     expenditures for the capitalization or expansion of a 
     qualified business pursuant to a qualified business plan.
       (II) Qualified expenditures.--The term ``qualified 
     expenditures'' means expenditures included in a qualified 
     business plan, including capital, plant, equipment, working 
     capital, inventory expenses, attorney and accounting fees, 
     and other costs normally associated with starting or 
     expanding a business.
       (III) Qualified business.--The term ``qualified business'' 
     means any business that does not contravene any law.
       (IV) Qualified business plan.--The term ``qualified 
     business plan'' means a business plan which meets such 
     requirements as the Secretary or an organization designated 
     by the Secretary may specify.

       (v) Qualified rollovers.--The term ``qualified rollover'' 
     means, with respect to any distribution from an Individual 
     Development Account, the payment, within 120 days of such 
     distribution, of all or a portion of such distribution to 
     such account or to another Individual Development Account 
     established in another qualified financial institution, 
     qualified nonprofit organization, or Indian tribe for the 
     benefit of the eligible individual, or, if such individual is 
     deceased, the spouse, any dependent, or other named 
     beneficiary of the deceased. Rules similar to the rules of 
     section 408(d)(3) of such Code (other than subparagraph (C) 
     thereof) shall apply for purposes of this clause.
       (9) Secretary.--The term ``Secretary'' means the Secretary 
     of the Treasury.

     SEC. 152. STRUCTURE AND ADMINISTRATION OF QUALIFIED 
                   INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.

       (a) Establishment of Qualified Individual Development 
     Account Programs.--Any qualified financial institution, 
     qualified nonprofit organization, or Indian tribe may 
     establish 1 or more qualified individual development account 
     programs which meet the requirements of this subtitle.
       (b) Basic Program Structure.--
       (1) In general.--All qualified individual development 
     account programs shall consist of the following 2 components:
       (A) An Individual Development Account to which an eligible 
     individual may contribute money in accordance with section 
     154.
       (B) A parallel account to which all matching funds shall be 
     deposited in accordance with section 155.
       (2) Tailored ida programs.--A qualified financial 
     institution, qualified nonprofit organization, or Indian 
     tribe may tailor its qualified individual development account 
     program to allow matching funds to be spent on 1 or more of 
     the categories of qualified expenses.
       (c) Tax Treatment of Accounts.--Any account described in 
     subparagraph (B) of subsection (b)(1) is exempt from taxation 
     under the Internal Revenue Code of 1986 unless such account 
     has ceased to be such an account by reason of section 156(c) 
     or the termination of the qualified individual development 
     account program under section 157(b).

     SEC. 153. PROCEDURES FOR OPENING AN INDIVIDUAL DEVELOPMENT 
                   ACCOUNT AND QUALIFYING FOR MATCHING FUNDS.

       (a) Opening an Account.--An eligible individual must open 
     an Individual Development Account with a qualified financial 
     institution, qualified nonprofit organization, or Indian 
     tribe and contribute money in accordance with section 154 to 
     qualify for matching funds in a parallel account.
       (b) Required Completion of Financial Education Course.--
       (1) In general.--Before becoming eligible to withdraw 
     matching funds to pay for qualified expenses, holders of 
     Individual Development Accounts must complete a financial 
     education course offered by a qualified financial 
     institution, a qualified nonprofit organization, an Indian 
     tribe, or a government entity.
       (2) Standard and applicability of course.--The Secretary or 
     an organization designated by the Secretary, in consultation 
     with representatives of qualified individual development 
     account programs and financial educators, shall establish 
     minimum performance standards for financial education courses 
     offered under paragraph (1) and a protocol to exempt eligible 
     individuals from the requirement under paragraph (1) because 
     of hardship or lack of need.

     SEC. 154. CONTRIBUTIONS TO INDIVIDUAL DEVELOPMENT ACCOUNTS.

       (a) In General.--Except in the case of a qualified 
     rollover, individual contributions to an Individual 
     Development Account will not be accepted for the taxable year 
     in excess of the lesser of--
       (1) $2,000; or
       (2) an amount equal to the sum of--
       (A) the compensation (as defined in section 219(f)(1) of 
     the Internal Revenue Code of 1986) includible in the 
     individual's gross income for such taxable year; and
       (B) in the case of an eligible individual who has retired 
     on disability (within the meaning of section 22 of the 
     Internal Revenue Code of 1986) before the close of the 
     taxable year, any amount received as a disability benefit and 
     excluded from the individual's gross income for such taxable 
     year.
       (b) Proof of Compensation and Status as an Eligible 
     Individual.--Federal W-2 forms and other forms specified by 
     the Secretary proving the eligible individual's wages and 
     other compensation (including amounts described in subsection 
     (a)(2)(B)) and the status of the individual as an eligible 
     individual shall be presented at the time of the 
     establishment of the Individual Development Account and at 
     least once annually thereafter.
       (c) Deemed Withdrawals of Excess Contributions.--If the 
     individual for whose benefit an Individual Development 
     Account is established contributes an amount in excess of the 
     amount allowed under subsection (a)

[[Page S9712]]

     and fails to withdraw the excess contribution plus the amount 
     of net income attributable to such excess contribution on or 
     before the day prescribed by law (including extensions of 
     time) for filing such individual's return of tax for the 
     taxable year, such excess contribution and net income shall 
     be deemed to have been withdrawn on such day by such 
     individual for purposes other than to pay qualified expenses.
       (d) Cross Reference.--

  For designation of earned income tax credit payments for deposit to 
an Individual Development Account, see section 32(o) of the Internal 
Revenue Code of 1986.

     SEC. 155. DEPOSITS BY QUALIFIED INDIVIDUAL DEVELOPMENT 
                   ACCOUNT PROGRAMS.

       (a) Parallel Accounts.--The qualified financial 
     institution, qualified nonprofit organization, or Indian 
     tribe shall deposit all matching funds for each Individual 
     Development Account into a parallel account at a qualified 
     financial institution, qualified nonprofit organization, or 
     Indian tribe.
       (b) Regular Deposits of Matching Funds.--
       (1) In general.--Subject to paragraph (2), the qualified 
     financial institution, qualified nonprofit organization, or 
     Indian tribe shall not less than annually (or upon a proper 
     withdrawal request under section 156, if necessary) deposit 
     into the parallel account with respect to each eligible 
     individual the following:
       (A) A dollar-for-dollar match for the first $300 
     contributed by the eligible individual into an Individual 
     Development Account with respect to any taxable year.
       (B) Any matching funds provided by State, local, or private 
     sources in accordance to the matching ratio set by those 
     sources.
       (2) Cross reference.--

  For allowance of tax credit for Individual Development Account 
subsidies, including matching funds, see section 30B of the Internal 
Revenue Code of 1986.

       (c) Forfeiture of Matching Funds.--Matching funds that are 
     forfeited under section 156(b) shall be used by the qualified 
     financial institution, qualified nonprofit organization, or 
     Indian tribe to pay matches for other Individual Development 
     Account contributions by eligible individuals.
       (d) Uniform Accounting Regulations.--To ensure proper 
     recordkeeping and determination of the tax credit under 
     section 30C of the Internal Revenue Code of 1986, the 
     Secretary shall prescribe regulations with respect to 
     accounting for matching funds from all possible sources in 
     the parallel accounts.
       (e) Regular Reporting of Accounts.--Any qualified financial 
     institution, qualified nonprofit organization, or Indian 
     tribe shall report the balances in any Individual Development 
     Account and parallel account of an eligible individual on not 
     less than an annual basis.

     SEC. 156. WITHDRAWAL PROCEDURES.

       (a) Withdrawals for Qualified Expenses.--To withdraw money 
     from an eligible individual's Individual Development Account 
     to pay qualified expenses of such individual or such 
     individual's spouse or dependents, the qualified financial 
     institution, qualified nonprofit organization, or Indian 
     tribe shall directly transfer such funds from the Individual 
     Development Account, and, if applicable, from the parallel 
     account electronically to the vendor or other Individual 
     Development Account. If the vendor is not equipped to receive 
     funds electronically, the qualified financial institution, 
     qualified nonprofit organization, or Indian tribe may issue 
     such funds by paper check to the vendor.
       (b) Withdrawals for Nonqualified Expenses.--An Individual 
     Development Account holder may unilaterally withdraw funds 
     from the Individual Development Account for purposes other 
     than to pay qualified expenses, but shall forfeit the 
     corresponding matching funds and interest earned on the 
     matching funds by doing so, unless such withdrawn funds are 
     recontributed to such Account by September 30 following the 
     withdrawal.
       (c) Deemed Withdrawals From Accounts of Noneligible 
     Individuals.--If the individual for whose benefit an 
     Individual Development Account is established ceases to be an 
     eligible individual, such account shall cease to be an 
     Individual Development Account as of the first day of the 
     taxable year of such individual and any balance in such 
     account shall be deemed to have been withdrawn on such first 
     day by such individual for purposes other than to pay 
     qualified expenses.
       (d) Tax Treatment of Matching Funds.--Any amount withdrawn 
     from a parallel account shall not be includible in an 
     eligible individual's gross income.

     SEC. 157. CERTIFICATION AND TERMINATION OF QUALIFIED 
                   INDIVIDUAL DEVELOPMENT ACCOUNT PROGRAMS.

       (a) Certification Procedures.--Upon establishing a 
     qualified individual development account program under 
     section 152, a qualified financial institution, qualified 
     nonprofit organization, or Indian tribe shall certify to the 
     Secretary, or an organization designated by the Secretary, on 
     forms prescribed by the Secretary or such organization and 
     accompanied by any documentation required by the Secretary or 
     such organization, that--
       (1) the accounts described in subparagraphs (A) and (B) of 
     section 152(b)(1) are operating pursuant to all the 
     provisions of this subtitle; and
       (2) the qualified financial institution, qualified 
     nonprofit organization, or Indian tribe agrees to implement 
     an information system necessary to monitor the cost and 
     outcomes of the qualified individual development account 
     program.
       (b) Authority To Terminate Qualified IDA Program.--If the 
     Secretary, or an organization designated by the Secretary, 
     determines that a qualified financial institution, qualified 
     nonprofit organization, or Indian tribe under this subtitle 
     is not operating a qualified individual development account 
     program in accordance with the requirements of this subtitle 
     (and has not implemented any corrective recommendations 
     directed by the Secretary or such organization), the 
     Secretary or such organization shall terminate such 
     institution's, nonprofit organization's, or Indian tribe's 
     authority to conduct the program. If the Secretary, or an 
     organization designated by the Secretary, is unable to 
     identify a qualified financial institution, qualified 
     nonprofit organization, or Indian tribe to assume the 
     authority to conduct such program, then any account 
     established for the benefit of any eligible individual under 
     such program shall cease to be an Individual Development 
     Account as of the first day of such termination and any 
     balance in such account shall be deemed to have been 
     withdrawn on such first day by such individual for purposes 
     other than to pay qualified expenses.

     SEC. 158. REPORTING, MONITORING, AND EVALUATION.

       (a) Responsibilities of Qualified Financial Institutions, 
     Qualified Nonprofit Organizations, and Indian Tribes.--Each 
     qualified financial institution, qualified nonprofit 
     organization, or Indian tribe that establishes a qualified 
     individual development account program under section 152 
     shall report annually to the Secretary, directly or through 
     an organization designated by the Secretary, within 90 days 
     after the end of each calendar year on--
       (1) the number of eligible individuals making contributions 
     into Individual Development Accounts;
       (2) the amounts contributed into Individual Development 
     Accounts and deposited into parallel accounts for matching 
     funds;
       (3) the amounts withdrawn from Individual Development 
     Accounts and parallel accounts, and the purposes for which 
     such amounts were withdrawn;
       (4) the balances remaining in Individual Development 
     Accounts and parallel accounts; and
       (5) such other information needed to help the Secretary, or 
     an organization designated by the Secretary, monitor the cost 
     and outcomes of the qualified individual development account 
     program.
       (b) Responsibilities of the Secretary or Designated 
     Organization.--
       (1) Monitoring protocol.--Not later than 12 months after 
     the date of the enactment of this Act, the Secretary, or an 
     organization designated by the Secretary, shall develop and 
     implement a protocol and process to monitor the cost and 
     outcomes of the qualified individual development account 
     programs established under section 152.
       (2) Annual reports.--In each year after the date of the 
     enactment of this Act, the Secretary, or an organization 
     designated by the Secretary, shall submit a progress report 
     to Congress on the status of such qualified individual 
     development account programs. Such report shall include from 
     a representative sample of qualified financial institutions, 
     qualified nonprofit organizations, and Indian tribes a report 
     on--
       (A) the characteristics of participants, including age, 
     gender, race or ethnicity, marital status, number of 
     children, employment status, and monthly income;
       (B) individual level data on deposits, withdrawals, 
     balances, uses of Individual Development Accounts, and 
     participant characteristics;
       (C) the characteristics of qualified individual development 
     account programs, including match rate, economic education 
     requirements, permissible uses of accounts, staffing of 
     programs in full time employees, and the total costs of 
     programs; and
       (D) process information on program implementation and 
     administration, especially on problems encountered and how 
     problems were solved.

     SEC. 159. ACCOUNT FUNDS OF PROGRAM PARTICIPANTS DISREGARDED 
                   FOR PURPOSES OF CERTAIN MEANS-TESTED FEDERAL 
                   PROGRAMS.

       Notwithstanding any other provision of Federal law that 
     requires consideration of 1 or more financial circumstances 
     of an individual, for the purposes of determining eligibility 
     to receive, or the amount of, any assistance or benefit 
     authorized by such provision to be provided to or for the 
     benefit of such individual, an amount equal to the sum of--
       (1) all contributions by an eligible individual (including 
     earnings thereon) to any Individual Development Account; plus
       (2) the matching deposits made on behalf of such individual 
     (including earnings thereon) in any parallel account,
     shall be disregarded for such purpose with respect to any 
     period during which the individual participates in a 
     qualified individual development account program established 
     under section 152.

     SEC. 160. MATCHING FUNDS FOR INDIVIDUAL DEVELOPMENT ACCOUNTS 
                   PROVIDED THROUGH A TAX CREDIT FOR QUALIFIED 
                   FINANCIAL INSTITUTIONS.

       (a) In General.--Subpart B of part IV of subchapter A of 
     chapter 1 (relating to other

[[Page S9713]]

     credits) is amended by inserting after section 30A the 
     following new section:

     ``SEC. 30B. INDIVIDUAL DEVELOPMENT ACCOUNT INVESTMENT CREDIT 
                   FOR QUALIFIED FINANCIAL INSTITUTIONS.

       ``(a) Determination of Amount.--There shall be allowed as a 
     credit against the applicable tax for the taxable year an 
     amount equal to the individual development account investment 
     provided by a qualified financial institution during the 
     taxable year under an individual development account program 
     established under section 152 of the Community Renewal and 
     New Markets Act of 2000.
       ``(b) Applicable Tax.--For the purposes of this section, 
     the term `applicable tax' means the excess (if any) of--
       ``(1) the tax imposed under this chapter (other than the 
     taxes imposed under the provisions described in subparagraphs 
     (C) through (Q) of section 26(b)(2)), over
       ``(2) the credits allowable under subpart B (other than 
     this section) and subpart D of this part.
       ``(c) Individual Development Account Investment.--For 
     purposes of this section, the term `individual development 
     account investment' means, with respect to an individual 
     development account program of a qualified financial 
     institution in any taxable year, an amount equal to the sum 
     of--
       ``(1) 90 percent of the aggregate amount of dollar-for-
     dollar matches under such program by such institution under 
     section 155(b)(1)(A) of the Community Renewal and New Markets 
     Act of 2000 for such taxable year, plus
       ``(2) an amount equal to the sum of the costs incurred, 
     directly or indirectly, with respect to each Individual 
     Development Account opened after the date of the enactment of 
     this section, not to exceed $100 per Account.
       ``(d) Other Definitions.--For purposes of this section, the 
     terms `Individual Development Account' and `qualified 
     financial institution' have the meanings given such terms by 
     section 151 of the Community Renewal and New Markets Act of 
     2000.
       ``(e) Regulations.--The Secretary may prescribe such 
     regulations as may be necessary or appropriate to carry out 
     this section, including regulations providing for a recapture 
     of the credit allowed under this section in cases where there 
     is a forfeiture under section 156(b) of the Community Renewal 
     and New Markets Act of 2000 in a subsequent taxable year of 
     any amount which was taken into account in determining the 
     amount of such credit.
       ``(f) Termination.--This section shall not apply to any 
     taxable year beginning after December 31, 2005.''.
       (b) Conforming Amendment.--The table of sections for 
     subpart B of part IV of subchapter A of chapter 1 is amended 
     by inserting after the item relating to section 30A the 
     following new item:

``Sec. 30B. Individual development account investment credit for 
              qualified financial institutions.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 161. DESIGNATION OF EARNED INCOME TAX CREDIT PAYMENTS 
                   FOR DEPOSIT TO INDIVIDUAL DEVELOPMENT ACCOUNTS.

       (a) In General.--Section 32 (relating to earned income 
     credit) is amended by adding at the end the following new 
     subsection:
       ``(o) Designation of Credit for Deposit to Individual 
     Development Account.--
       ``(1) In general.--With respect to the return of any 
     eligible individual (as defined in section 151(1) of the 
     Community Renewal and New Markets Act of 2000) for the 
     taxable year of the tax imposed by this chapter, such 
     individual may designate that a specified portion (not less 
     than $1) of any overpayment of tax for such taxable year 
     which is attributable to the credit allowed under this 
     section shall be deposited by the Secretary into an 
     Individual Development Account (as defined in section 151(2) 
     of such Act) of such individual. The Secretary shall so 
     deposit such portion designated under this paragraph.
       ``(2) Manner and time of designation.--A designation under 
     paragraph (1) may be made with respect to any taxable year--
       ``(A) at the time of filing the return of the tax imposed 
     by this chapter for such taxable year, or
       ``(B) at any other time (after the time of filing the 
     return of the tax imposed by this chapter for such taxable 
     year) specified in regulations prescribed by the Secretary.

     Such designation shall be made in such manner as the 
     Secretary prescribes by regulations.
       ``(3) Portion attributable to earned income tax credit.--
     For purposes of paragraph (1), an overpayment for any taxable 
     year shall be treated as attributable to the credit allowed 
     under this section for such taxable year to the extent that 
     such overpayment does not exceed the credit so allowed.
       ``(4) Overpayments treated as refunded.--For purposes of 
     this title, any portion of an overpayment of tax designated 
     under paragraph (1) shall be treated as being refunded to the 
     taxpayer as of the last date prescribed for filing the return 
     of tax imposed by this chapter (determined without regard to 
     extensions) or, if later, the date the return is filed.
       ``(5) Termination.--This subsection shall not apply to any 
     taxable year beginning after December 31, 2005.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

                   Subtitle G--Additional Incentives

     SEC. 171. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE 
                   NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP 
                   PROGRAM AND THE F. EDWARD HEBERT ARMED FORCES 
                   HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL 
                   ASSISTANCE PROGRAM.

       (a) In General.--Section 117(c) (relating to the exclusion 
     from gross income amounts received as a qualified 
     scholarship) is amended--
       (1) by striking ``Subsections (a)'' and inserting the 
     following:
       ``(1) In general.--Except as provided in paragraph (2), 
     subsections (a)'', and
       (2) by adding at the end the following new paragraph:
       ``(2) Exceptions.--Paragraph (1) shall not apply to any 
     amount received by an individual under--
       ``(A) the National Health Service Corps Scholarship Program 
     under section 338A(g)(1)(A) of the Public Health Service Act, 
     or
       ``(B) the Armed Forces Health Professions Scholarship and 
     Financial Assistance program under subchapter I of chapter 
     105 of title 10, United States Code.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to amounts received in taxable years beginning 
     after December 31, 1993.

     SEC. 172. EXTENSION OF ENHANCED DEDUCTION FOR CORPORATE 
                   DONATIONS OF COMPUTER TECHNOLOGY.

       (a) Expansion of Computer Technology Donations to Public 
     Libraries.--
       (1) In general.--Paragraph (6) of section 170(e) (relating 
     to special rule for contributions of computer technology and 
     equipment for elementary or secondary school purposes) is 
     amended by striking ``qualified elementary or secondary 
     educational contribution'' each place it occurs in the 
     headings and text and inserting ``qualified computer 
     contribution''.
       (2) Expansion of eligible donees.--Clause (i) of section 
     170(e)(6)(B) (relating to qualified elementary or secondary 
     educational contribution) is amended by striking ``or'' at 
     the end of subclause (I), by adding ``or'' at the end of 
     subclause (II), and by inserting after subclause (II) the 
     following new subclause:

       ``(III) a public library (within the meaning of section 
     213(2)(A) of the Library Services and Technology Act (20 
     U.S.C. 9122(2)(A)), as in effect on the date of the enactment 
     of the Community Renewal and New Markets Act of 2000, 
     established and maintained by an entity described in 
     subsection (c)(1),''.

       (b) Conforming Amendments.--
       (1) Section 170(e)(6)(B)(iv) is amended by striking ``in 
     any grades of the K-12''.
       (2) The heading of paragraph (6) of section 170(e) is 
     amended by striking ``elementary or secondary school 
     purposes'' and inserting ``educational purposes''.
       (c) Extension of Deduction.--Section 170(e)(6)(F) (relating 
     to termination) is amended by striking ``December 31, 2000'' 
     and inserting ``December 31, 2003''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to contributions made on and after the date of 
     the enactment of this Act.

     SEC. 173. EXTENSION OF ADOPTION TAX CREDIT.

       Section 23(d)(2)(B) (defining eligible child) is amended by 
     striking ``2001'' and inserting ``2003''.

     SEC. 174. TAX TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS.

       (a) Treatment of Alaska Native Settlement Trusts.--Subpart 
     A of part I of subchapter J of chapter 1 (relating to general 
     rules for taxation of trusts and estates) is amended by 
     adding at the end the following new section:

     ``SEC. 646. TAX TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS.

       ``(a) In General.--Except as otherwise provided in this 
     section, the provisions of this subchapter and section 1(e) 
     shall apply to all Settlement Trusts.
       ``(b) Taxation of Income of Trust.--Except as provided in 
     subsection (f)(1)(B)(ii)--
       ``(1) In general.--The amount of tax imposed on an electing 
     Settlement Trust under section 1(e) shall be determined using 
     the rate of 15 percent.
       ``(2) Capital gain.--In the case of an electing Settlement 
     Trust with a net capital gain for the taxable year, a tax is 
     imposed on such gain at the rate of tax which would apply to 
     such gain if the taxpayer were subject to a tax on ordinary 
     income at a rate of 15 percent.
       ``(c) One Time Election.--
       ``(1) In general.--A Settlement Trust may elect to have the 
     provisions of this section apply to the trust and its 
     beneficiaries.
       ``(2) Time and method of election.--An election under 
     paragraph (1) shall be made by the trustee of such trust--
       ``(A) on or before the due date (including extensions) for 
     filing the Settlement Trust's return of tax for the first 
     taxable year of such trust ending after the date of the 
     enactment of this section, and
       ``(B) by attaching to such return of tax a statement 
     specifically providing for such election.
       ``(3) Period election in effect.--Except as provided in 
     subsection (f), an election under this subsection--
       ``(A) shall apply to the first taxable year described in 
     paragraph (2)(A) and all subsequent taxable years, and

[[Page S9714]]

       ``(B) may not be revoked once it is made.
       ``(d) Contributions to Trust.--
       ``(1) Beneficiaries of electing trust not taxed on 
     contributions.--In the case of an electing Settlement Trust, 
     no amount shall be includible in gross income of a 
     beneficiary of such trust by reason of a contribution to such 
     trust made during the taxable year.
       ``(2) Earnings and profits.--The earnings and profits of 
     the sponsoring Native Corporation of a Settlement Trust shall 
     not be reduced on account of any contribution to such 
     Settlement Trust.
       ``(e) Tax Treatment of Distributions to Beneficiaries.--
     Amounts distributed by an electing Settlement Trust during 
     any taxable year shall be considered as having the following 
     characteristics in the hands of the recipient beneficiary:
       ``(1) First, as amounts excludable from gross income for 
     the taxable year to the extent of the taxable income of such 
     trust for such taxable year (decreased by any income tax paid 
     by the trust with respect to the income) plus any amount 
     excluded from gross income of the trust under section 103.
       ``(2) Second, as amounts excludable from gross income to 
     the extent of the amount described in paragraph (1) for all 
     taxable years for which an election was in effect under 
     subsection (c) with respect to the trust, and not previously 
     taken into account under paragraph (1).
       ``(3) Third, for purposes of this title other than 
     subsections (b) and (d) of section 301 and section 311(b), as 
     amounts distributed by the sponsoring Native Corporation with 
     respect to its stock (within the meaning of section 301(a)) 
     during such taxable year and taxable to the recipient 
     beneficiary as amounts described in section 301(c)(1), to the 
     extent of current and accumulated earnings and profits of the 
     sponsoring Native Corporation as of the close of such taxable 
     year after proper adjustment is made for all distributions 
     made by the sponsoring Native Corporation during such taxable 
     year.
       ``(4) Fourth, as amounts distributed by the trust in excess 
     of the distributable net income of such trust for such 
     taxable year.
       ``(f) Special Rules Where Transfer Restrictions Modified.--
       ``(1) Transfer of beneficial interests.--If, at any time, a 
     beneficial interest in an electing Settlement Trust may be 
     disposed of to a person in a manner which would not be 
     permitted by section 7(h) of the Alaska Native Claims 
     Settlement Act (43 U.S.C. 1606(h)) if the interest were 
     Settlement Common Stock--
       ``(A) no election may be made under subsection (c) with 
     respect to such trust, and
       ``(B) if such an election is in effect as of such time--
       ``(i) such election shall cease to apply as of the first 
     day of the taxable year in which such disposition is first 
     permitted,
       ``(ii) the provisions of this section shall not apply to 
     such trust for such taxable year and all taxable years 
     thereafter, and
       ``(iii) the distributable net income of such trust shall be 
     increased by the current and accumulated earnings and profits 
     of the sponsoring Native Corporation as of the close of such 
     taxable year after proper adjustment is made for all 
     distributions made by the sponsoring Native Corporation 
     during such taxable year.

     In no event shall the increase under clause (iii) exceed the 
     fair market value of the trust's assets as of the date the 
     beneficial interest of the trust first becomes disposable. 
     The earnings and profits of the sponsoring Native Corporation 
     shall be adjusted as of the last day of such taxable year by 
     the amount of earnings and profits so included in the 
     distributable net income of the trust.
       ``(2) Stock in Corporation.--If--
       ``(A) the Settlement Common Stock in the sponsoring Native 
     Corporation may be disposed of to a person in any manner not 
     permitted by section 7(h) of the Alaska Native Claims 
     Settlement Act (43 U.S.C. 1606(h)), and
       ``(B) at any time after such disposition of stock is first 
     permitted, such corporation transfers assets to a Settlement 
     Trust,

     paragraph (1)(B) shall be applied to such trust on and after 
     the date of the transfer in the same manner as if the trust 
     permitted dispositions of beneficial interests in the trust 
     in a manner not permitted by such section 7(h).
       ``(3) Certain distributions.--For purposes of this section, 
     the surrender of an interest in a Native Corporation or an 
     electing Settlement Trust in order to accomplish the whole or 
     partial redemption of the interest of a shareholder or 
     beneficiary in such corporation or trust, or to accomplish 
     the whole or partial liquidation of such corporation or 
     trust, shall be deemed to be a disposition permitted by 
     section 7(h) of the Alaska Native Claims Settlement Act (43 
     U.S.C. 1606(h)).
       ``(g) Taxable Income.-- For purposes of this title, the 
     taxable income of an electing Settlement Trust shall be 
     determined under section 641(b) without regard to any 
     deduction under section 651 or 661.
       ``(h) Definitions.--For purposes of this section--
       ``(1) Electing settlement trust.--The term `electing 
     Settlement Trust' means a Settlement Trust which has made the 
     election, effective for the taxable year, described in 
     subsection (c).
       ``(2) Native corporation.--The term `Native Corporation' 
     has the meaning given such term by section 3(m) of the Alaska 
     Native Claims Settlement Act (43 U.S.C. 1602(m)).
       ``(3) Settlement common stock.--The term `Settlement Common 
     Stock' has the meaning given such term by section 3(p) of the 
     Alaska Native Claims Settlement Act (43 U.S.C. 1602(p)).
       ``(4) Settlement trust.--The term `Settlement Trust' has 
     the meaning given such term by section 3(t) of the Alaska 
     Native Claims Settlement Act (43 U.S.C. 1602(t)).
       ``(5) Sponsoring native corporation.--The term `sponsoring 
     Native Corporation' means the Native Corporation which 
     transfers assets to an electing Settlement Trust.
       ``(i) Cross Reference.--

  ``For information required with respect to electing Settlement Trusts 
and sponsoring Native Corporations, see section 6039H.''

       (b) Reporting.--Subpart A of part III of subchapter A of 
     chapter 61 of subtitle F (relating to information concerning 
     persons subject to special provisions) is amended by 
     inserting after section 6039G the following new section:

     ``SEC. 6039H. INFORMATION WITH RESPECT TO ALASKA NATIVE 
                   SETTLEMENT TRUSTS AND SPONSORING NATIVE 
                   CORPORATIONS.

       ``(a) Requirement.--The fiduciary of an electing Settlement 
     Trust (as defined in section 646(h)(1)) shall include with 
     the return of income of the trust a statement containing the 
     information required under subsection (c).
       ``(b) Application With Other Requirements.--The filing of 
     any statement under this section shall be in lieu of the 
     reporting requirement under section 6034A to furnish any 
     statement to a beneficiary regarding amounts distributed to 
     such beneficiary (and such other reporting requirements as 
     the Secretary deems appropriate).
       ``(c) Required Information.--The information required under 
     this subsection shall include--
       ``(1) the amount of distributions made during the taxable 
     year to each beneficiary,
       ``(2) the treatment of such distribution under the 
     applicable provision of section 646, including the amount 
     that is excludable from the recipient beneficiary's gross 
     income under section 646, and
       ``(3) the amount (if any) of any distribution during such 
     year that is deemed to have been made by the sponsoring 
     Native Corporation (as defined in section 646(h)(5)).
       ``(d) Sponsoring Native Corporation.--
       ``(1) In general.--The electing Settlement Trust shall, on 
     or before the date on which the statement under subsection 
     (a) is required to be filed, furnish such statement to the 
     sponsoring Native Corporation (as so defined).
       ``(2) Distributees.--The sponsoring Native Corporation 
     shall furnish each recipient of a distribution described in 
     section 646(e)(3) a statement containing the amount deemed to 
     have been distributed to such recipient by such corporation 
     for the taxable year.''.
       (c) Clerical Amendment.--
       (1) The table of sections for subpart A of part I of 
     subchapter J of chapter 1 is amended by adding at the end the 
     following new item:

``Sec. 646. Electing Alaska Native Settlement Trusts.''.

       (2) The table of sections for subpart A of part III of 
     subchapter A of chapter 61 of subtitle F is amended by 
     inserting after the item relating to section 6039G the 
     following new item:

``Sec. 6039H. Information with respect to Alaska Native Settlement 
              Trusts and sponsoring Native Corporations.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years ending after the date of the 
     enactment of this Act and to contributions made to electing 
     Settlement Trusts for such year or any subsequent year.

     SEC. 175. TREATMENT OF INDIAN TRIBAL GOVERNMENTS UNDER 
                   FEDERAL UNEMPLOYMENT TAX ACT.

       (a) In General.--Section 3306(c)(7) (defining employment) 
     is amended--
       (1) by inserting ``or in the employ of an Indian tribe,'' 
     after ``service performed in the employ of a State, or any 
     political subdivision thereof,''; and
       (2) by inserting ``or Indian tribes'' after ``wholly owned 
     by one or more States or political subdivisions''.
       (b) Payments in Lieu of Contributions.--Section 3309 
     (relating to State law coverage of services performed for 
     nonprofit organizations or governmental entities) is 
     amended--
       (1) in subsection (a)(2) by inserting ``, including an 
     Indian tribe,'' after ``the State law shall provide that a 
     governmental entity'';
       (2) in subsection (b)(3)(B) by inserting ``, or of an 
     Indian tribe'' after ``of a State or political subdivision 
     thereof'';
       (3) in subsection (b)(3)(E) by inserting ``or tribal'' 
     after ``the State''; and
       (4) in subsection (b)(5) by inserting ``or of an Indian 
     tribe'' after ``an agency of a State or political subdivision 
     thereof''.
       (c) State Law Coverage.--Section 3309 (relating to State 
     law coverage of services performed for nonprofit 
     organizations or governmental entities) is amended by adding 
     at the end the following new subsection:
       ``(d) Election by Indian Tribe.--The State law shall 
     provide that an Indian tribe may make contributions for 
     employment as if the employment is within the meaning of 
     section

[[Page S9715]]

     3306 or make payments in lieu of contributions under this 
     section, and shall provide that an Indian tribe may make 
     separate elections for itself and each subdivision, 
     subsidiary, or business enterprise wholly owned by such 
     Indian tribe. State law may require a tribe to post a payment 
     bond or take other reasonable measures to assure the making 
     of payments in lieu of contributions under this section. 
     Notwithstanding the requirements of section 3306(a)(6), if, 
     within 90 days of having received a notice of delinquency, a 
     tribe fails to made contributions, payments in lieu of 
     contributions, or payment of penalties or interest (at 
     amounts or rates comparable to those applied to all other 
     employers covered under the State law) assessed with respect 
     to such failure, or if the tribe fails to post a required 
     payment bond, then service for the tribe shall not be 
     excepted from employment under section 3306(c)(7) until any 
     such failure is corrected. This subsection shall apply to an 
     Indian tribe within the meaning of section 4(e) of the Indian 
     Self-Determination and Education Assistance Act (25 U.S.C. 
     450b(e)).''.
       (d) Definitions.--Section 3306 (relating to definitions) is 
     amended by adding at the end the following new subsection:
       ``(u) Indian Tribe.--For purposes of this chapter, the term 
     `Indian tribe' has the meaning given to such term by section 
     4(e) of the Indian Self-Determination and Education 
     Assistance Act (25 U.S.C. 450b(e)), and includes any 
     subdivision, subsidiary, or business enterprise wholly owned 
     by such an Indian tribe.''.
       (e) Effective Date; Transition Rule.--
       (1) Effective date.--The amendments made by this section 
     shall apply to service performed on or after the date of the 
     enactment of this Act.
       (2) Transition rule.--For purposes of the Federal 
     Unemployment Tax Act, service performed in the employ of an 
     Indian tribe (as defined in section 3306(u) of the Internal 
     Revenue Code of 1986 (as added by this section)) shall not be 
     treated as employment (within the meaning of section 3306 of 
     such Code) if--
       (A) it is service which is performed before the date of the 
     enactment of this Act and with respect to which the tax 
     imposed under the Federal Unemployment Tax Act has not been 
     paid, and
       (B) such Indian tribe reimburses a State unemployment fund 
     for unemployment benefits paid for service attributable to 
     such tribe for such period.

     SEC. 176. INCREASE IN SOCIAL SERVICES BLOCK GRANT FOR FY 
                   2001.

       (a) In General.--Section 2003(c) of the Social Security Act 
     (42 U.S.C. 1397b(c)) is amended--
       (1) in paragraph (10), by striking ``and'' at the end;
       (2) in paragraph (11), by striking ``2001'' and inserting 
     ``2002'';
       (3) by redesignating paragraph (11) (as so amended) as 
     paragraph (12); and
       (4) by inserting after paragraph (10), the following new 
     paragraph:
       ``(11) $2,400,000,000 for the fiscal year 2001; and''.
       (b) Effective Date.--The amendments made by subsection (a) 
     take effect October 1, 2000.

            TITLE II--TAX INCENTIVES FOR AFFORDABLE HOUSING

                 Subtitle A--Low-Income Housing Credit

     SEC. 201. MODIFICATION OF STATE CEILING ON LOW-INCOME HOUSING 
                   CREDIT.

       (a) In General.--Clauses (i) and (ii) of section 
     42(h)(3)(C) (relating to State housing credit ceiling) are 
     amended to read as follows:
       ``(i) the unused State housing credit ceiling (if any) of 
     such State for the preceding calendar year,
       ``(ii) the greater of--

       ``(I) $1.75 multiplied by the State population, or
       ``(II) $2,000,000,''.

       (b) Adjustment of State Ceiling for Increases in Cost-of-
     Living.--Paragraph (3) of section 42(h) (relating to housing 
     credit dollar amount for agencies) is amended by adding at 
     the end the following new subparagraph:
       ``(H) Cost-of-living adjustment.--In the case of a calendar 
     year after 2001, each of the dollar amounts contained in 
     subparagraph (C)(ii) shall be increased by an amount equal 
     to--
       ``(i) such dollar amount, multiplied by
       ``(ii) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 2000' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any increase determined under the preceding sentence is 
     not a multiple of 5 cents ($5,000 in the case of the dollar 
     amount in subparagraph (C)(ii)(II)), such increase shall be 
     rounded to the nearest multiple thereof.''.
       (c) Conforming Amendments.--
       (1) Section 42(h)(3)(C), as amended by subsection (a), is 
     amended--
       (A) by striking ``clause (ii)'' in the matter following 
     clause (iv) and inserting ``clause (i)'', and
       (B) by striking ``clauses (i)'' in the matter following 
     clause (iv) and inserting ``clauses (ii)''.
       (2) Section 42(h)(3)(D)(ii) is amended--
       (A) by striking ``subparagraph (C)(ii)'' and inserting 
     ``subparagraph (C)(i)'', and
       (B) by striking ``clauses (i)'' in subclause (II) and 
     inserting ``clauses (ii)''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to calendar years after 2000.

     SEC. 202. MODIFICATION TO RULES RELATING TO BASIS OF BUILDING 
                   WHICH IS ELIGIBLE FOR CREDIT.

       (a) Certain Native American Housing Assistance Disregarded 
     in Determining Whether Building Is Federally Subsidized for 
     Purposes of the Low-Income Housing Credit.--Subparagraph (E) 
     of section 42(i)(2) (relating to determination of whether 
     building is federally subsidized) is amended--
       (1) in clause (i), by inserting ``or the Native American 
     Housing Assistance and Self-Determination Act of 1996 (25 
     U.S.C. 4101 et seq.) (as in effect on October 1, 1997)'' 
     after ``this subparagraph)'', and
       (2) in the subparagraph heading, by inserting ``or native 
     american housing assistance'' after ``home assistance''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to--
       (1) housing credit dollar amounts allocated after December 
     31, 2000, and
       (2) buildings placed in service after such date to the 
     extent paragraph (1) of section 42(h) of the Internal Revenue 
     Code of 1986 does not apply to any building by reason of 
     paragraph (4) thereof, but only with respect to bonds issued 
     after such date.

                       Subtitle B--Historic Homes

     SEC. 211. TAX CREDIT FOR RENOVATING HISTORIC HOMES.

       (a) In General.--Subpart A of part IV of subchapter A of 
     chapter 1 (relating to nonrefundable personal credits) is 
     amended by inserting after section 25A the following new 
     section:

     ``SEC. 25B. HISTORIC HOMEOWNERSHIP REHABILITATION CREDIT.

       ``(a) General Rule.--In the case of an individual, there 
     shall be allowed as a credit against the tax imposed by this 
     chapter for the taxable year an amount equal to 20 percent of 
     the qualified rehabilitation expenditures made by the 
     taxpayer with respect to a qualified historic home.
       ``(b) Dollar Limitation.--The credit allowed by subsection 
     (a) with respect to any residence of a taxpayer shall not 
     exceed $20,000 ($10,000 in the case of a married individual 
     filing a separate return).
       ``(c) Carryforward of Credit Unused by Reason of Limitation 
     Based on Tax Liability.--If the credit allowable under 
     subsection (a) for any taxable year exceeds the limitation 
     imposed by section 26(a) for such taxable year reduced by the 
     sum of the credits allowable under this subpart (other than 
     this section), such excess shall be carried to the succeeding 
     taxable year (but not for more than 10 taxable years 
     succeeding the first taxable year in which the credit under 
     this section is allowed to the taxpayer) and added to the 
     credit allowable under subsection (a) for such succeeding 
     taxable year.
       ``(d) Qualified Rehabilitation Expenditure.--For purposes 
     of this section--
       ``(1) In general.--The term `qualified rehabilitation 
     expenditure' means any amount properly chargeable to capital 
     account--
       ``(A) in connection with the certified rehabilitation of a 
     qualified historic home, and
       ``(B) for property for which depreciation would be 
     allowable under section 168 if the qualified historic home 
     were used in a trade or business.
       ``(2) Certain expenditures not included.--
       ``(A) Exterior.--Such term shall not include any 
     expenditure in connection with the rehabilitation of a 
     building unless at least 5 percent of the total expenditures 
     made in the rehabilitation process are allocable to the 
     rehabilitation of the exterior of such building.
       ``(B) Other rules to apply.--Rules similar to the rules of 
     clauses (ii) and (iii) of section 47(c)(2)(B) shall apply.
       ``(3) Mixed use or multifamily building.--If only a portion 
     of a building is used as the principal residence of the 
     taxpayer, only qualified rehabilitation expenditures which 
     are properly allocable to such portion shall be taken into 
     account under this section.
       ``(e) Certified Rehabilitation.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the term `certified rehabilitation' has the 
     meaning given such term by section 47(c)(2)(C).
       ``(2) Factors to be considered in the case of targeted area 
     residences, etc.--
       ``(A) In general.--For purposes of applying section 
     47(c)(2)(C) under this section with respect to the 
     rehabilitation of a building to which this paragraph applies, 
     consideration shall be given to--
       ``(i) the feasibility of preserving existing architectural 
     and design elements of the interior of such building,
       ``(ii) the risk of further deterioration or demolition of 
     such building in the event that certification is denied 
     because of the failure to preserve such interior elements, 
     and
       ``(iii) the effects of such deterioration or demolition on 
     neighboring historic properties.
       ``(B) Buildings to which this paragraph applies.--This 
     paragraph shall apply with respect to any building--
       ``(i) any part of which is a targeted area residence within 
     the meaning of section 143(j)(1), or
       ``(ii) which is located within an enterprise community or 
     empowerment zone as designated under section 1391,
     but shall not apply with respect to any building which is 
     listed in the National Register.
       ``(3) Approved state program.--The term `certified 
     rehabilitation' includes a certification made by--

[[Page S9716]]

       ``(A) a State Historic Preservation Officer who administers 
     a State Historic Preservation Program approved by the 
     Secretary of the Interior pursuant to section 101(b)(1) of 
     the National Historic Preservation Act, as in effect on July 
     21, 1999, or
       ``(B) a local government, certified pursuant to section 
     101(c)(1) of the National Historic Preservation Act, as in 
     effect on July 21, 1999, and authorized by a State Historic 
     Preservation Officer, or the Secretary of the Interior where 
     there is no approved State program),

     subject to such terms and conditions as may be specified by 
     the Secretary of the Interior for the rehabilitation of 
     buildings within the jurisdiction of such officer (or local 
     government) for purposes of this section.
       ``(f) Definitions and Special Rules.--For purposes of this 
     section--
       ``(1) Qualified historic home.--The term `qualified 
     historic home' means a certified historic structure--
       ``(A) which has been substantially rehabilitated, and
       ``(B) which (or any portion of which)--
       ``(i) is owned by the taxpayer, and
       ``(ii) is used (or will, within a reasonable period, be 
     used) by such taxpayer as his principal residence.
       ``(2) Substantially rehabilitated.--The term `substantially 
     rehabilitated' has the meaning given such term by section 
     47(c)(1)(C); except that, in the case of any building 
     described in subsection (e)(2), clause (i)(I) thereof shall 
     not apply.
       ``(3) Principal residence.--The term `principal residence' 
     has the same meaning as when used in section 121.
       ``(4) Certified historic structure.--
       ``(A) In general.--The term `certified historic structure' 
     means any building (and its structural components) which--
       ``(i) is listed in the National Register, or
       ``(ii) is located in a registered historic district (as 
     defined in section 47(c)(3)(B)) within which only qualified 
     census tracts (or portions thereof) are located, and is 
     certified by the Secretary of the Interior to the Secretary 
     as being of historic significance to the district.
       ``(B) Certain structures included.--Such term includes any 
     building (and its structural components) which is designated 
     as being of historic significance under a statute of a State 
     or local government, if such statute is certified by the 
     Secretary of the Interior to the Secretary as containing 
     criteria which will substantially achieve the purpose of 
     preserving and rehabilitating buildings of historic 
     significance.
       ``(C) Qualified census tracts.--For purposes of 
     subparagraph (A)(ii)--
       ``(i) In general.--The term `qualified census tract' means 
     a census tract in which the median family income is less than 
     twice the statewide median family income.
       ``(ii) Data used.--The determination under clause (i) shall 
     be made on the basis of the most recent decennial census for 
     which data are available.
       ``(5) Rehabilitation not complete before certification.--A 
     rehabilitation shall not be treated as complete before the 
     date of the certification referred to in subsection (e).
       ``(6) Lessees.--A taxpayer who leases his principal 
     residence shall, for purposes of this section, be treated as 
     the owner thereof if the remaining term of the lease (as of 
     the date determined under regulations prescribed by the 
     Secretary) is not less than such minimum period as the 
     regulations require.
       ``(7) Tenant-stockholder in cooperative housing 
     corporation.--If the taxpayer holds stock as a tenant-
     stockholder (as defined in section 216) in a cooperative 
     housing corporation (as defined in such section), such 
     stockholder shall be treated as owning the house or apartment 
     which the taxpayer is entitled to occupy as such stockholder.
       ``(8) Allocation of expenditures relating to exterior of 
     building containing cooperative or condominium units.--The 
     percentage of the total expenditures made in the 
     rehabilitation of a building containing cooperative or 
     condominium residential units allocated to the rehabilitation 
     of the exterior of the building shall be attributed 
     proportionately to each cooperative or condominium 
     residential unit in such building for which a credit under 
     this section is claimed.
       ``(g) When Expenditures Taken Into Account.--In the case of 
     a building other than a building to which subsection (h) 
     applies, qualified rehabilitation expenditures shall be 
     treated for purposes of this section as made on the date the 
     rehabilitation is completed.
       ``(h) Allowance of Credit for Purchase of Rehabilitated 
     Historic Home.--
       ``(1) In general.--In the case of a qualified purchased 
     historic home, the taxpayer shall be treated as having made 
     (on the date of purchase) the qualified rehabilitation 
     expenditures made by the seller of such home. For purposes of 
     the preceding sentence, expenditures made by the seller shall 
     be deemed to be qualified rehabilitation expenditures if such 
     expenditures, if made by the purchaser, would be qualified 
     rehabilitation expenditures.
       ``(2) Qualified purchased historic home.--For purposes of 
     this subsection, the term `qualified purchased historic home' 
     means any substantially rehabilitated certified historic 
     structure purchased by the taxpayer if--
       ``(A) the taxpayer is the first purchaser of such structure 
     after the date rehabilitation is completed, and the purchase 
     occurs within 5 years after such date,
       ``(B) the structure (or a portion thereof) will, within a 
     reasonable period, be the principal residence of the 
     taxpayer,
       ``(C) no credit was allowed to the seller under this 
     section or section 47 with respect to such rehabilitation, 
     and
       ``(D) the taxpayer is furnished with such information as 
     the Secretary determines is necessary to determine the credit 
     under this subsection.
       ``(i) Historic Rehabilitation Mortgage Credit 
     Certificate.--
       ``(1) In general.--The taxpayer may elect, in lieu of the 
     credit otherwise allowable under this section, to receive a 
     historic rehabilitation mortgage credit certificate. An 
     election under this paragraph shall be made--
       ``(A) in the case of a building to which subsection (h) 
     applies, at the time of purchase, or
       ``(B) in any other case, at the time rehabilitation is 
     completed.
       ``(2) Historic rehabilitation mortgage credit 
     certificate.--For purposes of this subsection, the term 
     `historic rehabilitation mortgage credit certificate' means a 
     certificate--
       ``(A) issued to the taxpayer, in accordance with procedures 
     prescribed by the Secretary, with respect to a certified 
     rehabilitation,
       ``(B) the face amount of which shall be equal to the credit 
     which would (but for this subsection) be allowable under 
     subsection (a) to the taxpayer with respect to such 
     rehabilitation,
       ``(C) which may only be transferred by the taxpayer to a 
     lending institution (including a non-depository institution) 
     in connection with a loan--
       ``(i) that is secured by the building with respect to which 
     the credit relates, and
       ``(ii) the proceeds of which may not be used for any 
     purpose other than the acquisition or rehabilitation of such 
     building, and
       ``(D) in exchange for which such lending institution 
     provides the taxpayer--
       ``(i) a reduction in the rate of interest on the loan which 
     results in interest payment reductions which are 
     substantially equivalent on a present value basis to the face 
     amount of such certificate, or
       ``(ii) if the taxpayer so elects with respect to a 
     specified amount of the face amount of such a certificate 
     relating to a building--

       ``(I) which is a targeted area residence within the meaning 
     of section 143(j)(1), or
       ``(II) which is located in an enterprise community or 
     empowerment zone as designated under section 1391,

     a payment which is substantially equivalent to such specified 
     amount to be used to reduce the taxpayer's cost of purchasing 
     the building (and only the remainder of such face amount 
     shall be taken into account under clause (i)).
       ``(3) Method of discounting.--The present value under 
     paragraph (2)(D)(i) shall be determined--
       ``(A) for a period equal to the term of the loan referred 
     to in subparagraph (D)(i),
       ``(B) by using the convention that any payment on such loan 
     in any taxable year within such period is deemed to have been 
     made on the last day of such taxable year,
       ``(C) by using a discount rate equal to 65 percent of the 
     average of the annual Federal mid-term rate and the annual 
     Federal long-term rate applicable under section 1274(d)(1) to 
     the month in which the taxpayer makes an election under 
     paragraph (1) and compounded annually, and
       ``(D) by assuming that the credit allowable under this 
     section for any year is received on the last day of such 
     year.
       ``(4) Use of certificate by lender.--The amount of the 
     credit specified in the certificate shall be allowed to the 
     lender only to offset the regular tax (as defined in section 
     55(c)) of such lender. The lender may carry forward all 
     unused amounts under this subsection until exhausted.
       ``(5) Historic rehabilitation mortgage credit certificate 
     not treated as taxable income.--Notwithstanding any other 
     provision of law, no benefit accruing to the taxpayer through 
     the use of an historic rehabilitation mortgage credit 
     certificate shall be treated as taxable income for purposes 
     of this title.
       ``(j) Recapture.--
       ``(1) In general.--If, before the end of the 5-year period 
     beginning on the date on which the rehabilitation of the 
     building is completed (or, if subsection (h) applies, the 
     date of purchase of such building by the taxpayer, or, if 
     subsection (i) applies, the date of the loan)--
       ``(A) the taxpayer disposes of such taxpayer's interest in 
     such building, or
       ``(B) such building ceases to be used as the principal 
     residence of the taxpayer,
     the taxpayer's tax imposed by this chapter for the taxable 
     year in which such disposition or cessation occurs shall be 
     increased by the recapture percentage of the credit allowed 
     under this section for all prior taxable years with respect 
     to such rehabilitation.
       ``(2) Recapture percentage.--For purposes of paragraph (1), 
     the recapture percentage shall be determined in accordance 
     with the following table:

``If the disposition or cessation occurs wThe recapture percentage is--
  (i) One full year after the taxpayer becomes entitled to the 100 it..

  (ii) One full year after the close of the period described in clause 
    (i).........................................................80 ....

[[Page S9717]]

  (iii) One full year after the close of the period described in clause 
    (ii)........................................................60 ....

  (iv) One full year after the close of the period described in clause 
    (iii).......................................................40 ....

  (v) One full year after the close of the period described in clause 
    (iv)........................................................20.....

       ``(k) Basis Adjustments.--For purposes of this subtitle, if 
     a credit is allowed under this section for any expenditure 
     with respect to any property (including any purchase under 
     subsection (h) and any transfer under subsection (i)), the 
     increase in the basis of such property which would (but for 
     this subsection) result from such expenditure shall be 
     reduced by the amount of the credit so allowed.
       ``(l) Denial of Double Benefit.--No credit shall be allowed 
     under this section for any amount for which credit is allowed 
     under section 47.
       ``(m) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out the purposes 
     of this section, including regulations where less than all of 
     a building is used as a principal residence and where more 
     than 1 taxpayer use the same dwelling unit as their principal 
     residence.''.
       (b) Conforming Amendments.--
       (1) Section 23(c) is amended by striking ``section 1400C'' 
     and inserting ``sections 25B and 1400C''.
       (2) Section 25(e)(1)(C) is amended by striking ``23'' and 
     inserting ``23, 25B,''.
       (3) Section 1016(a) is amended by striking ``and'' at the 
     end of paragraph (26), by striking the period at the end of 
     paragraph (27) and inserting ``, and'', and by adding at the 
     end the following new item:
       ``(28) to the extent provided in section 25B(k).''.
       (4) Section 1400C(d) is amended by inserting ``and section 
     25B'' after ``this section''.
       (c) Clerical Amendment.--The table of sections for subpart 
     A of part IV of subchapter A of chapter 1 is amended by 
     inserting after the item relating to section 25A the 
     following new item:

``Sec. 25B. Historic homeownership rehabilitation credit.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to expenses paid or incurred in taxable years 
     beginning after December 31, 2001.

               Subtitle C--Forgiven Mortgage Obligations

     SEC. 221. EXCLUSION FROM GROSS INCOME FOR CERTAIN FORGIVEN 
                   MORTGAGE OBLIGATIONS.

       (a) In General.--Paragraph (1) of section 108(a) (relating 
     to exclusion from gross income) is amended by striking ``or'' 
     at the end of both subparagraphs (A) and (C), by striking the 
     period at the end of subparagraph (D) and inserting ``, or'', 
     and by inserting after subparagraph (D) the following new 
     subparagraph:
       ``(E) in the case of an individual, the indebtedness 
     discharged is qualified residential indebtedness.''.
       (b) Qualified Residential Indebtedness Shortfall.--Section 
     108 (relating to discharge of indebtedness) is amended by 
     adding at the end the following new subsection:
       ``(h) Qualified Residential Indebtedness.--
       ``(1) Limitations.--The amount excluded under subparagraph 
     (E) of subsection (a)(1) with respect to any qualified 
     residential indebtedness shall not exceed the excess (if any) 
     of--
       ``(A) the outstanding principal amount of such indebtedness 
     (immediately before the discharge), over
       ``(B) the sum of--
       ``(i) the amount realized from the sale of the real 
     property securing such indebtedness reduced by the cost of 
     such sale, and
       ``(ii) the outstanding principal amount of any other 
     indebtedness secured by such property.
       ``(2) Qualified residential indebtedness.--
       ``(A) In general.--The term `qualified residential 
     indebtedness' means indebtedness which--
       ``(i) was incurred or assumed by the taxpayer in connection 
     with real property used as the principal residence of the 
     taxpayer (within the meaning of section 121) and is secured 
     by such real property,
       ``(ii) is incurred or assumed to acquire, construct, 
     reconstruct, or substantially improve such real property, and
       ``(iii) with respect to which such taxpayer makes an 
     election to have this paragraph apply.
       ``(B) Refinanced indebtedness.--Such term shall include 
     indebtedness resulting from the refinancing of indebtedness 
     under subparagraph (A)(ii), but only to the extent the 
     refinanced indebtedness does not exceed the amount of the 
     indebtedness being refinanced.
       ``(C) Exceptions.--Such term shall not include qualified 
     farm indebtedness or qualified real property business 
     indebtedness.''.
       (c) Conforming Amendments.--
       (1) Paragraph (2) of section 108(a) is amended--
       (A) by striking ``and (D)'' in subparagraph (A) and 
     inserting ``(D), and (E)'', and
       (B) by amending subparagraph (B) to read as follows:
       ``(B) Insolvency exclusion takes precedence over qualified 
     farm exclusion; qualified real property business exclusion; 
     and qualified residential shortfall exclusion.--Subparagraphs 
     (C), (D), and (E) of paragraph (1) shall not apply to a 
     discharge to the extent the taxpayer is insolvent.''.
       (2) Paragraph (1) of section 108(b) is amended by striking 
     ``or (C)'' and inserting ``(C), or (E)''.
       (3) Subsection (c) of section 121 is amended by adding at 
     the end the following new paragraph:
       ``(3) Special rule relating to discharge of indebtedness.--
     The amount of gain which (but for this paragraph) would be 
     excluded from gross income under subsection (a) with respect 
     to a principal residence shall be reduced by the amount 
     excluded from gross income under section 108(a)(1)(E) with 
     respect to such residence.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to discharges after the date of the enactment of 
     this Act.

                   Subtitle D--Mortgage Revenue Bonds

     SEC. 231. INCREASE IN PURCHASE PRICE LIMITATION UNDER 
                   MORTGAGE SUBSIDY BOND RULES BASED ON MEDIAN 
                   FAMILY INCOME.

       (a) In General.--Paragraph (1) of section 143(e) (relating 
     to purchase price requirement) is amended to read as follows:
       ``(1) In general.--An issue meets the requirements of this 
     subsection only if the acquisition cost of each residence the 
     owner-financing of which is provided under the issue does not 
     exceed the greater of--
       ``(A) 90 percent of the average area purchase price 
     applicable to the residence, or
       ``(B) 3.5 times the applicable median family income (as 
     defined in subsection (f)(4)).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to obligations issued after the date of the 
     enactment of this Act.

     SEC. 232. MORTGAGE FINANCING FOR RESIDENCES LOCATED IN 
                   PRESIDENTIALLY DECLARED DISASTER AREAS.

       (a) In General.--Paragraph (11) of section 143(k) of the 
     Internal Revenue Code of 1986 is amended to read as follows:
       ``(11) Special rules for residences located in disaster 
     areas.--
       ``(A) Home improvement loans for repairs.--In the case of 
     financing provided by a qualified home improvement loan for 
     the repair of damage to a residence located in a disaster 
     area which was sustained as a result of the disaster--
       ``(i) the limitation under paragraph (4) shall be increased 
     (but not above $100,000) to the extent such loan is for the 
     repair of such damage, and
       ``(ii) subsection (f) (relating to income requirement) 
     shall be applied as if such residence were a targeted area 
     residence.
       ``(B) Purchase of replacement home.--In the case of 
     financing provided to acquire a residence located in a 
     disaster area by mortgagors whose prior residence was in such 
     area and was destroyed or otherwise rendered uninhabitable as 
     a result of the disaster--
       ``(i) subsection (d) (relating to 3-year requirement) shall 
     not apply, and
       ``(ii) subsections (e) and (f) (relating to purchase price 
     requirement and income requirement) shall be applied as if 
     such residence were a targeted area residence.
       ``(C) Financing must be provided within 2 years after 
     disaster declaration.--This paragraph shall apply only to 
     financing provided within 2 years after the date of the 
     disaster declaration.
       ``(D) Disaster area.--For purposes of this paragraph, the 
     term `disaster area' means an area determined by the 
     President to warrant assistance from the Federal Government 
     under the Robert T. Stafford Disaster Relief and Emergency 
     Assistance Act (as in effect on the date of the enactment of 
     the Taxpayer Relief Act of 1997) and with respect to which 
     the Federal share of disaster payments exceeds 75 percent.
       ``(E) Application of paragraph.--This paragraph shall apply 
     only with respect to bonds issued after December 31, 2000.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to bonds issued after December 31, 2000.

              Subtitle E--Property and Casualty Insurance

     SEC. 241. EXEMPTION FROM INCOME TAX FOR STATE-CREATED 
                   ORGANIZATIONS PROVIDING PROPERTY AND CASUALTY 
                   INSURANCE FOR PROPERTY FOR WHICH SUCH COVERAGE 
                   IS OTHERWISE UNAVAILABLE.

       (a) In General.--Subsection (c) of section 501 (relating to 
     exemption from tax on corporations, certain trusts, etc.) is 
     amended by adding at the end the following new paragraph:
       ``(28)(A) Any association created before January 1, 1999, 
     by State law and organized and operated exclusively to 
     provide property and casualty insurance coverage for property 
     located within the State for which the State has determined 
     that coverage in the authorized insurance market is limited 
     or unavailable at reasonable rates, if--
       ``(i) no part of the net earnings of which inures to the 
     benefit of any private shareholder or individual,
       ``(ii) except as provided in clause (v), no part of the 
     assets of which may be used for, or diverted to, any purpose 
     other than--
       ``(I) to satisfy, in whole or in part, the liability of the 
     association for, or with respect to, claims made on policies 
     written by the association,
       ``(II) to invest in investments authorized by applicable 
     law,

[[Page S9718]]

       ``(III) to pay reasonable and necessary administration 
     expenses in connection with the establishment and operation 
     of the association and the processing of claims against the 
     association, or
       ``(IV) to make remittances pursuant to State law to be used 
     by the State to provide for the payment of claims on policies 
     written by the association, purchase reinsurance covering 
     losses under such policies, or to support governmental 
     programs to prepare for or mitigate the effects of natural 
     catastrophic events,
       ``(iii) the State law governing the association permits the 
     association to levy assessments on insurance companies 
     authorized to sell property and casualty insurance in the 
     State, or on property and casualty insurance policyholders 
     with insurable interests in property located in the State to 
     fund deficits of the association, including the creation of 
     reserves,
       ``(iv) the plan of operation of the association is subject 
     to approval by the chief executive officer or other official 
     of the State, by the State legislature, or both, and
       ``(v) the assets of the association revert upon dissolution 
     to the State, the State's designee, or an entity designated 
     by the State law governing the association, or State law does 
     not permit the dissolution of the association.
       ``(B)(i) An entity described in clause (ii) shall be 
     disregarded as a separate entity and treated as part of the 
     association described in subparagraph (A) from which it 
     receives remittances described in clause (ii) if an election 
     is made within 30 days after the date that such association 
     is determined to be exempt from tax.
       ``(ii) An entity is described in this clause if it is an 
     entity or fund created before January 1, 1999, pursuant to 
     State law and organized and operated exclusively to receive, 
     hold, and invest remittances from an association described in 
     subparagraph (A) and exempt from tax under subsection (a), to 
     make disbursements to pay claims on insurance contracts 
     issued by such association, and to make disbursements to 
     support governmental programs to prepare for or mitigate the 
     effects of natural catastrophic events.''.
       (b) Unrelated Business Taxable Income.--Subsection (a) of 
     section 512 (relating to unrelated business taxable income) 
     is amended by adding at the end the following new paragraph:
       ``(6) Special rule applicable to organizations described in 
     section 501(c)(28).--In the case of an organization described 
     in section 501(c)(28), the term `unrelated business taxable 
     income' means taxable income for a taxable year computed 
     without the application of section 501(c)(28) if at the end 
     of the immediately preceding taxable year the organization's 
     net equity exceeded 15 percent of the total coverage in force 
     under insurance contracts issued by the organization and 
     outstanding at the end of such preceding year.''.
       (c) Transitional Rule.--No income or gain shall be 
     recognized by an association as a result of a change in 
     status to that of an association described by section 
     501(c)(28) of the Internal Revenue Code of 1986, as amended 
     by subsection (a).
       (d) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2000.

      TITLE III--TAX INCENTIVES FOR URBAN AND RURAL INFRASTRUCTURE

     SEC. 301. INCREASE IN STATE CEILING ON PRIVATE ACTIVITY 
                   BONDS.

       (a) In General.--Paragraphs (1) and (2) of section 146(d) 
     (relating to State ceiling) are amended to read as follows:
       ``(1) In general.--The State ceiling applicable to any 
     State for any calendar year shall be the greater of--
       ``(A) an amount equal to $75 multiplied by the State 
     population, or
       ``(B) $225,000.000.
       ``(2) Cost-of-living adjustment.--In the case of a calendar 
     year after 2001, each of the dollar amounts contained in 
     paragraph (1) shall be increased by an amount equal to--
       ``(A) such dollar amount, multiplied by
       ``(B) the cost-of-living adjustment determined under 
     section 1(f)(3) for such calendar year by substituting 
     `calendar year 2000' for `calendar year 1992' in subparagraph 
     (B) thereof.

     If any increase determined under the preceding sentence is 
     not a multiple of $5 ($5,000 in the case of the dollar amount 
     in paragraph (1)(B)), such increase shall be rounded to the 
     nearest multiple thereof.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to calendar years after 2000.

     SEC. 302. MODIFICATIONS TO EXPENSING OF ENVIRONMENTAL 
                   REMEDIATION COSTS.

       (a) Expensing Not Limited to Sites in Targeted Areas.--
     Subsection (c) of section 198 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(a)(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 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 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) Extension of Termination Date.--Subsection (h) of 
     section 198 is amended by striking ``2001'' and inserting 
     ``2003''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenditures paid or incurred after the date 
     of the enactment of this Act.

     SEC. 303. BROADBAND INTERNET ACCESS TAX CREDIT.

       (a) In General.--Subpart E of part IV of chapter 1 
     (relating to rules for computing investment credit) is 
     amended by inserting after section 48 the following new 
     section:

     ``SEC. 48A. BROADBAND CREDIT.

       ``(a) General Rule.--For purposes of section 46, the 
     broadband credit for any taxable year is the sum of--
       ``(1) the current generation broadband credit, plus
       ``(2) the next generation broadband credit.
       ``(b) Current Generation Broadband Credit; Next Generation 
     Broadband Credit.--For purposes of this section--
       ``(1) Current generation broadband credit.--The current 
     generation broadband credit for any taxable year is equal to 
     10 percent of the qualified expenditures incurred with 
     respect to qualified equipment offering current generation 
     broadband services to rural subscribers or underserved 
     subscribers and taken into account with respect to such 
     taxable year.
       ``(2) Next generation broadband credit.--The next 
     generation broadband credit for any taxable year is equal to 
     20 percent of the qualified expenditures incurred with 
     respect to qualified equipment offering next generation 
     broadband services to all rural subscribers, all underserved 
     subscribers, or any other residential subscribers and taken 
     into account with respect to such taxable year.
       ``(c) When Expenditures Taken Into Account.--For purposes 
     of this section--
       ``(1) In general.--Qualified expenditures with respect to 
     qualified equipment shall be taken into account with respect 
     to the first taxable year in which current generation 
     broadband services or next generation broadband services are 
     offered by the taxpayer through such equipment to 
     subscribers.
       ``(2) Offer of services.--For purposes of paragraph (1), 
     the offer of current generation broadband services or next 
     generation broadband services through qualified equipment 
     occurs when such class of service is purchased by and 
     provided to at least 10 percent of the subscribers described 
     in subsection (b) which such equipment is capable of serving 
     through the legal or contractual area access rights or 
     obligations of the taxpayer.
       ``(d) Special Allocation Rules.--
       ``(1) Current generation broadband services.--For purposes 
     of determining the current generation broadband credit under 
     subsection (a)(1), if the qualified equipment is capable of 
     serving both the subscribers described under subsection 
     (b)(1) and other subscribers, the qualified expenditures 
     shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of the total 
     potential subscriber populations within the rural areas and 
     the underserved areas which the equipment is capable of 
     serving, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving.
       ``(2) Next generation broadband services.--For purposes of 
     determining the next generation broadband credit under 
     subsection (a)(2), if the qualified equipment is capable of 
     serving both the subscribers described under subsection 
     (b)(2) and other subscribers, the qualified expenditures 
     shall be multiplied by a fraction--
       ``(A) the numerator of which is the sum of--
       ``(i) the total potential subscriber populations within the 
     rural areas and underserved areas, plus
       ``(ii) the total potential subscriber population of the 
     area consisting only of residential subscribers not described 
     in clause (i),
     which the equipment is capable of serving, and
       ``(B) the denominator of which is the total potential 
     subscriber population of the area which the equipment is 
     capable of serving.
       ``(e) Definitions.--For purposes of this section--

[[Page S9719]]

       ``(1) Antenna.--The term `antenna' means any device used to 
     transmit or receive signals through the electromagnetic 
     spectrum, including satellite equipment.
       ``(2) Cable operator.--The term `cable operator' has the 
     meaning given such term by section 602(5) of the 
     Communications Act of 1934 (47 U.S.C. 522(5)).
       ``(3) Commercial mobile service carrier.--The term 
     `commercial mobile service carrier' means any person 
     authorized to provide commercial mobile radio service as 
     defined in section 20.3 of title 47, Code of Federal 
     Regulations.
       ``(4) Current generation broadband service.--The term 
     `current generation broadband service' means the transmission 
     of signals at a rate of at least 1,500,000 bits per second to 
     the subscriber and at least 200,000 bits per second from the 
     subscriber.
       ``(5) Next generation broadband service.--The term `next 
     generation broadband service' means the transmission of 
     signals at a rate of at least 22,000,000 bits per second to 
     the subscriber and at least 10,000,000 bits per second from 
     the subscriber.
       ``(6) Nonresidential subscriber.--The term `nonresidential 
     subscriber' means a person or entity who purchases broadband 
     services which are delivered to the permanent place of 
     business of such person or entity.
       ``(7) Open video system operator.--The term `open video 
     system operator' means any person authorized to provide 
     service under section 653 of the Communications Act of 1934 
     (47 U.S.C. 573).
       ``(8) Other wireless carrier.--The term `other wireless 
     carrier' means any person (other than a telecommunications 
     carrier, commercial mobile service carrier, cable operator, 
     open video system operator, or satellite carrier) providing 
     current generation broadband services or next generation 
     broadband service to subscribers through the radio 
     transmission of energy.
       ``(9) Packet switching.--The term `packet switching' means 
     controlling or routing the path of a digitized transmission 
     signal which is assembled into packets or cells.
       ``(10) Qualified equipment.--
       ``(A) In general.--The term `qualified equipment' means 
     equipment capable of providing current generation broadband 
     services or next generation broadband services at any time to 
     each subscriber who is utilizing such services.
       ``(B) Only certain investment taken into account.--Except 
     as provided in subparagraph (C), equipment shall be taken 
     into account under subparagraph (A) only to the extent it--
       ``(i) extends from the last point of switching to the 
     outside of the unit, building, dwelling, or office owned or 
     leased by a subscriber in the case of a telecommunications 
     carrier,
       ``(ii) extends from the customer side of the mobile 
     telephone switching office to a transmission/receive antenna 
     (including such antenna) owned or leased by a subscriber in 
     the case of a commercial mobile service carrier,
       ``(iii) extends from the customer side of the headend to 
     the outside of the unit, building, dwelling, or office owned 
     or leased by a subscriber in the case of a cable operator or 
     open video system operator, or
       ``(iv) extends from a transmission/receive antenna 
     (including such antenna) which transmits and receives signals 
     to or from multiple subscribers to a transmission/receive 
     antenna (including such antenna) on the outside of the unit, 
     building, dwelling, or office owned or leased by a subscriber 
     in the case of a satellite carrier or other wireless carrier, 
     unless such other wireless carrier is also a 
     telecommunications carrier.
       ``(C) Packet switching equipment.--Packet switching 
     equipment, regardless of location, shall be taken into 
     account under subparagraph (A) only if it is deployed in 
     connection with equipment described in subparagraph (B) and 
     it is uniquely designed to perform the function of packet 
     switching for current generation broadband services or next 
     generation broadband services, but only if such packet 
     switching is the last in a series of such functions performed 
     in the transmission of a signal to a subscriber or the first 
     in a series of such functions performed in the transmission 
     of a signal from a subscriber.
       ``(11) Qualified expenditure.--
       ``(A) In general.--The term `qualified expenditure' means 
     any amount--
       ``(i) chargeable to capital account with respect to the 
     purchase and installation of qualified equipment (including 
     any upgrades thereto) for which depreciation is allowable 
     under section 168, and
       ``(ii) incurred--

       ``(I) with respect to the provision of current generation 
     broadband service, after December 31, 2000, and before 
     January 1, 2004, and
       ``(II) with respect to the provision of next generation 
     broadband service, after December 31, 2001, and before 
     January 1, 2005.

       ``(B) Certain satellite expenditures excluded.--Such term 
     shall not include any expenditure with respect to the 
     launching of any satellite equipment.
       ``(12) Residential subscriber.--The term `residential 
     subscriber' means an individual who purchases broadband 
     services which are delivered to such individual's dwelling.
       ``(13) Rural subscriber.--
       ``(A) In general.--The term `rural subscriber' means a 
     residential subscriber residing in a dwelling located in a 
     rural area or nonresidential subscriber maintaining a 
     permanent place of business located in a rural area.
       ``(B) Rural area.--The term `rural area' means any census 
     tract which--
       ``(i) is not within 10 miles of any incorporated or census 
     designated place containing more than 25,000 people, and
       ``(ii) is not within a county or county equivalent which 
     has an overall population density of more than 500 people per 
     square mile of land.
       ``(14) Satellite carrier.--The term `satellite carrier' 
     means any person using the facilities of a satellite or 
     satellite service licensed by the Federal Communications 
     Commission and operating in the Fixed-Satellite Service under 
     part 25 of title 47 of the Code of Federal Regulations or the 
     Direct Broadcast Satellite Service under part 100 of title 47 
     of such Code to establish and operate a channel of 
     communications for point-to-multipoint distribution of 
     signals, and owning or leasing a capacity or service on a 
     satellite in order to provide such point-to-multipoint 
     distribution.
       ``(15) Subscriber.--The term `subscriber' means a person 
     who purchases current generation broadband services or next 
     generation broadband services.
       ``(16) Telecommunications carrier.--The term 
     `telecommunications carrier' has the meaning given such term 
     by section 3(44) of the Communications Act of 1934 (47 U.S.C. 
     153 (44)), but--
       ``(A) includes all members of an affiliated group of which 
     a telecommunications carrier is a member, and
       ``(B) does not include a commercial mobile service carrier.
       ``(17) Total potential subscriber population.--The term 
     `total potential subscriber population' means, with respect 
     to any area and based on the most recent census data, the 
     total number of potential residential subscribers residing in 
     dwellings located in such area and potential nonresidential 
     subscribers maintaining permanent places of business located 
     in such area.
       ``(18) Underserved subscriber.--
       ``(A) In general.--The term `underserved subscriber' means 
     a residential subscriber residing in a dwelling located in an 
     underserved area or nonresidential subscriber maintaining a 
     permanent place of business located in an underserved area.
       ``(B) Underserved area.--The term `underserved area' means 
     any census tract--
       ``(i) the poverty level of which is at least 30 percent 
     (based on the most recent census data),
       ``(ii) the median family income of which does not exceed--

       ``(I) in the case of a census tract located in a 
     metropolitan statistical area, 70 percent of the greater of 
     the metropolitan area median family income or the statewide 
     median family income, and
       ``(II) in the case of a census tract located in a 
     nonmetropolitan statistical area, 70 percent of the 
     nonmetropolitan statewide median family income, or

       ``(iii) which is located in an empowerment zone or 
     enterprise community designated under section 1391.
       ``(f) Designation of Census Tracts.--The Secretary shall, 
     not later than 90 days after the date of the enactment of 
     this section, designate and publish those census tracts 
     meeting the criteria described in paragraphs (13)(B) and 
     (18)(B) of subsection (e), and such tracts shall remain so 
     designated for the period ending with the applicable 
     termination date described in subsection (e)(11)(A)(ii).''.
       (b) Credit To Be Part of Investment Credit.--Section 46 
     (relating to the amount of investment credit) is amended by 
     striking ``and'' at the end of paragraph (2), by striking the 
     period at the end of paragraph (3) and inserting ``, and'', 
     and by adding at the end the following new paragraph:
       ``(4) the broadband credit.''.
       (c) Special Rule for Mutual or Cooperative Telephone 
     Companies.--Section 501(c)(12)(B) (relating to list of exempt 
     organizations) is amended by striking ``or'' at the end of 
     clause (iii), by striking the period at the end of clause 
     (iv) and inserting ``, or'', and by adding at the end the 
     following new clause:
       ``(v) from sources not described in subparagraph (A), but 
     only to the extent such income does not in any year exceed an 
     amount equal to the credit for qualified expenditures which 
     would be determined under section 48A for such year if the 
     mutual or cooperative telephone company was not exempt from 
     taxation.''.
       (d) Conforming Amendment.--The table of sections for 
     subpart E of part IV of subchapter A of chapter 1 is amended 
     by inserting after the item relating to section 48 the 
     following new item:

``Sec. 48A. Broadband credit.''.
       (e) Regulatory Matters.--No Federal or State agency or 
     instrumentality shall adopt regulations or ratemaking 
     procedures that would have the effect of confiscating any 
     credit or portion thereof allowed under section 48A of the 
     Internal Revenue Code of 1986 (as added by this section) or 
     otherwise subverting the purpose of this section.
       (f) Study and Report.--
       (1) Sense of congress.--It is the sense of Congress that in 
     order to maintain competitive neutrality, the credit allowed 
     under section 48A of the Internal Revenue Code of 1986 (as 
     added by this section) should be administered in such a 
     manner so as to ensure that each class of provider receives 
     the same level of financial incentive to deploy current 
     generation broadband services and next generation broadband 
     services.
       (2) Study and report.--The Secretary of the Treasury shall, 
     within 180 days after the

[[Page S9720]]

     effective date of this section, study the impact of the 
     credit allowed under section 48A of the Internal Revenue Code 
     of 1986 (as added by this section) on the relative 
     competitiveness of potential classes of providers of current 
     generation broadband services and next generation broadband 
     services, and shall report to Congress the findings of such 
     study, together with any legislative or regulatory proposals 
     determined to be necessary to ensure that the purposes of 
     such credit can be furthered without impacting competitive 
     neutrality among such classes of providers.
       (g) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to expenditures 
     incurred after December 31, 2000.
       (2) Special rule.--The amendments made by subsection (c) 
     shall apply to amounts received after December 31, 2000.

     SEC. 304. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

       (a) In General.--Part IV of subchapter A of chapter 1 
     (relating to credits against tax) is amended by adding at the 
     end the following new subpart:

``Subpart H--Nonrefundable Credit for Holders of Qualified Amtrak Bonds

``Sec. 54. Credit to holders of qualified Amtrak bonds.

     ``SEC. 54. CREDIT TO HOLDERS OF QUALIFIED AMTRAK BONDS.

       ``(a) Allowance of Credit.--In the case of a taxpayer who 
     holds a qualified Amtrak bond on a credit allowance date of 
     such bond which occurs during the taxable year, there shall 
     be allowed as a credit against the tax imposed by this 
     chapter for such taxable year an amount equal to the sum of 
     the credits determined under subsection (b) with respect to 
     credit allowance dates during such year on which the taxpayer 
     holds such bond.
       ``(b) Amount of Credit.--
       ``(1) In general.--The amount of the credit determined 
     under this subsection with respect to any credit allowance 
     date for a qualified Amtrak bond is 25 percent of the annual 
     credit determined with respect to such bond.
       ``(2) Annual credit.--The annual credit determined with 
     respect to any qualified Amtrak bond is the product of--
       ``(A) the applicable credit rate, multiplied by
       ``(B) the outstanding face amount of the bond.
       ``(3) Applicable credit rate.--For purposes of paragraph 
     (2), the applicable credit rate with respect to an issue is 
     the rate equal to an average market yield (as of the day 
     before the date of issuance of the issue) on outstanding 
     long-term corporate debt obligations (determined under 
     regulations prescribed by the Secretary).
       ``(4) Special rule for issuance and redemption.--In the 
     case of a bond which is issued during the 3-month period 
     ending on a credit allowance date, the amount of the credit 
     determined under this subsection with respect to such credit 
     allowance date shall be a ratable portion of the credit 
     otherwise determined based on the portion of the 3-month 
     period during which the bond is outstanding. A similar rule 
     shall apply when the bond is redeemed.
       ``(c) Limitation Based on Amount of Tax.--
       ``(1) In general.--The credit allowed under subsection (a) 
     for any taxable year shall not exceed the excess of--
       ``(A) the sum of the regular tax liability (as defined in 
     section 26(b)) plus the tax imposed by section 55, over
       ``(B) the sum of the credits allowable under this part 
     (other than this subpart and subpart C).
       ``(2) Carryover of unused credit.--If the credit allowable 
     under subsection (a) exceeds the limitation imposed by 
     paragraph (1) for such taxable year, such excess shall be 
     carried to the succeeding taxable year and added to the 
     credit allowable under subsection (a) for such taxable year.
       ``(d) Qualified Amtrak Bond.--For purposes of this part--
       ``(1) In general.--The term `qualified Amtrak bond' means 
     any bond issued as part of an issue if--
       ``(A) 95 percent or more of the proceeds of such issue 
     are--
       ``(i) to be used for any qualified project, or
       ``(ii) to be pledged to secure payments and other 
     obligations incurred by the National Railroad Passenger 
     Corporation in connection with any qualified project,
       ``(B) the bond is issued by the National Railroad Passenger 
     Corporation,
       ``(C) the issuer--
       ``(i) designates such bond for purposes of this section,
       ``(ii) certifies that it meets the State contribution 
     requirement of paragraph (2) with respect to such project, 
     and
       ``(iii) certifies that it has obtained the written approval 
     of the Secretary of Transportation for such project,
       ``(D) the term of each bond which is part of such issue 
     does not exceed 20 years, and
       ``(E) the payment of principal with respect to such bond is 
     guaranteed by the National Railroad Passenger Corporation.
       ``(2) State contribution requirement.--
       ``(A) In general.--For purposes of paragraph (1)(C)(ii), 
     the State contribution requirement of this paragraph is met 
     with respect to any qualified project if the National 
     Railroad Passenger Corporation has a written binding 
     commitment from 1 or more States to make matching 
     contributions not later than the date of issuance of the 
     issue of not less than 20 percent of the cost of the 
     qualified project.
       ``(B) Use of state matching contributions.--The matching 
     contributions described in subparagraph (A) with respect to 
     each qualified project shall be used--
       ``(i) in the case of an amount not to exceed 20 percent of 
     the cost of such project, to redeem bonds which are a part of 
     the issue with respect to such project, and
       ``(ii) in the case of any remaining amount, at the election 
     of the National Railroad Passenger Corporation and the 
     contributing State--

       ``(I) to fund the qualified project,
       ``(II) to redeem such bonds, or
       ``(III) for the purposes of subclauses (I) and (II).

       ``(C) State matching contributions may not include federal 
     funds.--For purposes of this paragraph, State matching 
     contributions shall not be derived, directly or indirectly, 
     from Federal funds, including any transfers from the Highway 
     Trust Fund under section 9503.
       ``(D) No state contribution requirement for certain 
     qualified project.--With respect to the qualified project 
     described in subsection (e)(2)(B), the State contribution 
     requirement of this paragraph is zero.
       ``(3) Qualified project.--The term `qualified project' 
     means--
       ``(A) the acquisition, financing, or refinancing (as 
     described in paragraph (1)(A)(ii)) of equipment, rolling 
     stock, and other capital improvements for the northeast rail 
     corridor between Washington, D.C. and Boston, Massachusetts 
     (including the project described in subsection (e)(2)(B)),
       ``(B) the acquisition, financing, or refinancing (as so 
     described) of equipment, rolling stock, and other capital 
     improvements for the improvement of train speeds or safety 
     (or both) on the high-speed rail corridors designated under 
     section 104(d)(2) of title 23, United States Code, and
       ``(C) the acquisition, financing, or refinancing (as so 
     described) of equipment, rolling stock, and other capital 
     improvements for other intercity passenger rail corridors, 
     including station rehabilitation or construction, track or 
     signal improvements, or the elimination of grade crossings.
       ``(e) Limitations on Amount of Bonds Designated.--
       ``(1) In general.--There is a qualified Amtrak bond 
     limitation for each fiscal year. Such limitation is--
       ``(A) $1,000,000,000 for each of the fiscal years 2001 
     through 2010, and
       ``(B) except as provided in paragraph (5), zero after 
     fiscal year 2010.
       ``(2) Bonds for rail corridors.--
       ``(A) In general.--Not more than $3,000,000,000 of the 
     limitation under paragraph (1) may be designated for any 1 
     rail corridor described in subparagraph (A) or (B) of 
     subsection (d)(3).
       ``(B) Specific qualified project allocation.--Of the amount 
     described in subparagraph (A), the Secretary of 
     Transportation shall allocate $92,000,000 for the acquisition 
     and installation of platform facilities, performance of 
     railroad force account work necessary to complete 
     improvements below street grade, and any other necessary 
     improvements related to construction at the railroad station 
     at the James A. Farley Post Office Building in New York City, 
     New York.
       ``(3) Bonds for other projects.--Not more than 10 percent 
     of the limitation under paragraph (1) for any fiscal year may 
     be allocated to qualified projects described in subsection 
     (d)(3)(C).
       ``(4) Bonds for alaska railroad.--The Secretary of 
     Transportation may allocate to the Alaska Railroad a portion 
     of the qualified Amtrak limitation for any fiscal year in 
     order to allow the Alaska Railroad to issue bonds which meet 
     the requirements of this section for use in financing any 
     project described in subsection (d)(3)(C). For purposes of 
     this section, the Alaska Railroad shall be treated in the 
     same manner as the National Passenger Railroad Corporation.
       ``(5) Carryover of unused limitation.--If for any fiscal 
     year--
       ``(A) the limitation amount under paragraph (1), exceeds
       ``(B) the amount of bonds issued during such year which are 
     designated under subsection (d)(1)(C)(i),

     the limitation amount under paragraph (1) for the following 
     fiscal year (through fiscal year 2014) shall be increased by 
     the amount of such excess.
       ``(6) Preference for greater state participation.--In 
     selecting qualified projects for allocation of the qualified 
     Amtrak bond limitation under this subsection, the Secretary 
     of Transportation shall give preference to any project with a 
     State matching contribution rate exceeding 20 percent.
       ``(f) Other Definitions.--For purposes of this subpart--
       ``(1) Bond.--The term `bond' includes any obligation.
       ``(2) Credit allowance date.--The term `credit allowance 
     date' means--
       ``(A) March 15,
       ``(B) June 15,
       ``(C) September 15, and
       ``(D) December 15.
     Such term includes the last day on which the bond is 
     outstanding.
       ``(3) State.--The term `State' includes the District of 
     Columbia.
       ``(g) Credit Included in Gross Income.--Gross income 
     includes the amount of the credit allowed to the taxpayer 
     under this

[[Page S9721]]

     section (determined without regard to subsection (c)) and the 
     amount so included shall be treated as interest income.
       ``(h) Special Rules Relating to Arbitrage.--
       ``(1) In general.--A bond shall not be treated as failing 
     to meet the requirements of subsection (d)(1) solely by 
     reason of the fact that proceeds of the issue of which such 
     bond is a part are invested for a temporary period (but not 
     more than 36 months) until such proceeds are needed for the 
     purpose for which such issue was issued.
       ``(2) Reasonable expectation and binding commitment 
     requirements.--Paragraph (1) shall apply to an issue only if, 
     as of the date of issuance, the issuer reasonably expects--
       ``(A) that at least 95 percent of the proceeds of the issue 
     will be spent for 1 or more qualified projects within the 3-
     year period beginning on such date,
       ``(B) to incur a binding commitment with a third party to 
     spend at least 10 percent of the proceeds of the issue, or to 
     commence preliminary engineering or construction, with 
     respect to such projects within the 6-month period beginning 
     on such date, and
       ``(C) that the remaining proceeds of the issue will be 
     spent with due diligence with respect to such projects.
       ``(3) Earnings on proceeds.--Any earnings on proceeds 
     during the temporary period shall be treated as proceeds of 
     the issue for purposes of applying subsection (d)(1) and 
     paragraph (1) of this subsection.
       ``(i) Use of Trust Account.--
       ``(1) In general.--The amount of any matching contribution 
     with respect to a qualified project described in subsection 
     (d)(2)(B)(i) or (d)(2)(B)(ii)(II) and the temporary period 
     investment earnings on proceeds of the issue with respect to 
     such project described in subsection (h)(1), and any earnings 
     thereon, shall be held in a trust account by a trustee 
     independent of the National Railroad Passenger Corporation to 
     be used to redeem bonds which are part of such issue.
       ``(2) Use of remaining funds in trust account.--Upon the 
     repayment of the principal of all qualified Amtrak bonds 
     issued under this section, any remaining funds in the trust 
     account described in paragraph (1) shall be available to the 
     trustee described in paragraph (1) to meet any remaining 
     obligations under any guaranteed investment contract used to 
     secure earnings sufficient to repay the principal of such 
     bonds.
       ``(j) Other Special Rules.--
       ``(1) Partnership; s corporation; and other pass-thru 
     entities.--Under regulations prescribed by the Secretary, in 
     the case of a partnership, trust, S corporation, or other 
     pass-thru entity, rules similar to the rules of section 41(g) 
     shall apply with respect to the credit allowable under 
     subsection (a).
       ``(2) Bonds held by regulated investment companies.--If any 
     qualified Amtrak bond is held by a regulated investment 
     company, the credit determined under subsection (a) shall be 
     allowed to shareholders of such company under procedures 
     prescribed by the Secretary.
       ``(3) Credits may be stripped.--Under regulations 
     prescribed by the Secretary--
       ``(A) In general.--There may be a separation (including at 
     issuance) of the ownership of a qualified Amtrak bond and the 
     entitlement to the credit under this section with respect to 
     such bond. In case of any such separation, the credit under 
     this section shall be allowed to the person who on the credit 
     allowance date holds the instrument evidencing the 
     entitlement to the credit and not to the holder of the bond.
       ``(B) Certain rules to apply.--In the case of a separation 
     described in subparagraph (A), the rules of section 1286 
     shall apply to the qualified Amtrak bond as if it were a 
     stripped bond and to the credit under this section as if it 
     were a stripped coupon.
       ``(4) Treatment for estimated tax purposes.--Solely for 
     purposes of sections 6654 and 6655, the credit allowed by 
     this section to a taxpayer by reason of holding a qualified 
     Amtrak bond on a credit allowance date shall be treated as if 
     it were a payment of estimated tax made by the taxpayer on 
     such date.
       ``(5) Credit may be transferred.--Nothing in any law or 
     rule of law shall be construed to limit the transferability 
     of the credit allowed by this section through sale and 
     repurchase agreements.
       ``(6) Reporting.--Issuers of qualified Amtrak bonds shall 
     submit reports similar to the reports required under section 
     149(e).''.
       (b) Reporting.--Subsection (d) of section 6049 (relating to 
     returns regarding payments of interest) is amended by adding 
     at the end the following new paragraph:
       ``(8) Reporting of credit on qualified amtrak bonds.--
       ``(A) In general.--For purposes of subsection (a), the term 
     `interest' includes amounts includible in gross income under 
     section 54(g) and such amounts shall be treated as paid on 
     the credit allowance date (as defined in section 54(f)(2)).
       ``(B) Reporting to corporations, etc.--Except as otherwise 
     provided in regulations, in the case of any interest 
     described in subparagraph (A) of this paragraph, subsection 
     (b)(4) of this section shall be applied without regard to 
     subparagraphs (A), (H), (I), (J), (K), and (L)(i).
       ``(C) Regulatory authority.--The Secretary may prescribe 
     such regulations as are necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations which 
     require more frequent or more detailed reporting.''.
       (c) Clerical Amendments.--
       (1) The table of subparts for part IV of subchapter A of 
     chapter 1 is amended by adding at the end the following new 
     item:

``Subpart H. Nonrefundable Credit for Holders of Qualified Amtrak 
              Bonds.''.

       (2) Section 6401(b)(1) is amended by striking ``and G'' and 
     inserting ``G, and H''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to obligations issued after September 30, 2000.
       (e) Multi-Year Capital Spending Plan and Oversight.--
       (1) Amtrak capital spending plan.--
       (A) In general.--The National Railroad Passenger 
     Corporation shall annually submit to the President and 
     Congress a multi-year capital spending plan, as approved by 
     the Board of Directors of the Corporation.
       (B) Contents of plan.--Such plan shall identify the capital 
     investment needs of the Corporation over a period of not less 
     than 5 years and the funding sources available to finance 
     such needs and shall prioritize such needs according to 
     corporate goals and strategies.
       (C) Initial submission date.--The first plan shall be 
     submitted before the issuance of any qualified Amtrak bonds 
     pursuant to section 54 of the Internal Revenue Code of 1986 
     (as added by this section).
       (2) Oversight of amtrak trust account and qualified 
     projects.--
       (A) Trust account oversight.--The Secretary of the Treasury 
     shall annually report to Congress as to whether the amount 
     deposited in the trust account established by the National 
     Passenger Railroad Corporation under section 54(i) of such 
     Code (as so added) is sufficient to fully repay at maturity 
     the principal of any outstanding qualified Amtrak bonds 
     issued pursuant to section 54 of such Code (as so added).
       (B) Project oversight.--The National Railroad Passenger 
     Corporation shall contract for an annual independent 
     assessment of the costs and benefits of the qualified 
     projects financed by such qualified Amtrak bonds, including 
     an assessment of the investment evaluation process of the 
     Corporation. The annual assessment shall be included in the 
     plan submitted under paragraph (1).
       (f) Protection of Highway Trust Fund.--
       (1) Certification by the secretary of the treasury.--The 
     issuance of any qualified Amtrak bonds by the National 
     Passenger Railroad Corporation pursuant to section 54 of the 
     Internal Revenue Code of 1986 (as added by this section) is 
     conditioned on certification by the Secretary of the 
     Treasury, after consultation with the Secretary of 
     Transportation, within 30 days of a request by the issuer, 
     that with respect to funds of the Highway Trust Fund 
     described under paragraph (2), the issuer either--
       (A) has not received such funds during fiscal years 
     commencing with fiscal year 2001 and ending before the fiscal 
     year the bonds are issued, or
       (B) has repaid to the Highway Trust Fund any such funds 
     which were received during such fiscal years.
       (2) Applicability.--This subsection shall apply to funds 
     received directly or indirectly from the Highway Trust Fund 
     established under section 9503 of the Internal Revenue Code 
     of 1986, except for funds authorized to be expended under 
     section 9503(c) of such Code, as in effect on the date of the 
     enactment of this Act.
       (3) No retroactive effect.--Nothing in this subsection 
     shall adversely affect the entitlement of the holders of 
     qualified Amtrak bonds to the tax credit allowed pursuant to 
     section 54 of the Internal Revenue Code of 1986 (as so added) 
     or to repayment of principal upon maturity.

     SEC. 305. CLARIFICATION OF CONTRIBUTION IN AID OF 
                   CONSTRUCTION.

       (a) In General.--Subparagraph (A) of section 118(c)(3) 
     (relating to definitions) is amended to read as follows:
       ``(A) Contribution in aid of construction.--The term 
     `contribution in aid of construction' shall be defined by 
     regulations prescribed by the Secretary, except that such 
     term--
       ``(i) shall include amounts paid as customer connection 
     fees (including amounts paid to connect the customer's line 
     to or extend a main water or sewer line), and
       ``(ii) shall not include amounts paid as service charges 
     for starting or stopping services.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to amounts received after the date of the 
     enactment of this Act.

     SEC. 306. RECOVERY PERIOD FOR DEPRECIATION OF CERTAIN 
                   LEASEHOLD IMPROVEMENTS.

       (a) 15-Year Recovery Period.--Subparagraph (E) of section 
     168(e)(3) (relating to 15-year property) is amended by 
     striking ``and'' at the end of clause (ii), by striking the 
     period at the end of clause (iii) and inserting ``, and'', 
     and by adding at the end the following new clause:
       ``(iv) any qualified leasehold improvement property.''.
       (b) Qualified Leasehold Improvement Property.--Subsection 
     (e) of section 168 is amended by adding at the end the 
     following new paragraph:
       ``(6) Qualified leasehold improvement property.--
       ``(A) In general.--The term `qualified leasehold 
     improvement property' means any improvement to an interior 
     portion of a

[[Page S9722]]

     building which is nonresidential real property if--
       ``(i) such improvement is made under or pursuant to a lease 
     (as defined in subsection (h)(7))--

       ``(I) by the lessee (or any sublessee) of such portion, or
       ``(II) by the lessor of such portion,

       ``(ii) the original use of such improvement begins with the 
     lessee and after December 31, 2006,
       ``(iii) such portion is to be occupied exclusively by the 
     lessee (or any sublessee) of such portion, and
       ``(iv) such improvement is placed in service more than 3 
     years after the date the building was first placed in 
     service.
       ``(B) Certain improvements not included.--Such term shall 
     not include any improvement for which the expenditure is 
     attributable to--
       ``(i) the enlargement of the building,
       ``(ii) any elevator or escalator,
       ``(iii) any structural component benefiting a common area, 
     and
       ``(iv) the internal structural framework of the building.
       ``(C) Definitions and special rules.--For purposes of this 
     paragraph--
       ``(i) Commitment to lease treated as lease.--A commitment 
     to enter into a lease shall be treated as a lease, and the 
     parties to such commitment shall be treated as lessor and 
     lessee, respectively, if the lease is in effect at the time 
     the property is placed in service.
       ``(ii) Related persons.--A lease between related persons 
     shall not be considered a lease. For purposes of the 
     preceding sentence, the term `related persons' means--

       ``(I) members of an affiliated group (as defined in section 
     1504), and
       ``(II) persons having a relationship described in 
     subsection (b) of section 267(b) or 707(b)(1); except that, 
     for purposes of this clause, the phrase `80 percent or more' 
     shall be substituted for the phrase `more than 50 percent' 
     each place it appears in such subsections.''.

       (c) Requirement To Use Straight Line Method.--Paragraph (3) 
     of section 168(b) is amended by adding at the end the 
     following new subparagraph:
       ``(G) Qualified leasehold improvement property described in 
     subsection (e)(6).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to qualified leasehold improvement property 
     placed in service after December 31, 2006.

                    TITLE IV--TAX RELIEF FOR FARMERS

     SEC. 401. FARM, FISHING, AND RANCH RISK MANAGEMENT ACCOUNTS.

       (a) In General.--Subpart C of part II of subchapter E of 
     chapter 1 (relating to taxable year for which deductions 
     taken) is amended by inserting after section 468B the 
     following new section:

     ``SEC. 468C. FARM, FISHING, AND RANCH RISK MANAGEMENT 
                   ACCOUNTS.

       ``(a) Deduction Allowed.--In the case of an individual 
     engaged in an eligible farming business or commercial 
     fishing, there shall be allowed as a deduction for any 
     taxable year the amount paid in cash by the taxpayer during 
     the taxable year to a Farm, Fishing, and Ranch Risk 
     Management Account (hereinafter referred to as the `FFARRM 
     Account').
       ``(b) Limitation.--
       ``(1) Contributions.--The amount which a taxpayer may pay 
     into the FFARRM Account for any taxable year shall not exceed 
     20 percent of so much of the taxable income of the taxpayer 
     (determined without regard to this section) which is 
     attributable (determined in the manner applicable under 
     section 1301) to any eligible farming business or commercial 
     fishing.
       ``(2) Distributions.--Distributions from a FFARRM Account 
     may not be used to purchase, lease, or finance any new 
     fishing vessel, add capacity to any fishery, or otherwise 
     contribute to the overcapitalization of any fishery. The 
     Secretary of Commerce shall implement regulations to enforce 
     this paragraph.
       ``(c) Eligible Businesses.--For purposes of this section--
       ``(1) Eligible farming business.--The term `eligible 
     farming business' means any farming business (as defined in 
     section 263A(e)(4)) which is not a passive activity (within 
     the meaning of section 469(c)) of the taxpayer.
       ``(2) Commercial Fishing.--The term `commercial fishing' 
     has the meaning given such term by section (3) of the 
     Magnuson-Stevens Fishery Conservation and Management Act (16 
     U.S.C. 1802) but only if such fishing is not a passive 
     activity (within the meaning of section 469(c)) of the 
     taxpayer.
       ``(d) FFARRM Account.--For purposes of this section--
       ``(1) In general.--The term `FFARRM Account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of the taxpayer, but only if the written governing 
     instrument creating the trust meets the following 
     requirements:
       ``(A) No contribution will be accepted for any taxable year 
     in excess of the amount allowed as a deduction under 
     subsection (a) for such year.
       ``(B) The trustee is a bank (as defined in section 408(n)) 
     or another person who demonstrates to the satisfaction of the 
     Secretary that the manner in which such person will 
     administer the trust will be consistent with the requirements 
     of this section.
       ``(C) The assets of the trust consist entirely of cash or 
     of obligations which have adequate stated interest (as 
     defined in section 1274(c)(2)) and which pay such interest 
     not less often than annually.
       ``(D) All income of the trust is distributed currently to 
     the grantor.
       ``(E) The assets of the trust will not be commingled with 
     other property except in a common trust fund or common 
     investment fund.
       ``(2) Account taxed as grantor trust.--The grantor of a 
     FFARRM Account shall be treated for purposes of this title as 
     the owner of such Account and shall be subject to tax thereon 
     in accordance with subpart E of part I of subchapter J of 
     this chapter (relating to grantors and others treated as 
     substantial owners).
       ``(e) Inclusion of Amounts Distributed.--
       ``(1) In general.--Except as provided in paragraph (2), 
     there shall be includible in the gross income of the taxpayer 
     for any taxable year--
       ``(A) any amount distributed from a FFARRM Account of the 
     taxpayer during such taxable year, and
       ``(B) any deemed distribution under--
       ``(i) subsection (f )(1) (relating to deposits not 
     distributed within 5 years),
       ``(ii) subsection (f )(2) (relating to cessation in 
     eligible farming business), and
       ``(iii) subparagraph (B) or (C) of subsection (f )(3) 
     (relating to prohibited transactions and pledging account as 
     security).
       ``(2) Exceptions.--Paragraph (1)(A) shall not apply to--
       ``(A) any distribution to the extent attributable to income 
     of the Account, and
       ``(B) the distribution of any contribution paid during a 
     taxable year to a FFARRM Account to the extent that such 
     contribution exceeds the limitation applicable under 
     subsection (b) if requirements similar to the requirements of 
     section 408(d)(4) are met.
     For purposes of subparagraph (A), distributions shall be 
     treated as first attributable to income and then to other 
     amounts.
       ``(f ) Special Rules.--
       ``(1) Tax on deposits in account which are not distributed 
     within 5 years.--
       ``(A) In general.--If, at the close of any taxable year, 
     there is a nonqualified balance in any FFARRM Account--
       ``(i) there shall be deemed distributed from such Account 
     during such taxable year an amount equal to such balance, and
       ``(ii) the taxpayer's tax imposed by this chapter for such 
     taxable year shall be increased by 10 percent of such deemed 
     distribution.

     The preceding sentence shall not apply if an amount equal to 
     such nonqualified balance is distributed from such Account to 
     the taxpayer before the due date (including extensions) for 
     filing the return of tax imposed by this chapter for such 
     year (or, if earlier, the date the taxpayer files such return 
     for such year).
       ``(B) Nonqualified balance.--For purposes of subparagraph 
     (A), the term `nonqualified balance' means any balance in the 
     Account on the last day of the taxable year which is 
     attributable to amounts deposited in such Account before the 
     4th preceding taxable year.
       ``(C) Ordering rule.--For purposes of this paragraph, 
     distributions from a FFARRM Account (other than distributions 
     of current income) shall be treated as made from deposits in 
     the order in which such deposits were made, beginning with 
     the earliest deposits.
       ``(2) Cessation in eligible business.--At the close of the 
     first disqualification period after a period for which the 
     taxpayer was engaged in an eligible farming business or 
     commercial fishing, there shall be deemed distributed from 
     the FFARRM Account of the taxpayer an amount equal to the 
     balance in such Account (if any) at the close of such 
     disqualification period. For purposes of the preceding 
     sentence, the term `disqualification period' means any period 
     of 2 consecutive taxable years for which the taxpayer is not 
     engaged in an eligible farming business or commercial 
     fishing.
       ``(3) Certain rules to apply.--Rules similar to the 
     following rules shall apply for purposes of this section:
       ``(A) Section 220(f )(8) (relating to treatment on death).
       ``(B) Section 408(e)(2) (relating to loss of exemption of 
     account where individual engages in prohibited transaction).
       ``(C) Section 408(e)(4) (relating to effect of pledging 
     account as security).
       ``(D) Section 408(g) (relating to community property laws).
       ``(E) Section 408(h) (relating to custodial accounts).
       ``(4) Time when payments deemed made.--For purposes of this 
     section, a taxpayer shall be deemed to have made a payment to 
     a FFARRM Account on the last day of a taxable year if such 
     payment is made on account of such taxable year and is made 
     on or before the due date (without regard to extensions) for 
     filing the return of tax for such taxable year.
       ``(5) Individual.--For purposes of this section, the term 
     `individual' shall not include an estate or trust.
       ``(6) Deduction not allowed for self-employment tax.--The 
     deduction allowable by reason of subsection (a) shall not be 
     taken into account in determining an individual's net 
     earnings from self-employment (within the meaning of section 
     1402(a)) for purposes of chapter 2.
       ``(g) Reports.--The trustee of a FFARRM Account shall make 
     such reports regarding such Account to the Secretary and to 
     the person for whose benefit the Account is maintained with 
     respect to contributions, distributions, and such other 
     matters as the

[[Page S9723]]

     Secretary may require under regulations. The reports required 
     by this subsection shall be filed at such time and in such 
     manner and furnished to such persons at such time and in such 
     manner as may be required by such regulations.''.
       (b) Tax on Excess Contributions.--
       (1) Subsection (a) of section 4973 (relating to tax on 
     excess contributions to certain tax-favored accounts and 
     annuities) is amended by striking ``or'' at the end of 
     paragraph (3), by redesignating paragraph (4) as paragraph 
     (5), and by inserting after paragraph (3) the following new 
     paragraph:
       ``(4) a FFARRM Account (within the meaning of section 
     468C(d)), or''.
       (2) Section 4973 is amended by adding at the end the 
     following new subsection:
       ``(g) Excess Contributions to FFARRM Accounts.--For 
     purposes of this section, in the case of a FFARRM Account 
     (within the meaning of section 468C(d)), the term `excess 
     contributions' means the amount by which the amount 
     contributed for the taxable year to the Account exceeds the 
     amount which may be contributed to the Account under section 
     468C(b) for such taxable year. For purposes of this 
     subsection, any contribution which is distributed out of the 
     FFARRM Account in a distribution to which section 
     468C(e)(2)(B) applies shall be treated as an amount not 
     contributed.''.
       (3) The section heading for section 4973 is amended to read 
     as follows:

     ``SEC. 4973. EXCESS CONTRIBUTIONS TO CERTAIN ACCOUNTS, 
                   ANNUITIES, ETC.''.

       (4) The table of sections for chapter 43 is amended by 
     striking the item relating to section 4973 and inserting the 
     following new item:

``Sec. 4973. Excess contributions to certain accounts, annuities, 
              etc.''.

       (c) Tax on Prohibited Transactions.--
       (1) Subsection (c) of section 4975 (relating to tax on 
     prohibited transactions) is amended by adding at the end the 
     following new paragraph:
       ``(6) Special rule for ffarrm accounts.--A person for whose 
     benefit a FFARRM Account (within the meaning of section 
     468C(d)) is established shall be exempt from the tax imposed 
     by this section with respect to any transaction concerning 
     such account (which would otherwise be taxable under this 
     section) if, with respect to such transaction, the account 
     ceases to be a FFARRM Account by reason of the application of 
     section 468C(f )(3)(A) to such account.''.
       (2) Paragraph (1) of section 4975(e) is amended by 
     redesignating subparagraphs (E) and (F) as subparagraphs (F) 
     and (G), respectively, and by inserting after subparagraph 
     (D) the following new subparagraph:
       ``(E) a FFARRM Account described in section 468C(d),''.
       (d) Failure To Provide Reports on FFARRM Accounts.--
     Paragraph (2) of section 6693(a) (relating to failure to 
     provide reports on certain tax-favored accounts or annuities) 
     is amended by redesignating subparagraphs (C) and (D) as 
     subparagraphs (D) and (E), respectively, and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) section 468C(g) (relating to FFARRM Accounts),''.
       (e) Clerical Amendment.--The table of sections for subpart 
     C of part II of subchapter E of chapter 1 is amended by 
     inserting after the item relating to section 468B the 
     following new item:

``Sec. 468C. Farm, Fishing and Ranch Risk Management Accounts.''.

       (f ) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 402. WRITTEN AGREEMENT RELATING TO EXCLUSION OF CERTAIN 
                   FARM RENTAL INCOME FROM NET EARNINGS FROM SELF-
                   EMPLOYMENT.

       (a) Internal Revenue Code.--Section 1402(a)(1)(A) (relating 
     to net earnings from self-employment) is amended by striking 
     ``an arrangement'' and inserting ``a lease agreement''.
       (b) Social Security Act.--Section 211(a)(1)(A) of the 
     Social Security Act is amended by striking ``an arrangement'' 
     and inserting ``a lease agreement''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 403. TREATMENT OF CONSERVATION RESERVE PROGRAM PAYMENTS 
                   AS RENTALS FROM REAL ESTATE.

       (a) In General.--Section 1402(a)(1) (defining net earnings 
     from self-employment) is amended by inserting ``and including 
     payments under section 1233(2) of the Food Security Act of 
     1985 (16 U.S.C. 3833(2))'' after ``crop shares''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to payments made after December 31, 2000.

     SEC. 404. EXEMPTION OF AGRICULTURAL BONDS FROM STATE VOLUME 
                   CAP.

       (a) In General.--Section 146(g) (relating to exception for 
     certain bonds) is amended by striking ``and'' at the end of 
     paragraph (3), by striking the period at the end of paragraph 
     (4) and inserting ``, and'', and by inserting after paragraph 
     (4) the following new paragraph:
       ``(5) any qualified small issue bond described in section 
     144(a)(12)(B)(ii).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to bonds issued after December 31, 2000.

     SEC. 405. MODIFICATIONS TO SECTION 512(B)(13).

       (a) In General.--Paragraph (13) of section 512(b) is 
     amended by redesignating subparagraph (E) as subparagraph (F) 
     and by inserting after subparagraph (D) the following new 
     paragraph:
       ``(E) Paragraph to apply only to excess payments.--
       ``(i) In general.--Subparagraph (A) shall apply only to the 
     portion of a specified payment received by the controlling 
     organization that exceeds the amount which would have been 
     paid if such payment met the requirements prescribed under 
     section 482.
       ``(ii) Addition to tax for valuation misstatements.--The 
     tax imposed by this chapter on the controlling organization 
     shall be increased by an amount equal to 20 percent of such 
     excess.''.
       (b) Effective Date.--
       (1) In general.--The amendment made by this section shall 
     apply to payments received or accrued after December 31, 
     2000.
       (2) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 did not apply to any amount received or accrued 
     in the first 2 taxable years beginning on or after the date 
     of the enactment of this Act under any contract described in 
     subsection (b)(2) of such section, such amendments also shall 
     not apply to amounts received or accrued under such contract 
     before January 1, 2001.

     SEC. 406. CHARITABLE DEDUCTION FOR CONTRIBUTIONS OF FOOD 
                   INVENTORY.

       (a) In General.--Subsection (e) of section 170 (relating to 
     certain contributions of ordinary income and capital gain 
     property) is amended by adding at the end the following new 
     paragraph:
       ``(7) Special rule for contributions of food inventory.--
     For purposes of this section--
       ``(A) Contributions by non-corporate taxpayers.--In the 
     case of a charitable contribution of food by a taxpayer in a 
     farming business (as defined in section 263A(e)(4)), 
     paragraph (3)(A) shall be applied without regard to whether 
     or not the contribution is made by a corporation.
       ``(B) Limit on reduction.--In the case of a charitable 
     contribution of food which is a qualified contribution 
     (within the meaning of paragraph (3)(A), as modified by 
     subparagraph (A) of this paragraph)--
       ``(i) paragraph (3)(B) shall not apply, and
       ``(ii) the reduction under paragraph (1)(A) for such 
     contribution shall be no greater than the amount (if any) by 
     which the amount of such contribution exceeds twice the basis 
     of such food.
       ``(C) Determination of basis.--For purposes of this 
     paragraph, if a taxpayer uses the cash method of accounting, 
     the basis of any qualified contribution of such taxpayer 
     shall be deemed to be 50 percent of the fair market value of 
     such contribution.
       ``(D) Determination of fair market value.--In the case of a 
     charitable contribution of food which is a qualified 
     contribution (within the meaning of paragraph (3), as 
     modified by subparagraphs (A) and (B) of this paragraph) and 
     which, solely by reason of internal standards of the 
     taxpayer, lack of market, or similar circumstances, or which 
     is produced by the taxpayer exclusively for the purposes of 
     transferring the food to an organization described in 
     paragraph (3)(A), cannot or will not be sold, the fair market 
     value of such contribution shall be determined--
       ``(i) without regard to such internal standards, such lack 
     of market, such circumstances, or such exclusive purpose, and
       ``(ii) if applicable, by taking into account the price at 
     which the same or similar food items are sold by the taxpayer 
     at the time of the contribution (or, if not so sold at such 
     time, in the recent past).
       ``(E) Termination.--This paragraph shall not apply to any 
     contribution made during any taxable year beginning after 
     December 31, 2003.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 407. INCOME AVERAGING FOR FARMERS AND FISHERMEN NOT TO 
                   INCREASE ALTERNATIVE MINIMUM TAX LIABILITY.

       (a) In General.--Section 55(c) (defining regular tax) is 
     amended by redesignating paragraph (2) as paragraph (3) and 
     by inserting after paragraph (1) the following new paragraph:
       ``(2) Coordination with income averaging for farmers and 
     fishermen.--Solely for purposes of this section, section 1301 
     (relating to averaging of farm and fishing income) shall not 
     apply in computing the regular tax.''.
       (b) Allowing Income Averaging for Fishermen.--
       (1) In general.--Section 1301(a) is amended by striking 
     ``farming business'' and inserting ``farming business or 
     fishing business''.
       (2) Definition of elected farm income.--
       (A) In general.--Clause (i) of section 1301(b)(1)(A) is 
     amended by inserting ``or fishing business'' before the 
     semicolon.
       (B) Conforming amendment.--Subparagraph (B) of section 
     1301(b)(1) is amended by inserting ``or fishing business'' 
     after ``farming business'' both places it occurs.
       (3) Definition of fishing business.--Section 1301(b) is 
     amended by adding at the end the following new paragraph:
       ``(4) Fishing business.--The term `fishing business' means 
     the conduct of commercial fishing as defined in section 3 of 
     the Magnuson-Stevens Fishery Conservation and Management Act 
     (16 U.S.C. 1802).''.

[[Page S9724]]

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 408. COOPERATIVE MARKETING INCLUDES VALUE-ADDED 
                   PROCESSING THROUGH ANIMALS.

       (a) In General.--Section 1388 (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new subsection:
       ``(k) Cooperative Marketing Includes Value-Added Processing 
     Through Animals.--For purposes of section 521 and this 
     subchapter, the term `marketing the products of members or 
     other producers' includes feeding the products of members or 
     other producers to cattle, hogs, fish, chickens, or other 
     animals and selling the resulting animals or animal 
     products.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 409. DECLARATORY JUDGMENT RELIEF FOR SECTION 521 
                   COOPERATIVES.

       (a) In General.--Section 7428(a)(1) (relating to 
     declaratory judgments of tax exempt organizations) is amended 
     by striking ``or'' at the end of subparagraph (B) and by 
     adding at the end the following new subparagraph:
       ``(D) with respect to the initial qualification or 
     continuing qualification of a cooperative as described in 
     section 521(b) which is exempt from tax under section 521(a), 
     or''.
       (b) Effective Date.--The amendments made by this section 
     shall apply with respect to pleadings filed after the date of 
     the enactment of this Act but only with respect to 
     determinations (or requests for determinations) made after 
     January 1, 2000.

     SEC. 410. SMALL ETHANOL PRODUCER CREDIT.

       (a) Allocation of Alcohol Fuels Credit to Patrons of a 
     Cooperative.--Section 40(g) (relating to alcohol used as 
     fuel) is amended by adding at the end the following new 
     paragraph:
       ``(6) Allocation of small ethanol producer credit to 
     patrons of cooperative.--
       ``(A) Election to allocate.--
       ``(i) In general.--In the case of a cooperative 
     organization described in section 1381(a), any portion of the 
     credit determined under subsection (a)(3) for the taxable 
     year may, at the election of the organization, be apportioned 
     pro rata among patrons of the organization on the basis of 
     the quantity or value of business done with or for such 
     patrons for the taxable year.
       ``(ii) Form and effect of election.--An election under 
     clause (i) for any taxable year shall be made on a timely 
     filed return for such year. Such election, once made, shall 
     be irrevocable for such taxable year.
       ``(B) Treatment of organizations and patrons.--The amount 
     of the credit apportioned to patrons under subparagraph (A)--
       ``(i) shall not be included in the amount determined under 
     subsection (a) with respect to the organization for the 
     taxable year,
       ``(ii) shall be included in the amount determined under 
     subsection (a) for the taxable year of each patron for which 
     the patronage dividends for the taxable year described in 
     subparagraph (A) are included in gross income, and
       ``(iii) shall be included in gross income of such patrons 
     for the taxable year in the manner and to the extent provided 
     in section 87.
       ``(C) Special rules for decrease in credits for taxable 
     year.--If the amount of the credit of a cooperative 
     organization determined under subsection (a)(3) for a taxable 
     year is less than the amount of such credit shown on the 
     return of the cooperative organization for such year, an 
     amount equal to the excess of--
       ``(i) such reduction, over
       ``(ii) the amount not apportioned to such patrons under 
     subparagraph (A) for the taxable year,
     shall be treated as an increase in tax imposed by this 
     chapter on the organization. Such increase shall not be 
     treated as tax imposed by this chapter for purposes of 
     determining the amount of any credit under this subpart or 
     subpart A, B, E, or G.''.
       (b) Improvements to Small Ethanol Producer Credit.--
       (1) Small ethanol producer credit not a passive activity 
     credit.--Clause (i) of section 469(d)(2)(A) is amended by 
     striking ``subpart D'' and inserting ``subpart D, other than 
     section 40(a)(3),''.
       (2) Allowing credit against minimum tax.--
       (A) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax) is amended by 
     redesignating paragraph (3) as paragraph (4) and by inserting 
     after paragraph (2) the following new paragraph:
       ``(3) Special rules for small ethanol producer credit.--
       ``(A) In general.--In the case of the small ethanol 
     producer credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) subparagraphs (A) and (B) thereof shall not apply, 
     and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the small 
     ethanol producer credit).

       ``(B) Small ethanol producer credit.--For purposes of this 
     subsection, the term `small ethanol producer credit' means 
     the credit allowable under subsection (a) by reason of 
     section 40(a)(3).''.
       (B) Conforming amendment.--Subclause (II) of section 
     38(c)(2)(A)(ii) is amended by striking ``(other'' and all 
     that follows through ``credit)'' and inserting ``(other than 
     the empowerment zone employment credit or the small ethanol 
     producer credit)''.
       (3) Small ethanol producer credit not added back to income 
     under section 87.--Section 87 (relating to income inclusion 
     of alcohol fuel credit) is amended to read as follows:

     ``SEC. 87. ALCOHOL FUEL CREDIT.

       ``Gross income includes an amount equal to the sum of--
       ``(1) the amount of the alcohol mixture credit determined 
     with respect to the taxpayer for the taxable year under 
     section 40(a)(1), and
       ``(2) the alcohol credit determined with respect to the 
     taxpayer for the taxable year under section 40(a)(2).''.
       (c) Conforming Amendment.--Section 1388 (relating to 
     definitions and special rules for cooperative organizations), 
     as amended by section 408, is amended by adding at the end 
     the following new subsection:
       ``(l) Cross Reference.--For provisions relating to the 
     apportionment of the alcohol fuels credit between cooperative 
     organizations and their patrons, see section 40(g)(6).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

     SEC. 411. PAYMENT OF DIVIDENDS ON STOCK OF COOPERATIVES 
                   WITHOUT REDUCING PATRONAGE DIVIDENDS.

       (a) In General.--Subsection (a) of section 1388 (relating 
     to patronage dividend defined) is amended by adding at the 
     end the following new sentence: ``For purposes of paragraph 
     (3), net earnings shall not be reduced by amounts paid during 
     the year as dividends on capital stock or other proprietary 
     capital interests of the organization to the extent that the 
     articles of incorporation or bylaws of such organization or 
     other contract with patrons provide that such dividends are 
     in addition to amounts otherwise payable to patrons which are 
     derived from business done with or for patrons during the 
     taxable year.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions in taxable years beginning after 
     the date of the enactment of this Act.

                       TITLE V--ENERGY PROVISIONS

     SEC. 501. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL 
                   EXPENDITURES.

       (a) In General.--Section 263 (relating to capital 
     expenditures) is amended by adding at the end the following 
     new subsection:
       ``(j) Geological and Geophysical Expenditures for Domestic 
     Oil and Gas Wells.--Notwithstanding subsection (a), a 
     taxpayer may elect to treat geological and geophysical 
     expenses incurred in connection with the exploration for, or 
     development of, oil or gas within the United States (as 
     defined in section 638) as expenses which are not chargeable 
     to capital account. Any expenses so treated shall be allowed 
     as a deduction in the taxable year in which paid or 
     incurred.''.
       (b) Conforming Amendment.--Section 263A(c)(3) is amended by 
     inserting ``263(j),'' after ``263(i),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to expenses paid or incurred in taxable years 
     beginning after December 31, 2001.

     SEC. 502. ELECTION TO EXPENSE DELAY RENTAL PAYMENTS

       (a) In general.--Section 263 (relating to capital 
     expenditures), as amended by section 501(a), is amended by 
     adding at the end the following new subsection:
       ``(k) Delay Rental Payments for Domestic Oil and Gas 
     Wells.--
       ``(1) In general.--Notwithstanding subsection (a), a 
     taxpayer may elect to treat delay rental payments incurred in 
     connection with the development of oil or gas within the 
     United States (as defined in section 638) as payments which 
     are not chargeable to capital account. Any payments so 
     treated shall be allowed as a deduction in the taxable year 
     in which paid or incurred.
       ``(2) Delay rental payments.--For purposes of paragraph 
     (1), the term `delay rental payment' means an amount paid for 
     the privilege of deferring development of an oil or gas 
     well.''.
       (b) Conforming Amendment.--Section 263A(c)(3), as amended 
     by section 501(b), is amended by inserting ``263(k),'' after 
     ``263(j),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to payments made or incurred in taxable years 
     beginning after December 31, 2001.

     SEC. 503. 5-YEAR NET OPERATING LOSS CARRYBACK FOR LOSSES 
                   ATTRIBUTABLE TO OPERATING MINERAL INTERESTS OF 
                   INDEPENDENT OIL AND GAS PRODUCERS.

       (a) In General.--Paragraph (1) of section 172(b) (relating 
     to years to which loss may be carried) is amended by adding 
     at the end the following new subparagraph:
       ``(H) Losses on operating mineral interests of independent 
     oil and gas producers.--In the case of a taxpayer--
       ``(i) which has an eligible oil and gas loss (as defined in 
     subsection (j)) for a taxable year, and
       ``(ii) which is not an integrated oil company (as defined 
     in section 291(b)(4)),

[[Page S9725]]

     such eligible oil and gas loss shall be a net operating loss 
     carryback to each of the 5 taxable years preceding the 
     taxable year of such loss.''.
       (b) Eligible Oil and Gas Loss.--Section 172 is amended by 
     redesignating subsection (j) as subsection (k) and by 
     inserting after subsection (i) the following new subsection:
       ``(j) Eligible Oil and Gas Loss.--For purposes of this 
     section--
       ``(1) In general.--The term `eligible oil and gas loss' 
     means the lesser of--
       ``(A) the amount which would be the net operating loss for 
     the taxable year if only income and deductions attributable 
     to operating mineral interests (as defined in section 614(d)) 
     in oil and gas wells are taken into account, or
       ``(B) the amount of the net operating loss for such taxable 
     year.
       ``(2) Coordination with subsection (b)(2).--For purposes of 
     applying subsection (b)(2), an eligible oil and gas loss for 
     any taxable year shall be treated in a manner similar to the 
     manner in which a specified liability loss is treated.
       ``(3) Election.--Any taxpayer entitled to a 5-year 
     carryback under subsection (b)(1)(H) from any loss year may 
     elect to have the carryback period with respect to such loss 
     year determined without regard to subsection (b)(1)(H).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to net operating losses for taxable years 
     beginning after December 31, 2001.

     SEC. 504. TEMPORARY SUSPENSION OF PERCENTAGE OF DEPLETION 
                   DEDUCTION LIMITATION BASED ON 65 PERCENT OF 
                   TAXABLE INCOME.

       (a) In General.--Section 613A(d)(1) (relating to limitation 
     based on taxable income) is amended by adding at the end the 
     following new sentence: ``This paragraph shall not apply for 
     taxable years beginning after December 31, 2000, and before 
     January 1, 2004.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 505. TAX CREDIT FOR MARGINAL DOMESTIC OIL AND NATURAL 
                   GAS WELL PRODUCTION.

       (a) In General.--Subpart D of part IV of subchapter A of 
     chapter 1 (relating to business credits), as amended by 
     section 131(a), is amended by adding at the end the following 
     new section:

     ``SEC. 45E. CREDIT FOR PRODUCING OIL AND GAS FROM MARGINAL 
                   WELLS.

       ``(a) General Rule.--For purposes of section 38, the 
     marginal well production credit for any taxable year is an 
     amount equal to the product of--
       ``(1) the credit amount, and
       ``(2) the qualified crude oil production and the qualified 
     natural gas production which is attributable to the taxpayer.
       ``(b) Credit Amount.--For purposes of this section--
       ``(1) In general.--The credit amount is--
       ``(A) $3 per barrel of qualified crude oil production, and
       ``(B) 50 cents per 1,000 cubic feet of qualified natural 
     gas production.
       ``(2) Reduction as oil and gas prices increase.--
       ``(A) In general.--The $3 and 50 cents amounts under 
     paragraph (1) shall each be reduced (but not below zero) by 
     an amount which bears the same ratio to such amount 
     (determined without regard to this paragraph) as--
       ``(i) the excess (if any) of the applicable reference price 
     over $14 ($1.56 for qualified natural gas production), bears 
     to
       ``(ii) $3 ($0.33 for qualified natural gas production).

     The applicable reference price for a taxable year is the 
     reference price for the calendar year preceding the calendar 
     year in which the taxable year begins.
       ``(B) Inflation adjustment.--In the case of any taxable 
     year beginning in a calendar year after 2001, each of the 
     dollar amounts contained in subparagraph (A) shall be 
     increased to an amount equal to such dollar amount multiplied 
     by the inflation adjustment factor for such calendar year 
     (determined under section 43(b)(3)(B) by substituting `2000' 
     for `1990').
       ``(C) Reference price.--For purposes of this paragraph, the 
     term `reference price' means, with respect to any calendar 
     year--
       ``(i) in the case of qualified crude oil production, the 
     reference price determined under section 29(d)(2)(C), and
       ``(ii) in the case of qualified natural gas production, the 
     Secretary's estimate of the annual average wellhead price per 
     1,000 cubic feet for all domestic natural gas.
       ``(c) Qualified Crude Oil and Natural Gas Production.--For 
     purposes of this section--
       ``(1) In general.--The terms `qualified crude oil 
     production' and `qualified natural gas production' mean 
     domestic crude oil or natural gas which is produced from a 
     marginal well.
       ``(2) Limitation on amount of production which may 
     qualify.--
       ``(A) In general.--Crude oil or natural gas produced during 
     any taxable year from any well shall not be treated as 
     qualified crude oil production or qualified natural gas 
     production to the extent production from the well during the 
     taxable year exceeds 1,095 barrels or barrel equivalents.
       ``(B) Proportionate reductions.--
       ``(i) Short taxable years.--In the case of a short taxable 
     year, the limitations under this paragraph shall be 
     proportionately reduced to reflect the ratio which the number 
     of days in such taxable year bears to 365.
       ``(ii) Wells not in production entire year.--In the case of 
     a well which is not capable of production during each day of 
     a taxable year, the limitations under this paragraph 
     applicable to the well shall be proportionately reduced to 
     reflect the ratio which the number of days of production 
     bears to the total number of days in the taxable year.
       ``(3) Definitions.--
       ``(A) Marginal well.--The term `marginal well' means a 
     domestic well--
       ``(i) the production from which during the taxable year is 
     treated as marginal production under section 613A(c)(6), or
       ``(ii) which, during the taxable year--

       ``(I) has average daily production of not more than 25 
     barrel equivalents, and
       ``(II) produces water at a rate not less than 95 percent of 
     total well effluent.

       ``(B) Crude oil, etc.--The terms `crude oil', `natural 
     gas', `domestic', and `barrel' have the meanings given such 
     terms by section 613A(e).
       ``(C) Barrel equivalent.--The term `barrel equivalent' 
     means, with respect to natural gas, a conversion ratio of 
     6,000 cubic feet of natural gas to 1 barrel of crude oil.
       ``(d) Other Rules.--
       ``(1) Production attributable to the taxpayer.--In the case 
     of a marginal well in which there is more than one owner of 
     operating interests in the well and the crude oil or natural 
     gas production exceeds the limitation under subsection 
     (c)(2), qualifying crude oil production or qualifying natural 
     gas production attributable to the taxpayer shall be 
     determined on the basis of the ratio which taxpayer's revenue 
     interest in the production bears to the aggregate of the 
     revenue interests of all operating interest owners in the 
     production.
       ``(2) Operating interest required.--Any credit under this 
     section may be claimed only on production which is 
     attributable to the holder of an operating interest.
       ``(3) Production from nonconventional sources excluded.--In 
     the case of production from a marginal well which is eligible 
     for the credit allowed under section 29 for the taxable year, 
     no credit shall be allowable under this section unless the 
     taxpayer elects not to claim credit under section 29 with 
     respect to the well.''.
       (b) Credit Treated as Business Credit.--Section 38(b), as 
     amended by section 131(b)(1), is amended by striking ``plus'' 
     at the end of paragraph (12), by striking the period at the 
     end of paragraph (13) and inserting'', plus'', and by adding 
     at the end of the following new paragraph:
       ``(14) the marginal oil and gas well production credit 
     determined under section 45E(a).''.
       (c) Credit Allowed Against Regular and Minimum Tax.--
       (1) In general.--Subsection (c) of section 38 (relating to 
     limitation based on amount of tax), as amended by section 
     410(b)(2)(A), is amended by redesignating paragraph (4) as 
     paragraph (5) and by inserting after paragraph (3) the 
     following new paragraph:
       ``(4) Special rules for marginal oil and gas well 
     production credit.--
       ``(A) In general.--In the case of the marginal oil and gas 
     well production credit--
       ``(i) this section and section 39 shall be applied 
     separately with respect to the credit, and
       ``(ii) in applying paragraph (1) to the credit--

       ``(I) subparagraphs (A) and (B) thereof shall not apply, 
     and
       ``(II) the limitation under paragraph (1) (as modified by 
     subclause (I)) shall be reduced by the credit allowed under 
     subsection (a) for the taxable year (other than the marginal 
     oil and gas well production credit).

       ``(B) Marginal oil and gas well production credit.--For 
     purposes of this subsection, the term `marginal oil and gas 
     well production credit' means the credit allowable under 
     subsection (a) by reason of section 45E(a).''.
       (2) Conforming amendments.--
       (A) Subclause (II) of section 38(c)(2)(A)(ii), as amended 
     by section 410(b)(2)(B), is amended by striking ``or the 
     small ethanol producer credit'' and inserting ``, the small 
     ethanol producer credit, or the marginal oil and gas well 
     production credit''.
       (B) Subclause (II) of section 38(c)(3)(A)(ii), as added by 
     section 410(b)(2)(A), is amended by inserting ``or the 
     marginal oil and gas well production credit'' after ``the 
     small ethanol producer credit''.
       (d) Carryback.--Subsection (a) of section 39 (relating to 
     carryback and carryforward of unused credits generally) is 
     amended by adding at the end the following new paragraph--
       ``(3) 10-year carryback for marginal oil and gas well 
     production credit.--In the case of the marginal oil and gas 
     well production credit--
       ``(A) this section shall be applied separately from the 
     business credit (other than the marginal oil and gas well 
     production credit),
       ``(B) paragraph (1) shall be applied by substituting `10 
     taxable year' for `1 taxable year' in subparagraph (A) 
     thereof, and
       ``(C) paragraph (2) shall be applied--
       ``(i) by substituting `31 taxable years' for `21 taxable 
     years' in subparagraph (A) thereof, and
       ``(ii) by substituting `30 taxable years' for `20 taxable 
     years' in subparagraph (B) thereof.''.
       (e) Coordination With Section 29.--Section 29(a) is amended 
     by striking ``There'' and inserting ``At the election of the 
     taxpayer, there''.

[[Page S9726]]

       (f) Clerical Amendment--The table of sections for subpart D 
     of part IV of subchapter A of chapter 1, as amended by 
     section 131(d), is amended by adding at the end the following 
     item:

``Sec. 45E. Credit for producing oil and gas from marginal wells.''.

       (g) Effective Date.--The amendments made by this section 
     shall apply to production in taxable years beginning after 
     December 31, 2000.

     SEC. 506. NATURAL GAS GATHERING LINES TREATED AS 7-YEAR 
                   PROPERTY.

       (a) In General.--Subparagraph (C) of section 168(e)(3) 
     (relating to classification of certain property) is amended 
     by redesignating clause (ii) as clause (iii) and by inserting 
     after clause (i) the following new clause:
       ``(ii) any natural gas gathering line, and''.
       (b) Natural Gas Gathering Line.--Subsection (i) of section 
     168 is amended by adding at the end the following new 
     paragraph:
       ``(15) Natural gas gathering line.--The term `natural gas 
     gathering line' means--
       ``(A) the pipe, equipment, and appurtenances determined to 
     be a gathering line by the Federal Energy Regulatory 
     Commission, or
       ``(B) the pipe, equipment, and appurtenances used to 
     deliver natural gas from the wellhead or a common point to 
     the point at which such gas first reaches--
       ``(i) a gas processing plant,
       ``(ii) an interconnection with a transmission pipeline 
     certificated by the Federal Energy Regulatory Commission as 
     an interstate transmission pipeline,
       ``(iii) an interconnection with an intrastate transmission 
     pipeline, or
       ``(iv) a direct interconnection with a local distribution 
     company, a gas storage facility, or an industrial 
     consumer.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to property placed in service on or after the 
     date of the enactment of this Act.

     SEC. 507. CLARIFICATION OF TREATMENT OF PIPELINE 
                   TRANSPORTATION INCOME.

       (a) In General.--Section 954(g)(1) (defining foreign base 
     company oil related income) is amended by striking ``or'' at 
     the end of subparagraph (A), by striking the period at the 
     end of subparagraph (B) and inserting ``, or'', and by 
     inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) the pipeline transportation of oil or gas within such 
     foreign country.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years of controlled foreign 
     corporations beginning after December 31, 2001, and taxable 
     years of United States shareholders with or within which such 
     taxable years of controlled foreign corporations end.

                   TITLE VI--CONSERVATION PROVISIONS

     SEC. 601. EXCLUSION OF 50 PERCENT OF GAIN ON SALES OF LAND OR 
                   INTERESTS IN LAND OR WATER TO ELIGIBLE ENTITIES 
                   FOR CONSERVATION PURPOSES.

       (a) In General.--Part III of subchapter B of chapter 1 
     (relating to items specifically excluded from gross income) 
     is amended by inserting after section 121 the following new 
     section:

     ``SEC. 121A. 50-PERCENT EXCLUSION OF GAIN ON SALES OF LAND OR 
                   INTERESTS IN LAND OR WATER TO ELIGIBLE ENTITIES 
                   FOR CONSERVATION PURPOSES.

       ``(a) Exclusion.--Gross income shall not include 50 percent 
     of any gain from the sale of land or an interest in land or 
     water (determined without regard to any improvements) to an 
     eligible entity if--
       ``(1) such land or interest in land or water was owned by 
     the taxpayer or a member of the taxpayer's family (as defined 
     in section 2032A(e)(2)) at all times during the 3-year period 
     ending on the date of the sale, and
       ``(2) such land or interest in land or water is being 
     acquired by an eligible entity which provides the taxpayer, 
     at the time of acquisition, a written letter of intent which 
     shall include the following statement: `The purchaser's 
     intent is that this acquisition will serve 1 or more of the 
     conservation purposes specified in clause (i), (ii), or (iii) 
     of section 170(h)(4)(A).'
       ``(b) Eligible Entity.--For purposes of this section, the 
     term `eligible entity' means--
       ``(1) any agency of the United States or of any State or 
     local government, or
       ``(2) any other organization that--
       ``(A) is organized and at all times operated principally 
     for 1 or more of the conservation purposes specified in 
     clause (i), (ii), or (iii) of section 170(h)(4)(A), and
       ``(B) is described in section 170(h)(3).
       ``(c) Stock in Holding Corporations.--For purposes of this 
     section, the term `land or an interest in land or water' 
     shall include stock in any corporation, if the fair market 
     value of the corporation's land or interests in land or water 
     equals or exceeds 90 percent of the fair market value of all 
     of such corporation's assets at all times during the 3-year 
     period ending on the date of the sale.''.
       (b) Clerical Amendment.--The table of sections for part III 
     of subchapter B of chapter 1 is amended by inserting after 
     the item relating to section 121 the following new item:

``Sec. 121A. 50-percent exclusion of gain on sales of land or interests 
              in land or water to eligible entities for conservation 
              purposes.''.

       (c) Effective Date.--The amendments made by this section 
     shall apply to sales occurring on or after December 31, 2003.

     SEC. 602. EXPANSION OF ESTATE TAX EXCLUSION FOR REAL PROPERTY 
                   SUBJECT TO QUALIFIED CONSERVATION EASEMENT.

       (a) Repeal of Certain Restrictions on Where Land Is 
     Located.--Clause (i) of section 2031(c)(8)(A) (defining land 
     subject to a qualified conservation easement) is amended to 
     read as follows:
       ``(i) which is located in the United States or any 
     possession of the United States,''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     2001.

     SEC. 603. TAX EXCLUSION FOR COST-SHARING PAYMENTS UNDER 
                   PARTNERS FOR WILDLIFE PROGRAM.

       (a) In General.--Section 126(a) (relating to certain cost-
     sharing payments) is amended by redesignating paragraph (10) 
     as paragraph (11) and by inserting after paragraph (9) the 
     following new paragraph:
       ``(10) The Partners for Fish and Wildlife Program 
     authorized by the Fish and Wildlife Act of 1956 (16 U.S.C. 
     742a et seq.).''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to payments received after the date of the 
     enactment of this Act.

     SEC. 604. INCENTIVE FOR CERTAIN ENERGY EFFICIENT PROPERTY 
                   USED IN BUSINESS.

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

     ``SEC. 199. ENERGY PROPERTY DEDUCTION.

       ``(a) Deduction Allowed.--
       ``(1) In general.--There shall be allowed as a deduction 
     for the taxable year an amount equal to the amount of energy 
     efficient commercial building expenditures made by the 
     taxpayer for the taxable year
       ``(2) Maximum amount of deduction.--The amount of energy 
     efficient commercial building property expenditures taken 
     into account under paragraph (1) shall not exceed an amount 
     equal to the product of--
       ``(A) $2.25, and
       ``(B) the square footage of the building with respect to 
     which the expenditures are made.
       ``(3) Year deduction allowed.--The deduction under 
     paragraph (1) shall be allowed in the taxable year in which 
     the construction of the building is completed.
       ``(b) Energy Efficient Commercial Building Property 
     Expenditures.--For purposes of this section, the term `energy 
     efficient commercial building property expenditures' means an 
     amount paid or incurred for energy efficient commercial 
     building property installed on or in connection with new 
     construction or reconstruction of property--
       ``(1) for which depreciation is allowable under section 
     167,
       ``(2) which is located in the United States, and
       ``(3) the construction or erection of which is completed by 
     the taxpayer.

     Such property includes all residential rental property, 
     including low-rise multifamily structures and single family 
     housing property which is not within the scope of Standard 
     90.1-1999 (as described in subsection (c)(1)). Such term 
     includes expenditures for labor costs properly allocable to 
     the onsite preparation, assembly, or original installation of 
     the property.
       ``(c) Energy Efficient Commercial Building Property.--For 
     purposes of subsection (b)--
       ``(1) In general.--The term `energy efficient commercial 
     building property' means any property which reduces total 
     annual energy and power costs with respect to the lighting, 
     heating, cooling, ventilation, and hot water supply systems 
     of the building by 50 percent or more in comparison to a 
     reference building which meets the requirements of Standard 
     90.1-1999 of the American Society of Heating, Refrigerating, 
     and Air Conditioning Engineers and the Illuminating 
     Engineering Society of North America using methods of 
     calculation under paragraph (2) and certified by qualified 
     professionals as provided under subsection (f).
       ``(2) Methods of calculation.--The Secretary, in 
     consultation with the Secretary of Energy, shall promulgate 
     regulations which describe in detail methods for calculating 
     and verifying energy and power consumption and cost, taking 
     into consideration the provisions of the 1998 California 
     Nonresidential ACM Manual. These procedures shall meet the 
     following requirements:
       ``(A) In calculating tradeoffs and energy performance, the 
     regulations shall prescribe the costs per unit of energy and 
     power, such as kilowatt hour, kilowatt, gallon of fuel oil, 
     and cubic foot or Btu of natural gas, which may be dependent 
     on time of usage.
       ``(B) The calculational methodology shall require that 
     compliance be demonstrated for a whole building. If some 
     systems of the building, such as lighting, are designed later 
     than other systems of the building, the method shall provide 
     that either--
       ``(i) the expenses taken into account under subsection (a) 
     shall not occur until the date designs for all energy-using 
     systems of the building are completed,
       ``(ii) the energy performance of all systems and components 
     not yet designed shall be assumed to comply minimally with 
     the requirements of such Standard 90.1-1999, or
       ``(iii) the expenses taken into account under subsection 
     (a) shall be a fraction of such expenses based on the 
     performance of less than all energy-using systems in 
     accordance with subparagraph (C).

[[Page S9727]]

       ``(C) The expenditures in connection with the design of 
     subsystems in the building, such as the envelope, the 
     heating, ventilation, air conditioning and water heating 
     system, and the lighting system shall be allocated to the 
     appropriate building subsystem based on system-specific 
     energy cost savings targets in regulations promulgated by the 
     Secretary of Energy which are equivalent, using the 
     calculation methodology, to the whole building requirement of 
     50 percent savings.
       ``(D) The calculational methods under this paragraph need 
     not comply fully with section 11 of such Standard 90.1-1999.
       ``(E) The calculational methods shall be fuel neutral, such 
     that the same energy efficiency features shall qualify a 
     building for the deduction under this subsection regardless 
     of whether the heating source is a gas or oil furnace or an 
     electric heat pump.
       ``(F) The calculational methods shall provide appropriate 
     calculated energy savings for design methods and technologies 
     not otherwise credited in either such Standard 90.1-1999 or 
     in the 1998 California Nonresidential ACM Manual, including 
     the following:
       ``(i) Natural ventilation.
       ``(ii) Evaporative cooling.
       ``(iii) Automatic lighting controls such as occupancy 
     sensors, photocells, and timeclocks.
       ``(iv) Daylighting.
       ``(v) Designs utilizing semi-conditioned spaces that 
     maintain adequate comfort conditions without air conditioning 
     or without heating.
       ``(vi) Improved fan system efficiency, including reductions 
     in static pressure.
       ``(vii) Advanced unloading mechanisms for mechanical 
     cooling, such as multiple or variable speed compressors.
       ``(viii) The calculational methods may take into account 
     the extent of commissioning in the building, and allow the 
     taxpayer to take into account measured performance that 
     exceeds typical performance.
       ``(3) Computer software.--
       ``(A) In general.--Any calculation under this subsection 
     shall be prepared by qualified computer software.
       ``(B) Qualified computer software.--For purposes of this 
     paragraph, the term `qualified computer software' means 
     software--
       ``(i) for which the software designer has certified that 
     the software meets all procedures and detailed methods for 
     calculating energy and power consumption and costs as 
     required by the Secretary,
       ``(ii) which provides such forms as required to be filed by 
     the Secretary in connection with energy efficiency of 
     property and the deduction allowed under this section, and
       ``(iii) which provides a notice form which summarizes the 
     energy efficiency features of the building and its projected 
     annual energy costs.
       ``(d) Allocation of Deduction for Public Property.--In the 
     case of energy efficient commercial building property 
     installed on or in public property, the Secretary shall 
     promulgate regulations to allow the allocation of the 
     deduction to the person primarily responsible for designing 
     the property in lieu of the public entity which is the owner 
     of such property. Such person shall be treated as the 
     taxpayer for purposes of this section.
       ``(e) Notice to Owner.--The qualified individual shall 
     provide an explanation to the owner of the building regarding 
     the energy efficiency features of the building and its 
     projected annual energy costs as provided in the notice under 
     subsection (c)(3)(B)(iii).
       ``(f) Certification.--
       ``(1) In general.--Except as provided in this subsection, 
     the Secretary, in consultation with the Secretary of Energy, 
     shall establish requirements for certification and compliance 
     procedures after examining the requirements for energy 
     consultants and home energy ratings providers specified by 
     the Mortgage Industry National Accreditation Procedures for 
     Home Energy Rating Systems.
       ``(2) Qualified individuals.--Individuals qualified to 
     determine compliance shall be only those individuals who are 
     recognized by an organization certified by the Secretary for 
     such purposes.
       ``(3) Proficiency of qualified individuals.--The Secretary 
     shall consult with nonprofit organizations and State agencies 
     with expertise in energy efficiency calculations and 
     inspections to develop proficiency tests and training 
     programs to qualify individuals to determine compliance.
       ``(g) Basis Reduction.--For purposes of this subtitle, if a 
     deduction is allowed under this section with respect to any 
     energy efficient commercial building property, the basis of 
     such property shall be reduced by the amount of the deduction 
     so allowed.
       ``(h) Termination.--This section shall not apply with 
     respect to any taxable year beginning after December 31, 
     2003.''.
       (b) Conforming Amendment.--Section 1016(a), as amended by 
     section 211(b), is amended by striking ``and'' at the end of 
     paragraph (27), by striking the period at the end of 
     paragraph (28) and inserting ``, and'', and by inserting the 
     following new paragraph:
       ``(29) for amounts allowed as a deduction under section 
     199(a).''.
       (c) Clerical Amendment.--The table of sections for part VI 
     of subchapter B of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 199. Energy property deduction.''.

       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 605. EXTENSION AND MODIFICATION OF TAX CREDIT FOR 
                   ELECTRICITY PRODUCED FROM BIOMASS.

       (a) Extension and Modification of Placed-in-Service 
     Rules.--
       (1) In general.--Section 45(c)(3) is amended by adding at 
     the end the following new subparagraphs:
       ``(D) 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, 2002.
       ``(E) Landfill gas facility.--
       ``(i) In general.--In the case of a facility using landfill 
     gas 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, 
     2002.
       ``(ii) Special rule.--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.
       ``(F) Special rule.--In the case of a qualified facility 
     described in subparagraph (D) or (E), the period referred to 
     in subsection (a)(2)(A)(ii) shall be applied by substituting 
     `3-year' for `10-year' and shall be treated as beginning no 
     earlier than January 1, 2001.''.
       (2) Closed-loop biomass facility.--Section 45(c)(3)(B) 
     (relating to closed-loop biomass facility) is amended by 
     striking ``owned by the taxpayer'' and all that follows and 
     inserting ``owned by the taxpayer which is--''
       ``(i) originally placed in service after December 31, 1992, 
     and before January 1, 2002, 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, 2002.''.
       (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 (B), by striking the period at the end of 
     subparagraph (C) and inserting a comma, and by adding at the 
     end the following new subparagraphs:
       ``(D) biomass (other than closed-loop biomass), and
       ``(E) landfill gas.''.
       (2) Definitions.--Section 45(c) is amended by adding at the 
     end the following new paragraphs:
       ``(5) 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), paper that is 
     commonly recycled, or pressure treated, chemically treated, 
     or lead painted wood wastes, or
       ``(C) agriculture sources, including orchard tree crops, 
     vineyard, grain, legumes, sugar, and other crop by-products 
     or residues.
       ``(6) 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.)).''.
       (c) Special Rules.--Section 45(d) (relating to definitions 
     and special rules) is amended by adding at the end the 
     following new paragraph:
       ``(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.''.
       (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. 606. TAX CREDIT FOR CERTAIN ENERGY EFFICIENT MOTOR 
                   VEHICLES.

       (a) In General.--Subpart B of part IV of subchapter A of 
     chapter 1, as amended by section 160(a), is amended by adding 
     at the end the following new section:

     ``SEC. 30C. CREDIT FOR HYBRID VEHICLES.

       ``(a) Allowance of Credit.--There shall be allowed as a 
     credit against the tax imposed by this chapter for the 
     taxable year an amount equal to the sum of the credit amounts 
     for each qualified hybrid vehicle placed in service during 
     the taxable year.
       ``(b) Credit Amount.--For purposes of this section--

[[Page S9728]]

       ``(1) In general.--The credit amount for each qualified 
     hybrid vehicle with a rechargeable energy storage system that 
     provides the applicable percentage of the maximum available 
     power shall be the amount specified in the following table:

  ``Applicable percentage                                 Credit amount
  Not less than 5 percent but less than 10 percent................$500 
  Not less than 10 percent but less than 20 percent---..........$1,000 
  Not less than 20 percent but less than 30 percent---..........$1,500 
  Not less than 30 percent......................................$2,000.

       ``(2) Increase in credit amount for regenerative braking 
     system.--In the case of a qualified hybrid vehicle that 
     actively employs a regenerative braking system which supplies 
     to the rechargeable energy storage system the applicable 
     percentage of the energy available from braking in a typical 
     60 miles per hour to 0 miles per hour braking event, the 
     credit amount determined under this section shall be 
     increased by the amount specified in the following table:

  ``Applicable percentage                                 Credit amount
  Not less than 20 percent but less than 40 percent...............$250 
  Not less than 40 percent but less than 60 percent...............$500 
  Not less than 60 percent......................................$1,000.

       ``(c) Definitions.--For purposes of this section--
       ``(1) Qualified hybrid vehicle.--The term `qualified hybrid 
     vehicle' means an automobile that meets all applicable 
     regulatory requirements and that can draw propulsion energy 
     from both of the following onboard sources of stored energy:
       ``(A) A consumable fuel.
       ``(B) A rechargeable energy storage system.
       ``(2) Maximum available power.--The term `maximum available 
     power' means the maximum value of the sum of the heat engine 
     and electric drive system power or other nonheat energy 
     conversion devices available for a driver's command for 
     maximum acceleration at vehicle speeds under 75 miles per 
     hour.
       ``(3) Automobile.--The term `automobile' has the meaning 
     given such term by section 4064(b)(1) (without regard to 
     subparagraphs (B) and (C) thereof). A vehicle shall not fail 
     to be treated as an automobile solely by reason of weight if 
     such vehicle is rated at 8,500 pounds gross vehicle weight 
     rating or less.
       ``(d) Application With Other Credits.--The credit allowed 
     by subsection (a) for any taxable year shall not exceed the 
     excess (if any) of--
       ``(1) the regular tax for the taxable year reduced by the 
     sum of the credits allowable under subpart A and the 
     preceding sections of this subpart, over
       ``(2) the tentative minimum tax for the taxable year.
       ``(e) Special Rules.--
       ``(1) Basis reduction.--The basis of any property for which 
     a credit is allowable under subsection (a) shall be reduced 
     by the amount of such credit (determined without regard to 
     subsection (d)).
       ``(2) Recapture.--The Secretary shall, by regulations, 
     provide for recapturing the benefit of any credit allowable 
     under subsection (a) with respect to any property which 
     ceases to be property eligible for such credit.
       ``(3) Property used outside united states, etc., not 
     qualified.--No credit shall be allowed under this section 
     with respect to--
       ``(A) any property for which a credit is allowed under 
     section 30,
       ``(B) any property referred to in section 50(b), or
       ``(C) any property taken into account under section 179 or 
     179A.
       ``(4) Election to not take credit.--No credit shall be 
     allowed under subsection (a) for any vehicle if the taxpayer 
     elects to not have this section apply to such vehicle.
       ``(f) Regulations.--
       ``(1) Treasury.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section.
       ``(2) Environmental protection agency.--The Administrator 
     of the Environmental Protection Agency, in coordination with 
     the Secretary of Transportation and consistent with the laws 
     administered by such agency for automobiles, shall timely 
     prescribe such regulations as may be necessary or appropriate 
     solely for the purpose of specifying the testing and 
     calculation procedures to determine whether a vehicle meets 
     the qualifications for a credit under this section.
       ``(g) Application of Section.--This section shall apply to 
     any qualified hybrid vehicles placed in service after 
     December 31, 2003, and before January 1, 2005.''
       (b) Conforming Amendments.--
       (1) Section 53(d)(1)(B)(iii) is amended by inserting ``or 
     not allowed under section 30C solely by reason of the 
     application of section 30C(d)(2)'' after ``section 
     30(b)(3)(B)''.
       (2) Section 55(c)(2) is amended by inserting ``30C(d),'' 
     after ``30(b)(3),''.
       (3) Subsection (a) of section 1016, as amended by section 
     604(b), is amended by striking ``and'' at the end of 
     paragraph (28), by striking the period at the end of 
     paragraph (29) and inserting ``, and'', and by adding at the 
     end the following new paragraph:
       ``(30) to the extent provided in section 30C(e)(1).''.
       (4) The table of sections for subpart B of part IV of 
     subchapter A of chapter 1, as amended by section 160(b), is 
     amended by adding at the end the following new item:

``Sec. 30C. Credit for hybrid vehicles.''.

                  TITLE VII--ADDITIONAL TAX PROVISIONS

     SEC. 701. 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. 702. REPEAL OF SECTION 530(D) OF THE REVENUE ACT OF 
                   1978.

       (a) In General.--Section 530(d) of the Revenue Act of 1978 
     (as added by section 1706 of the Tax Reform Act of 1986) is 
     repealed.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to periods ending after the date of the enactment 
     of this Act.

     SEC. 703. EXPANSION OF EXEMPTION FROM PERSONAL HOLDING 
                   COMPANY TAX FOR LENDING OR FINANCE COMPANIES.

       (a) In General.--Paragraph (6) of section 542(c) (defining 
     personal holding company) is amended--
       (1) by striking ``rents,'' in subparagraph (B), and
       (2) by adding ``and'' at the end of subparagraph (B),
       (3) by striking subparagraph (C), and
       (4) by redesignating subparagraph (D) as subparagraph (C).
       (b) Exception for Lending or Finance Companies Determined 
     on Affiliated Group Basis.--Subsection (d) of section 542 is 
     amended by striking paragraphs (1) and (2) and inserting the 
     following new paragraphs:
       ``(1) Lending or finance business defined.-- For purposes 
     of subsection (c)(6), the term `lending or finance business' 
     means a business of--
       ``(A) making loans,
       ``(B) purchasing or discounting accounts receivable, notes, 
     or installment obligations,
       ``(C) engaging in leasing (including entering into leases 
     and purchasing, servicing, and disposing of leases and leased 
     assets),
       ``(D) rendering services or making facilities available in 
     the ordinary course of a lending or finance business,
       ``(E) rendering services or making facilities available in 
     connection with activities described in subparagraphs (A), 
     (B), and (C) carried on by the corporation rendering services 
     or making facilities available, or
       ``(F) rendering services or making facilities available to 
     another corporation which is engaged in the lending or 
     finance business (within the meaning of this paragraph), if 
     such services or facilities are related to the lending or 
     finance business (within such meaning) of such other 
     corporation and such other corporation and the corporation 
     rendering services or making facilities available are members 
     of the same affiliated group (as defined in section 1504).
       ``(2) Exception determined on an affiliated group basis.--
     In the case of a lending or finance company which is a member 
     of an affiliated group (as defined in section 1504), such 
     company shall be treated as meeting the requirements of 
     subsection (c)(6) if such group (determined by taking into 
     account only members of such group which are engaged in a 
     lending or finance business) meets such requirements.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 704. CHARITABLE CONTRIBUTION DEDUCTION FOR CERTAIN 
                   EXPENSES INCURRED IN SUPPORT OF NATIVE ALASKAN 
                   SUBSISTENCE WHALING.

       (a) In General.--Section 170 (relating to charitable, etc., 
     contributions and gifts) is amended by redesignating 
     subsection (m) as subsection (n) and by inserting after 
     subsection (l) the following new subsection:
       ``(m) Expenses Paid by Certain Whaling Captains in Support 
     of Native Alaskan Subsistence Whaling.--
       ``(1) In general.--In the case of an individual who is 
     recognized by the Alaska Eskimo Whaling Commission as a 
     whaling captain charged with the responsibility of 
     maintaining and carrying out sanctioned whaling activities 
     and who engages in such activities during the taxable year, 
     the amount described in paragraph (2) (to the extent such 
     amount does not exceed $7,500 for the taxable year) shall be 
     treated for purposes of this section as a charitable 
     contribution.
       ``(2) Amount described.--
       ``(A) In general.--The amount described in this paragraph 
     is the aggregate of the reasonable and necessary whaling 
     expenses paid by the taxpayer during the taxable year in 
     carrying out sanctioned whaling activities.

[[Page S9729]]

       ``(B) Whaling expenses.--For purposes of subparagraph (A), 
     the term `whaling expenses' includes expenses for--
       ``(i) the acquisition and maintenance of whaling boats, 
     weapons, and gear used in sanctioned whaling activities,
       ``(ii) the supplying of food for the crew and other 
     provisions for carrying out such activities, and
       ``(iii) storage and distribution of the catch from such 
     activities.
       ``(3) Sanctioned whaling activities.--For purposes of this 
     subsection, the term `sanctioned whaling activities' means 
     subsistence bowhead whale hunting activities conducted 
     pursuant to the management plan of the Alaska Eskimo Whaling 
     Commission.''.
       (b) Effective Date.--The amendments made by subsection (a) 
     shall apply to taxable years ending after December 31, 2000.

     SEC. 705. IMPOSITION OF EXCISE TAX ON PERSONS WHO ACQUIRE 
                   STRUCTURED SETTLEMENT PAYMENTS IN FACTORING 
                   TRANSACTIONS.

       (a) In General.--Subtitle E is amended by adding at the end 
     the following new chapter:

       ``CHAPTER 55--STRUCTURED SETTLEMENT FACTORING TRANSACTIONS

``Sec. 5891. Structured settlement factoring transactions.

     ``SEC. 5891. STRUCTURED SETTLEMENT FACTORING TRANSACTIONS.

       ``(a) Imposition of Tax.--There is hereby imposed on any 
     person who acquires directly or indirectly structured 
     settlement payment rights in a structured settlement 
     factoring transaction a tax equal to 40 percent of the 
     factoring discount as determined under subsection (c)(4) with 
     respect to such factoring transaction.
       ``(b) Exception for Certain Approved Transactions.--
       ``(1) In general.--The tax under subsection (a) shall not 
     apply in the case of a structured settlement factoring 
     transaction in which the transfer of structured settlement 
     payment rights is approved in advance in a qualified order.
       ``(2) Qualified order.--For purposes of this section, the 
     term `qualified order' means a final order, judgment, or 
     decree which--
       ``(A) finds that the transfer described in paragraph (1)--
       ``(i) does not contravene any Federal or State statute or 
     the order of any court or responsible administrative 
     authority, and
       ``(ii) is in the best interest of the payee, taking into 
     account the welfare and support of the payee's dependents, 
     and
       ``(B) is issued--
       ``(i) under the authority of an applicable State statute by 
     an applicable State court, or
       ``(ii) by the responsible administrative authority (if any) 
     which has exclusive jurisdiction over the underlying action 
     or proceeding which was resolved by means of the structured 
     settlement.
       ``(3) Applicable state statute.--For purposes of this 
     section, the term `applicable State statute' means a statute 
     providing for the entry of an order, judgment, or decree 
     described in paragraph (2)(A) which is enacted by--
       ``(A) the State in which the payee of the structured 
     settlement is domiciled, or
       ``(B) if there is no statute described in subparagraph (A), 
     the State in which either the party to the structured 
     settlement (including an assignee under a qualified 
     assignment under section 130) or the person issuing the 
     funding asset for the structured settlement is domiciled or 
     has its principal place of business.
       ``(4) Applicable state court.--For purposes of this 
     section--
       ``(A) In general.--The term `applicable State court' means, 
     with respect to any applicable State statute, a court of the 
     State which enacted such statute.
       ``(B) Special rule.--In the case of an applicable State 
     statute described in paragraph (3)(B), such term also 
     includes a court of the State in which the payee of the 
     structured settlement is domiciled.
       ``(5) Qualified order dispositive.--A qualified order shall 
     be treated as dispositive for purposes of the exception under 
     this subsection.
       ``(c) Definitions.--For purposes of this section--
       ``(1) Structured settlement.--The term `structured 
     settlement' means an arrangement--
       ``(A) which is established by--
       ``(i) suit or agreement for the periodic payment of damages 
     excludable from the gross income of the recipient under 
     section 104(a)(2), or
       ``(ii) agreement for the periodic payment of compensation 
     under any workers' compensation act excludable from the gross 
     income of the recipient under section 104(a)(1), and
       ``(B) under which the periodic payments are--
       ``(i) of the character described in subparagraphs (A) and 
     (B) of section 130(c)(2), and
       ``(ii) payable by a person who is a party to the suit or 
     agreement or to the workers' compensation claim or by a 
     person who has assumed the liability for such periodic 
     payments under a qualified assignment in accordance with 
     section 130.
       ``(2) Structured settlement payment rights.--The term 
     `structured settlement payment rights' means rights to 
     receive payments under a structured settlement.
       ``(3) Structured settlement factoring transaction.--
       ``(A) In general.--The term `structured settlement 
     factoring transaction' means a transfer of structured 
     settlement payment rights (including portions of structured 
     settlement payments) made for consideration by means of sale, 
     assignment, pledge, or other form of encumbrance or 
     alienation for consideration.
       ``(B) Exception.--Such term shall not include--
       ``(i) the creation or perfection of a security interest in 
     structured settlement payment rights under a blanket security 
     agreement entered into with an insured depository institution 
     in the absence of any action to redirect the structured 
     settlement payments to such institution (or agent or 
     successor thereof) or otherwise to enforce such blanket 
     security interest as against the structured settlement 
     payment rights, or
       ``(ii) a subsequent transfer of structured settlement 
     payment rights acquired in a structured settlement factoring 
     transaction.
       ``(4) Factoring discount.--The term `factoring discount' 
     means an amount equal to the excess of--
       ``(A) the aggregate undiscounted amount of structured 
     settlement payments being acquired in the structured 
     settlement factoring transaction, over
       ``(B) the total amount actually paid by the acquirer to the 
     person from whom such structured settlement payments are 
     acquired.
       ``(5) Responsible administrative authority.--The term 
     `responsible administrative authority' means the 
     administrative authority which had jurisdiction over the 
     underlying action or proceeding which was resolved by means 
     of the structured settlement.
       ``(6) State.--The term `State' includes any possession of 
     the United States.
       ``(d) Coordination With Other Provisions.--
       ``(1) In general.--If the applicable requirements of 
     sections 72, 104(a) (1) and (2), 130, and 461(h) were 
     satisfied at the time the structured settlement was entered 
     into, the subsequent occurrence of a structured settlement 
     factoring transaction shall not affect the application of the 
     provisions of such sections to the parties to the structured 
     settlement (including an assignee under a qualified 
     assignment under section 130) in any taxable year.
       ``(2) No withholding of tax.--The provisions of section 
     3405 regarding withholding of tax shall not apply to the 
     person making the payments in the event of a structured 
     settlement factoring transaction.''.
       (b) Clerical Amendments.--The table of chapters for 
     subtitle E is amended by adding at the end the following new 
     item:

``Chapter 55. Structured settlement factoring transactions.''.
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section (other 
     than the provisions of section 5891(d) of the Internal 
     Revenue Code of 1986, as added by this section) shall apply 
     to structured settlement factoring transactions (as defined 
     in section 5891(c) of such Code as adopted by this section) 
     entered into on or after the 30th day following the date of 
     the enactment of this Act.
       (2) Clarification of existing law.--Section 5891(d) of such 
     Code (as so added) shall apply to transactions entered into 
     before, on, or after such 30th day.
       (3) Transition rule.--In the case of a structured 
     settlement factoring transaction entered into during the 
     period beginning on the 30th day following the date of the 
     enactment of this Act and ending on July 1, 2002, no tax 
     shall be imposed under section 5891(a) of such Code if--
       (A) the structured settlement payee is domiciled in a State 
     (or possession of the United States) which has not enacted a 
     statute providing that the structured settlement factoring 
     transaction is ineffective unless the transaction has been 
     approved by an order, judgment, or decree of a court (or 
     where applicable, a responsible administrative authority) 
     which finds that such transaction--
       (i) does not contravene any Federal or State statute or the 
     order of any court (or responsible administrative authority), 
     and
       (ii) is in the best interest of the structured settlement 
     payee or is appropriate in light of a hardship faced by the 
     payee, and
       (B) the person acquiring the structured settlement payment 
     rights discloses to the structured settlement payee in 
     advance of the structured settlement factoring transaction 
     the amounts and due dates of the payments to be transferred, 
     the aggregate amount to be transferred, the consideration to 
     be received by the structured settlement payee for the 
     transferred payments, the discounted present value of the 
     transferred payments including the present value as 
     determined in the manner described in section 7520 of such 
     Code, and the expenses required under the terms of the 
     structured settlement factoring transaction to be paid by the 
     structured settlement payee or deducted from the proceeds of 
     such transaction.
                                  ____


   TECHNICAL EXPLANATION OF S. 3152, THE ``COMMUNITY RENEWAL AND NEW 
                         MARKETS ACT OF 2000''

                              Introduction

       This document prepared by the staff of the Joint Committee 
     on Taxation provides a technical explanation of S. 3152, the 
     ``Community Renewal and New Markets Act of 2000.'' The 
     Community Renewal and New Markets Act of 2000 provides 
     various tax incentives for distressed communities, affordable 
     housing, urban and rural infrastructure, the production of 
     energy, conservation, tax

[[Page S9730]]

     relief for farmers, and several additional tax provisions.

                   I. INCENTIVES FOR DISTRESSED AREAS

 A. Tax Incentives for Renewal Zones and Empowerment Zones (Secs. 101 
 and 111-115 of the Bill and Secs. 1391, 1394, 1396, 1397A-D, and New 
                        Sec. 1400E of the Code)


                              Present Law

       In recent years, provisions have been added to the Internal 
     Revenue Code that target specific geographic areas for 
     special Federal income tax treatment. As described in greater 
     detail below, empowerment zones and enterprise communities 
     generally provide tax incentives for businesses that locate 
     within certain geographic areas designated by the Secretaries 
     of Housing and Urban Development (``HUD'') and Agriculture.
     Round I empowerment zones
       The Omnibus Budget Reconciliation Act of 1993 (``OBRA 
     1993'') authorized the designation of nine empowerment zones 
     (``Round I empowerment zones'') to provide tax incentives for 
     businesses to locate within targeted areas designated by the 
     Secretaries of HUD and Agriculture. The Taxpayer Relief Act 
     of 1997 (``1997 Act'') authorized the designation of two 
     additional Round I urban empowerment zones.
       Businesses in the 11 Round I empowerment zones qualify for 
     the following tax incentives: (1) a 20-percent wage credit 
     for the first $15,000 of wages paid to a zone resident who 
     works in the empowerment zone, (2) an additional $20,000 of 
     section 179 expensing for qualifying zone property, and (3) 
     tax-exempt financing for certain qualifying zone facilities. 
     The tax incentives with respect to the empowerment zones 
     designated by OBRA 1993 generally are available during the 
     10-year period of 1995 through 2004. The tax incentives with 
     respect to the two additional Round I empowerment zones 
     generally are available during the 10-year period of 2000 
     through 2009.
     Round II empowerment zones
       The 1997 Act also authorized the designation of 20 
     additional empowerment zones (``Round II empowerment 
     zones''), of which 15 are located in urban areas and five are 
     located in rural areas. Businesses in the Round II 
     empowerment zones are not eligible for the wage credit, but 
     are eligible to receive up to $20,000 of additional section 
     179 expensing. Businesses in the Round II empowerment zones 
     also are eligible for more generous tax-exempt financing 
     benefits than those available in the Round I empowerment 
     zones. Specifically, the tax-exempt financing benefits for 
     the Round II empowerment zones are not subject to the State 
     private activity bond volume caps (but are subject to 
     separate per-zone volume limitations), and the per-business 
     size limitations that apply to the Round I empowerment zones 
     and enterprise communities (i.e., $3 million for each 
     qualified enterprise zone business with a maximum of $20 
     million for each principal user for all zones and 
     communities) do not apply to qualifying bonds issued for 
     Round II empowerment zones. The tax incentives with respect 
     to the Round II empowerment zones generally are available 
     during the 10-year period of 1999 through 2008.


                        Explanation of Provision

     Overview
       As described in detail below, the provision conforms the 
     wage credit and tax-exempt bond incentives for the Round I 
     and Round II empowerment zones and extends their designations 
     through December 31, 2009. The provision also increases the 
     incentives to existing empowerment zones by (1) increasing 
     the additional section 179 deduction to $35,000, and (2) 
     providing a zero-percent capital gain rate for qualifying 
     assets held for more than five years.
       In addition, the provision authorizes the Secretaries of 
     HUD and Agriculture to designate 30 new ``renewal zones'' 
     that have the same tax incentives as empowerment zones. The 
     designations of the new renewal zones will take effect on 
     January 1, 2002, and terminate on December 31, 2009.
       Thus, once the 30 new renewal zones have been designated 
     there will exist a total of 61 zones providing similar tax 
     incentives for distressed areas, all of whose designations 
     will terminate on December 31, 2009. The renewal zones are 
     treated as empowerment zones for all purposes of the Code. 
     After taking into account existing empowerment zones (and the 
     designation of the new renewal zones), each State shall have 
     at least one zone.
     Existing zones
       Conforming and enhancing incentives for Round I and Round 
     II empowerment zones.--The provision extends the designation 
     of empowerment zone status for Round I and II 
     empowerment zones through December 31, 2009. In addition, 
     a 15-percent wage credit is made available in all Round I 
     and II empowerment zones, effective in 2002 (except in the 
     case of the two additional Round I empowerment zones, for 
     which the 15-percent wage credit takes effect in 2005 as 
     scheduled under present law). For all the empowerment 
     zones, the 15-percent wage credit expires on December 31, 
     2009.
       In addition, $35,000 (rather than $20,000) of additional 
     section 179 expensing is available for qualified zone 
     property placed in service in taxable years beginning after 
     December 31, 2001, by a qualified business in any of the 
     empowerment zones.
       Businesses located in Round I empowerment zones are 
     eligible for the more generous tax-exempt bond rules that 
     apply under present law to businesses in the Round II 
     empowerment zones (sec. 1394(f)). The proposal applies to 
     tax-exempt bonds issued after December 31, 2001. Bonds that 
     have been issued by businesses in Round I zones before 
     January 1, 2002, are not taken into account in applying the 
     limitations on the amount of new empowerment zone facility 
     bonds that can be issued under the provision.
       Businesses located in any empowerment zone also qualify for 
     a zero-percent capital gains rate for gain from the sale of a 
     qualifying zone assets acquired after date of enactment and 
     before January 1, 2010, and held for more than five years. 
     Assets that would qualify for this incentive would be similar 
     to the types of assets that qualify for the present-law zero 
     percent capital gains rate for qualifying D.C. Zone assets. 
     The zero-percent capital gains rate is limited to an 
     aggregate amount not to exceed $25 million of gain per 
     taxpayer. Gain attributable to the period before the date of 
     enactment or after December 31, 2014, is not eligible for the 
     zero-percent rate.
     Renewal zones
       Designation of 30 renewal zones.--The Secretaries of HUD 
     and Agriculture are authorized to designate up to 30 renewal 
     zones from areas nominated by States and local governments. 
     At least six of the designated renewal zones must be in rural 
     areas. The Secretary of HUD is required to publish (within 
     four months after enactment) regulations describing the 
     nomination and selection process. Designations of renewal 
     zones must be made before January 1, 2002, and the 
     designations are effective for the period beginning on 
     January 1, 2002 through December 31, 2009.
       Eligibility criteria.--To be designated as a renewal zone, 
     a nominated area must meet the following criteria: (1) each 
     census tract must have a poverty rate of at least 20 percent; 
     (2) in the case of an urban area, at least 70 percent of the 
     households have incomes below 80 percent of the median income 
     of households within the local government jurisdiction; (3) 
     the unemployment rate is at least 1.5 times the national 
     unemployment rate; and (4) the area is one of pervasive 
     poverty, unemployment, and general distress. In general, the 
     areas with the highest average ranking of eligibility factors 
     (1), (2) and (3), above will be designated as renewal zones. 
     States without any empowerment zone would be given priority 
     in the designation process. Moreover, the designations of 
     renewal zones must result in (after taking into account 
     existing empowerment zones) each State having at least one 
     zone designation (empowerment or renewal zone).
       There are no geographic size limitations placed on renewal 
     zones. Instead, the boundary of a renewal zone must be 
     continuous. In addition, a renewal zone must have a minimum 
     population of 4,000 if the area is located within a 
     metropolitan statistical area (at least 1,000 in all other 
     cases), and a maximum population of not more than 200,000. 
     The population limitations do not apply to any renewal zone 
     that is entirely within an Indian reservation.
       Required State and local commitments.--In order for an area 
     to be designated as a renewal zone, State and local 
     governments are required to submit a written course of action 
     in which the State and local governments promise to take at 
     least four of the following governmental actions: (1) a 
     reduction of tax rates or fees; (2) an increase in the level 
     of efficiency of local services; (3) crime reduction 
     strategies; (4) actions to remove or streamline governmental 
     requirements; (5) involvement by private entities and 
     community groups, such as to provide jobs and job training 
     and financial assistance; and (6) the gift (or sale at below 
     fair market value) of surplus realty by the State or local 
     government to community organizations or private companies.
       Enterprise community seeking designation as renewal 
     zones.--An enterprise community can apply for designation as 
     a renewal zone. In selecting a nominated area as a renewal 
     zone, the Secretary shall take into account the status of a 
     nominated area as an enterprise community. If a renewal zone 
     designation is granted, then an area's designation as an 
     enterprise community ceases as of the date the area's 
     designation as a renewal zone takes effect.
       Tax incentives for renewal zones.--Businesses in renewal 
     zones will have the same tax incentives as businesses in 
     existing empowerment zones (as modified by this provision), 
     which will be available during the period beginning January 
     1, 2002 and ending December 31, 2009 (i.e., a zero percent 
     capital gains rate for qualifying assets; a 15-percent wage 
     credit for qualifying wages; $35,000 in additional 179 
     expensing for qualifying property; and the enhanced tax-
     exempt bond rules that currently apply to businesses in the 
     Round II empowerment zones).
       GAO report.--The General Accounting Office will audit and 
     report to Congress every three years (beginning on January 
     31, 2004) on the renewal zone program and its effect on 
     poverty, unemployment, and economic growth within the 
     designated renewal zones.


                             effective date

       The extension of the existing empowerment zone designations 
     is effective after the date of enactment.
       The additional section 179 expensing and the more generous 
     tax-exempt bond rules for the existing empowerment zones is 
     effective after December 31, 2001. The zero-percent capital 
     gains rate applies to qualifying property purchased after the 
     date of enactment

[[Page S9731]]

     (after December 31, 2001 in the case of renewal zones).
       The 15-percent wage credit generally is effective for 
     qualifying wages paid after December 31, 2001. With respect 
     to the two additional Round I empowerment zones, however, the 
     wage credit is effective for qualifying wages paid after 
     December 31, 2004.
       The 30 new renewal zones must be designated by January 1, 
     2002, and the resulting tax benefits will be available for 
     the period beginning January 1, 2002, and ending December 31, 
     2009.

    B. Funding for Round II Empowerment Zones (Sec. 116 of the Bill)

       The provision provides a one-time grant in fiscal year 2001 
     of $5,000,000 for each of the 15 urban empowerment zones 
     designated pursuant to the Taxpayer Relief Act of 1997, and 
     $2,000,000 for each of the 5 rural empowerment zones 
     designated pursuant to the Taxpayer Relief Act of 1997.
       The provision also provides a one-time grant $250,000 for 
     each of the remaining Round I enterprise communities (i.e., 
     those that have not become empowerment zones).

  C. Extension and Expansion of District of Columbia Enterprise Zone 
                            (``D.C. Zone'')

  1. Extension of D.C. Zone (Sec. 121 of the Bill and Secs. 1400 and 
                           1400A of the Code)


                              present law

       The 1997 Act designated certain economically depressed 
     census tracts within the District of Columbia as the District 
     of Columbia Enterprise Zone (the ``D.C. Zone''), within which 
     businesses and individual residents are eligible for special 
     tax incentives. The D.C. Zone designation remains in effect 
     for the period from January 1, 1998, through December 31, 
     2002. In addition to the tax incentives available with 
     respect to a Round I empowerment zone (including a wage 
     credit), the D.C. Zone also has a zero-percent capital gains 
     rate that applies to gain from the sale of certain qualified 
     D.C. Zone assets acquired after December 31, 1997 and held 
     for more than five years.
       With respect to the tax-exempt financing incentives, the 
     D.C. Zone generally is treated like a Round I empowerment 
     zone; therefore, the issuance of such bonds is subject to the 
     District of Columbia's annual private activity bond volume 
     limitation. However, the aggregate face amount of all 
     outstanding qualified enterprise zone facility bonds per 
     qualified D.C. Zone business may not exceed $15 million 
     (rather than $3 million, as is the case for Round I 
     empowerment zones).


                        explanation of provision

       The provision extends the D.C. Zone designation through 
     December 31, 2006. The provision also conforms the D.C. zone 
     wage credit to the wage credit for existing empowerment 
     zones, so that a 15-percent wage credit applies with respect 
     to qualifying wages beginning in 2003 (and ending on December 
     31, 2006).


                             effective date

       The provision extending the designation is effective after 
     the date of enactment. For the D.C. Enterprise Zone, the 15-
     percent wage credit is effective for qualifying wages paid 
     after December 31, 2002.

 2. Extension of Zero-Percent Capital Gains Rate for D.C. Zone Assets 
           (Sec. 122 of the Bill and Sec. 1400B of the Code)


                              present law

       Present law provides a zero-percent capital gains rate for 
     capital gains from the sale of certain qualified D.C. Zone 
     assets held for more than five years. In general, a ``D.C. 
     Zone asset'' means stock or partnership interests held in, or 
     tangible assets held by, a D.C. Zone business. A D.C. Zone 
     business generally refers to certain enterprise zone 
     businesses within the D.C. Zone. For purposes of the zero-
     percent capital gains rate, the D.C. Zone is defined to 
     include all census tracts within the District of Columbia 
     where the poverty rate is not less than 10 percent as 
     determined on the basis of the 1990 Census (sec. 1400B(d)).


                        explanation of provision

       The provision eliminates the 10-percent poverty rate 
     limitation for purposes of the zero-percent capital gains 
     rate. Thus, the zero-percent capital gains rate applies to 
     capital gains from the sale of assets held more than five 
     years attributable to certain qualifying businesses located 
     in the District of Columbia.


                             effective date

       The provision is effective for D.C. Zone business stock and 
     partnership interests originally issued after, and D.C. Zone 
     business property assets originally acquired by the taxpayer 
     after, December 31, 2000.

3. Gross Income Test for D.C. Zone Businesses (Sec. 123 of the Bill and 
                        Sec. 1400B of the Code)


                              present law

       A zero-percent capital gains rate applies to gain from the 
     sale of certain qualified D.C. zone assets. In general, a 
     D.C. Zone asset means stock or partnership interests held in, 
     or tangible property held by, a D.C. Zone business. A D.C. 
     Zone business generally refers to certain enterprise zone 
     businesses within the D.C. Zone, except that 80 percent of 
     the total gross income of the entity must be derived from the 
     active conduct of the business (sec. 1400B(c)(2)).


                        explanation of provision

       The provision reduces the level of gross income needed to 
     qualify as a D.C. Zone business to 50 percent.


                             effective date

       The provision is effective for D.C. Zone business stock and 
     partnership interest originally issued after, and D.C. Zone 
     business property originally acquired by the taxpayer after, 
     December 31, 2000.

4. Expansion of District of Columbia Homebuyer Tax Credit (Sec. 124 of 
                  the Bill and Sec. 1400C of the Code)


                              present law

       First-time homebuyers of a principal residence in the 
     District of Columbia are eligible for a nonrefundable tax 
     credit of up to $5,000 of the amount of the purchase price. 
     The $5,000 maximum credit applies both to individuals and 
     married couples. Married individuals filing separately can 
     claim a maximum credit of $2,500 each. The credit phases out 
     for individual taxpayers with adjusted gross income between 
     $70,000 and $90,000 ($110,000-$130,000 for joint filers). For 
     purposes of eligibility, ``first-time homebuyer'' means any 
     individual if such individual did not have a present 
     ownership interest in a principal residence in the District 
     of Columbia in the one year period ending on the date of the 
     purchase of the residence to which the credit applies. The 
     credit is scheduled to expire for residences purchased after 
     December 31, 2001.


                        explanation of provision

       The provision extends the first-time homebuyer credit for 
     two years, through December 31, 2003. The provision also 
     extends the phase-out range for married individuals filing a 
     joint return so that it is twice that of individuals. Thus, 
     under the provision, the District of Columbia homebuyer 
     credit is phased out for joint filers with adjusted gross 
     income between $140,000 and $180,000.


                             effective date

       The provision is effective for taxable years beginning 
     after December 31, 2000.

D. New Markets Tax Credit (Section 131 of the Bill and New Sec. 45D of 
                               the Code)


                              Present Law

       Some tax incentives are available to taxpayers making 
     investments and loans in low-income communities. For example, 
     tax incentives are available to taxpayers that invest in 
     specialized small business investment companies licensed by 
     the Small Business Administration to make loans to, or equity 
     investments in, small businesses owned by persons who are 
     socially or economically disadvantaged.


                        Explanation of Provision

       The provision creates a new tax credit for qualified equity 
     investments made to acquire stock in a selected community 
     development entity (``CDE''). The maximum annual amount of 
     qualifying equity investments is capped as follows:

------------------------------------------------------------------------
                                              Maximum qualifying equity
               Calendar year                         investment
------------------------------------------------------------------------
2002......................................  $1.0 billion
2003-2006.................................  1.5 billion per year
------------------------------------------------------------------------

       The amount of the new tax credit to the investor (either 
     the original purchaser or a subsequent holder) is (1) a five-
     percent credit for the year in which the equity interest is 
     purchased from the CDE and the first two anniversary dates 
     after the interest is purchased from the CDE, and (2) a six-
     percent credit on each anniversary date thereafter for the 
     following four years. The taxpayer's basis in the investment 
     is reduced by the amount of the credit (other than for 
     purposes of calculating the zero-percent capital gains rules 
     and section 1202). The credit is subject to the general 
     business credit rules.
       A CDE is any domestic corporation or partnership (1) whose 
     primary mission is serving or providing investment capital 
     for low-income communities or low-income persons, (2) that 
     maintains accountability to residents of low-income 
     communities through the representation of the residents on 
     governing or advisory boards of the CDE, and (3) is certified 
     by the Treasury Department as an eligible CDE. No later than 
     120 days after enactment, the Treasury Department will issue 
     guidance that specifies objective criteria to be used by the 
     Treasury to allocate the credits among eligible CDEs. In 
     allocating the credits, the Treasury Department will give 
     priority to entities with records of having successfully 
     provided capital or technical assistance to disadvantaged 
     businesses or communities, as well as to entities that intend 
     to invest substantially all of the proceeds they receive from 
     their investors in businesses in which persons unrelated to 
     the CDE hold the majority equity interest.
       If a CDE fails to sell equity interests to investors up to 
     the amount authorized within five years of the authorization, 
     then the remaining authorization is canceled. The Treasury 
     Department can authorize another CDE to issue equity 
     interests for the unused portion. No authorization can be 
     made after 2013.
       A ``qualified equity investment'' is defined as stock or a 
     similar equity interest acquired directly from a CDE in 
     exchange for cash. Substantially all of the investment 
     proceeds must be used by the CDE to make ``qualified low-
     income community investments.'' Qualified low-income 
     community investments include: (1) capital or equity 
     investments in, or loans to, qualified active businesses 
     located in low-income communities, (2) certain financial 
     counseling and other services specified in regulations to 
     businesses and residents in low-income communities, (3) the 
     purchase from another CDE of any loan made by such entity 
     that is a qualified low

[[Page S9732]]

     income community investment, or (4) an equity investment in, 
     or loans to, another CDE. Treasury Department regulations 
     will provide guidance with respect to the ``substantially 
     all'' standard.
       The stock or equity interest cannot be redeemed (or 
     otherwise cashed out) by the CDE for at least seven years. If 
     the entity ceases to be a qualified CDE during the seven-year 
     period following the taxpayer's investment, or if the equity 
     interest is redeemed by the issuing CDE during that seven-
     year period, then any credits claimed with respect to the 
     equity interest are recaptured (with interest) and no further 
     credits are allowed.
       A ``low-income community'' is defined as census tracts 
     with: (1) poverty rates of at least 20 percent (based on the 
     most recent census data), or (2) median family income which 
     does not exceed 80 percent of the greater of metropolitan 
     area income or statewide median family income (for a non-
     metropolitan census tract, 80 percent of non-metropolitan 
     statewide median family income). The Secretary also may 
     designate any area within any census tract as a ``low income 
     community'' provided that (1) the boundary of the area is 
     continuous, (2) the area (if it were a census tract) would 
     satisfy the poverty rate or median income requirements set 
     forth above within the targeted area, and (3) an inadequate 
     access to investment capital exists in the area.
       A ``qualified active business'' is defined as a business 
     which satisfies the following requirements: (1) at least 50 
     percent of the total gross income of the business is derived 
     from the active conduct of trade or business activities in 
     low-income communities; (2) a substantial portion of the use 
     of the tangible property of such business is used within low-
     income communities; (3) a substantial portion of the services 
     performed for such business by its employees is performed in 
     low-income communities; and (4) less than 5 percent of the 
     average aggregate of unadjusted bases of the property of such 
     business is attributable to certain financial property or to 
     collectibles (other than collectibles held for sale to 
     customers). There is no requirement that employees of the 
     business be residents of the low income community.
       Rental of improved commercial real estate located in a low-
     income community is a qualified active business, regardless 
     of the characteristics of the commercial tenants of the 
     property. The purchase and holding of unimproved real estate 
     is not a qualified active business. In addition, a qualified 
     active business does not include (a) any business consisting 
     predominantly of the development or holding of intangibles 
     for sale or license; or (b) operation of any facility 
     described in sec. 144(c)(6)(B). A qualified active business 
     can include an organization that is organized on a non-profit 
     basis.
       The General Accounting Office will audit and report to 
     Congress by January 31, 2004 (and again by January 31, 2007) 
     on the new markets program, including on all qualified 
     community development entities that receive an allocation 
     under the new markets tax credit.


                             Effective Date

       The provision is effective for qualified investments made 
     after December 31, 2001.

 E. Modification of Puerto Rico Economic Activity Tax Credit (Sec. 141 
                 of the Bill and Sec. 30A of the Code)


                              Present Law

       The Small Business Job Protection Act of 1996 generally 
     repealed the Puerto Rico and possession tax credit. However, 
     certain domestic corporations that had active business 
     operations in Puerto Rico or another U.S. possession on 
     October 13, 1995, may continue to claim credits under section 
     936 or section 30A for a 10-year transition period. Such 
     credits apply to possession business income, which is derived 
     from the active conduct of a trade or business within a U.S. 
     possession or from the sale or exchange of substantially all 
     of the assets that were used in such a trade or business. In 
     contrast to the foreign tax credit, the Puerto Rico and 
     possession tax credit is granted whether or not the 
     corporation pays income tax to the possession.
       One of two alternative limitations is applicable to the 
     amount of the credit attributable to possession business 
     income. Under the economic activity limit, the amount of the 
     credit with respect to such income cannot exceed the sum of a 
     portion of the taxpayer's wage and fringe benefit expenses 
     and depreciation allowances (plus, in certain cases, 
     possession income taxes); beginning in 2002, the income 
     eligible for the credit computed under this limit generally 
     is subject to a cap based on the corporation's pre-1996 
     possession business income adjusted for inflation. Under the 
     alternative limit, the amount of the credit is limited to the 
     applicable percentage (40 percent for 1998 and thereafter) of 
     the credit that would otherwise be allowable with respect to 
     possession business income; beginning in 1998, the income 
     eligible for the credit computed under this limit generally 
     is subject to a cap based on the corporation's pre-1996 
     possession business income. Special rules apply in computing 
     the credit with respect to operations in Guam, American 
     Samoa, and the Commonwealth of the Northern Mariana Islands. 
     The credit expires for taxable years beginning after December 
     31, 2005.


                        Explanation of Provision

       The bill modifies the credit computed under the economic 
     activity limit with respect to operations in Puerto Rico 
     only. First, the proposal expands the lines of business 
     eligible under the credit to include new lines of business 
     established in Puerto Rico after December 31, 2000, and 
     before January 1, 2005 by existing credit claimants. These 
     ``new opportunity credit'' claimants are eligible to claim 
     credits in taxable years beginning before January 1, 2006. In 
     addition, income eligible for the credit computed under the 
     economic activity limitation is subject to the present-law 
     income limitation. Also, these ``new opportunity credit'' 
     claimants are required to calculate their credit in each 
     taxable year, but claim that amount of credit over a five-
     year period (on a pro-rata basis) beginning the year in which 
     the credit is earned.
       In addition, for existing credit claimants, the present-law 
     limitation on income eligible for the credit for any taxable 
     year is increased by the ratio of the average number of full-
     time employees of the taxpayer during the taxable year to the 
     average number of full-time employees of the taxpayer in 1995 
     and 1996.


                             Effective Date

       The provision applies to taxable years beginning after 
     December 31, 2000.

 F. Creation of Individual Development Accounts (Secs. 731-741 of the 
                  Bill and New Sec. 530A of the Code)


                              Present Law

       There are no tax benefits to encourage financial 
     institutions to match savings of low-income individuals.


                        Explanation of Provision

     In general
       The bill creates individual development accounts (``IDAs'') 
     to which eligible individuals can contribute, annually, the 
     lesser of: (1) $2,000; or (2) the individual's taxable 
     compensation for the year. An eligible individual is an 
     individual who is: (1) at least 18 years of age; (2) a 
     citizen or legal resident of the United States; and (3) a 
     member of a household with family gross income of 60 percent 
     or less of national median gross income and a net worth of 
     $10,000 or less.
     Contributions to an IDA by eligible individuals
       Only eligible individuals are allowed to contribute to an 
     IDA. Contributions to IDAs by individuals are not deductible, 
     and earnings on such contributions are includible in income.
     Matching contributions
       The bill provides a maximum annual tax credit of $270 (90 
     percent of $300) to a financial institution that makes 
     matching contributions to the IDAs of individuals. This 
     credit is available in each year that a matching contribution 
     is made. An additional $100 tax credit would be allowed for 
     each account opened. The credit is for the costs incurred to 
     open and maintain the account, as well as to provide 
     financial education. The credits could be claimed by the 
     financial institution or its contractual affiliates. It is 
     anticipated that a financial institution may collaborate with 
     one or more contractual affiliates, non-profits, or Indian 
     tribes to carry out the IDA program. Contractual affiliates 
     who provide matching funds should be eligible to receive the 
     matching tax credit.
       Matching contributions (and earnings thereon) are not 
     includible in the gross income of the eligible individual.
       If an individual withdraws his or her own IDA contributions 
     (or earnings thereon) for a purpose other than a qualified 
     purpose, then the matching contribution attributable to such 
     individual contribution is forfeited. Matching contributions 
     can be withdrawn only for the following qualified purposes: 
     (1) certain educational expenses; (2) first-time homebuyer 
     expenses; (3) business start-up or expansion purposes; and 
     (4) qualified rollovers.
     Effect on means-tested programs
       Any amounts in the IDA are not to be taken into account for 
     certain Federal means-tested programs.


                             Effective Date

       The tax credit provision is effective for contributions to 
     IDAs and matching contributions made with respect to such 
     IDAs after December 31, 2001, and before January 1, 2006.

                        G. Additional Incentives

  1. Exclusion of certain amounts received under the National Health 
Service Corps Scholarship Program and the F. Edward Hebert Armed Forces 
 Health Professions Scholarship and Financial Assistance Program (sec. 
               171 of the bill and sec. 117 of the Code)


                              Present Law

       The National Health Service Corps Scholarship Program (the 
     ``NHSC Scholarship Program'') and the F. Edward Hebert Armed 
     Forces Health Professions Scholarship and Financial 
     Assistance Program (the ``Armed Forces Scholarship Program'') 
     provide education awards to participants on condition that 
     the participants provide certain services. In the case of the 
     NHSC Scholarship Program, the recipient of the scholarship is 
     obligated to provide medical services in a geographic area 
     (or to an underserved population group or designated 
     facility) identified by the Public Health Service as having a 
     shortage of health-care professionals. In the case of the 
     Armed Forces Scholarship Program, the recipient of the 
     scholarship is obligated to serve a certain number of years 
     in the military at an armed forces medical facility. Because 
     the recipients are required to perform services in exchange 
     for the education awards, the awards used to pay higher

[[Page S9733]]

     education expenses are taxable income to the recipient.
       Section 117 excludes from gross income amounts received as 
     a qualified scholarship by an individual who is a candidate 
     for a degree and used for tuition and fees required for the 
     enrollment or attendance (or for fees, books, supplies, and 
     equipment required for courses of instruction) at a primary, 
     secondary, or post-secondary educational institution. The 
     tax-free treatment provided by section 117 does not extend to 
     scholarship amounts covering regular living expenses, such as 
     room and board. In addition to the exclusion for qualified 
     scholarships, section 117 provides an exclusion from gross 
     income for qualified tuition reductions for certain education 
     provided to employees (and their spouses and dependents) of 
     certain educational organizations.
       Section 117(c) specifically provides that the exclusion for 
     qualified scholarships and qualified tuition reductions does 
     not apply to any amount received by a student that represents 
     payment for teaching, research, or other services by the 
     student required as a condition for receiving the scholarship 
     or tuition reduction.
       Section 134 provides that any ``qualified military 
     benefit,'' which includes any allowance, is excluded from 
     gross income if received by a member or former member of the 
     uniformed services if such benefit was excludable from gross 
     income on September 9, 1986.


                        Explanation of Provision

       The provision provides that amounts received by an 
     individual under the NHSC Scholarship Program or the Armed 
     Forces Scholarship Program are eligible for tax-free 
     treatment as qualified scholarships under section 117, 
     without regard to any service obligation by the recipient.


                             Effective Date

       The provision is effective for education awards received 
     after December 31, 1993.

   2. Extension and Modification of Enhanced Deduction for Corporate 
    Donations of Computer Technology (Sec. 172 of the Bill and Sec. 
                         170(e)(6) of the Code)


                              Present Law

       The maximum charitable contribution deduction that may be 
     claimed by a corporation for any one taxable year is limited 
     to 10 percent of the corporation's taxable income for that 
     year (disregarding charitable contributions and with certain 
     other modifications) (sec. 170(b)(2)). Corporations also are 
     subject to certain limitations based on the type of property 
     contributed. In the case of a charitable contribution of 
     short-term gain property, inventory, or other ordinary income 
     property, the amount of the deduction generally is limited to 
     the taxpayer's basis (generally, cost) in the property. 
     However, special rules in the Code provide an augmented 
     deduction for certain corporate contributions. Under these 
     special rules, the amount of the augmented deduction is equal 
     to the lesser of (1) the basis of the donated property plus 
     one-half of the amount of ordinary income that would have 
     been realized if the property had been sold, or (2) twice the 
     basis of the donated property.
       Section 170(e)(6) allows corporate taxpayers an augmented 
     deduction for qualified contributions of computer technology 
     and equipment (i.e., computer software, computer or 
     peripheral equipment, and fiber optic cable related to 
     computer use) to be used within the United States for 
     educational purposes in grades K-12. Eligible donees are: (1) 
     any educational organization that normally maintains a 
     regular faculty and curriculum and has a regularly enrolled 
     body of pupils in attendance at the place where its 
     educational activities are regularly carried on; and (2) tax-
     exempt charitable organizations that are organized primarily 
     for purposes of supporting elementary and secondary 
     education. A private foundation also is an eligible donee, 
     provided that, within 30 days after receipt of the 
     contribution, the private foundation contributes the property 
     to an eligible donee described above.
       Qualified contributions are limited to gifts made no later 
     than two years after the date the taxpayer acquired or 
     substantially completed the construction of the donated 
     property. In addition, the original use of the donated 
     property must commence with the donor or the donee. 
     Accordingly, qualified contributions generally are limited to 
     property that is no more than two years old. Such donated 
     property could be computer technology or equipment that is 
     inventory or depreciable trade or business property in the 
     hands of the donor.
       Donee organizations are not permitted to transfer the 
     donated property for money or services (e.g., a donee 
     organization cannot sell the computers). However, a donee 
     organization may transfer the donated property in furtherance 
     of its exempt purposes and be reimbursed for shipping, 
     installation, and transfer costs. For example, if a 
     corporation contributes computers to a charity that 
     subsequently distributes the computers to several elementary 
     schools in a given area, the charity could be reimbursed by 
     the elementary schools for shipping, transfer, and 
     installation costs.
       The special treatment applies only to donations made by C 
     corporations. S corporations, personal holding companies, and 
     service organizations are not eligible donors.
       The provision is scheduled to expire for contributions made 
     in taxable years beginning after December 31, 2000.


                        Explanation of Provision

       The bill extends the current enhanced deduction for 
     donations of computer technology and equipment through 
     December 31, 2003. In addition, the enhanced deduction is 
     expanded to include donations to public libraries.


                             Effective date

       The provision is effective upon the date of enactment.

3. Extension of the Adoption Tax Credit (Sec. 173 of the Bill and Sec. 
                            23 of the Code)


                              Present Law

       Taxpayers are entitled to a maximum nonrefundable credit 
     against income tax liability of $5,000 per child for 
     qualified adoption expenses paid or incurred by the taxpayer 
     (sec. 23). In the case of a special needs adoption, the 
     maximum credit amount is $6,000 ($5,000 in the case of a 
     foreign special needs adoption). A special needs child is a 
     child who the State has determined: (1) cannot or should not 
     be returned to the home of the birth parents, and (2) has a 
     specific factor or condition because of which the child 
     cannot be placed with adoptive parents without adoption 
     assistance. The adoption of a child who is not a citizen or a 
     resident of the United States is a foreign adoption.
       Qualified adoption expenses are reasonable and necessary 
     adoption fees, court costs, attorneys' fees, and other 
     expenses that are directly related to the legal adoption of 
     an eligible child. All reasonable and necessary expenses 
     required by a State as a condition of adoption are qualified 
     adoption expenses. Otherwise qualified adoption expenses paid 
     or incurred in one taxable year are not taken into account 
     for purposes of the credit until the next taxable year unless 
     the expenses are paid or incurred in the year the adoption 
     becomes final.
       An eligible child is an individual (1) who has not attained 
     age 18 or (2) who is physically or mentally incapable of 
     caring for himself or herself. After December 31, 2001, the 
     credit will be available only for domestic special needs 
     adoptions.
       No credit is allowed for expenses incurred (1) in violation 
     of State or Federal law, (2) in carrying out any surrogate 
     parenting arrangement, (3) in connection with the adoption of 
     a child of the taxpayer's spouse, (4) that are reimbursed 
     under an employer adoption assistance program or otherwise, 
     or (5) for a foreign adoption that is not finalized.
       The credit is phased out ratably for taxpayers with 
     modified AGI above $75,000, and is fully phased out at 
     $115,000 of modified AGI. For these purposes modified AGI is 
     computed by increasing the taxpayer's AGI by the amount 
     otherwise excluded from gross income under Code sections 911, 
     931, or 933.


                        Explanation of Provision

       The bill extends the adoption credit for the adoption of 
     non-special needs children for two years through December 31, 
     2003.


                             Effective Date

       The provision is effective on the date of enactment.

 4. Tax treatment of Alaska Native Settlement Trusts (Sec. 174 of the 
             Bill and New Secs. 646 and 6039H of the Code)


                              Present Law

       An Alaska Native Settlement Corporation (``ANC'') may 
     establish a Settlement Trust (``Trust'') under section 39 of 
     the Alaska Native Claims Settlement Act (``ANCSA'') and 
     transfer money or other property to such Trust for the 
     benefit of beneficiaries who constitute all or a class of the 
     shareholders of the ANC, to promote the health, education and 
     welfare of the beneficiaries and preserve the heritage and 
     culture of Alaska Natives.
       With certain exceptions, once an ANC has made a conveyance 
     to a Trust, the assets conveyed shall not be subject to 
     attachment, distraint, or sale or execution of judgment, 
     except with respect to the lawful debts and obligations of 
     the Trust.
       The Internal Revenue Service has indicated that 
     contributions to a Trust constitute distributions to the 
     beneficiary-shareholders at the time of the contribution and 
     are treated as dividends to the extent of earnings and 
     profits as provided under section 301 of the Code. The Trust 
     and its beneficiaries are taxed in accordance with trust 
     rules.


                        Explanation of Provision

       An Alaska Native Corporation may establish a Trust under 
     section 39 of ANCSA and if the Trust makes an election for 
     its first taxable year ending after the date of enactment of 
     the proposal, no amount will be included in the gross income 
     of a beneficiary of such Trust by reason of a contribution to 
     the Trust. In addition, unless the electing Trust fails to 
     meet the transferability requirements of the provision, 
     income of the Trust, whether accumulated or distributed, will 
     be taxed only to the Trust (and not to beneficiaries) at the 
     lowest individual tax rates of 15 percent for ordinary income 
     (and the capital gains rate applicable to individuals subject 
     to such 15 percent rate), rather than at the higher rates 
     generally applicable to trusts or to higher tax bracket 
     beneficiaries.
       The earnings and profits of the ANC will not be reduced by 
     the amount of contributions to the electing Trust at the time 
     of the contributions. However, the ANC earnings and profits 
     will be reduced (up to the amount of the contributions) as 
     distributions are thereafter made by the electing Trust that 
     would exceed the Trusts's total undistributed net income 
     (less taxes paid) plus tax-exempt income for all prior years 
     during which

[[Page S9734]]

     an election is in effect plus for the current year, computed 
     under Subchapter J. In addition, such distributions that 
     exceed such amounts are to be reported and taxed to 
     beneficiaries as if distributed by the ANC in the year of the 
     distribution by the electing Trust, and will be treated as 
     dividends to beneficiaries to the extent the ANC then has 
     current or accumulated earnings and profits.
       The fiduciary of an electing Trust must report to the IRS, 
     with the Trust tax return, the amount of distributions to 
     each beneficiary, and the tax treatment to the beneficiary of 
     such distributions under the provision (either as exempt from 
     tax to the beneficiary, or as a distribution deemed made by 
     the ANC). The electing Trust must also furnish such 
     information to the ANC.
       In the case of distributions that are treated as if made by 
     the ANC, as described above, the ANC must then report such 
     amounts to the beneficiaries and must indicate whether they 
     are dividends or not, in accordance with the earnings and 
     profits of the ANC. The reporting thus required by an 
     electing Trust will be in lieu of, and will satisfy, the 
     reporting requirements of section 6034A (and such other 
     reporting requirements as the Secretary of the Treasury may 
     deem appropriate).
       If the beneficial interests in the electing Trust or the 
     shares of the ANC may be sold or exchanged to a person in a 
     manner that would not be permitted under ANCSA if the 
     interests were Settlement Common Stock (generally, to a 
     person other than an Alaska Native), then all assets of the 
     Trust that had not been distributed as of the beginning of 
     that taxable year of the Trust are taxed to the extent they 
     would be if they were distributed at that time. Thereafter, 
     the Trust and its beneficiaries are generally subject to the 
     rules of subchapter J and to the generally applicable trust 
     income tax rates.


                             Effective Date

       The provision is effective for taxable years of Settlement 
     Trusts, their beneficiaries, and sponsoring Alaska Native 
     Corporations ending after the date of enactment, and to 
     contributions made to electing Settlement Trusts during such 
     year and thereafter.

5. Treatment of Indian Tribes as Non-Profit Organizations and State or 
    Local Governments for Purposes of the Federal Unemployment Tax 
      (``FUTA'') (Sec. 175 of the Bill and Sec. 3306 of the Code)


                              Present Law

       Present law imposes a net tax on employers equal to 0.8 
     percent of the first $7,000 paid annually to each employee. 
     The current gross FUTA tax is 6.2 percent, but employers in 
     States meeting certain requirements and having no delinquent 
     loans are eligible for a 5.4 percent credit making the net 
     Federal tax rate 0.8 percent. Both non-profit organizations 
     and State and local governments are not required to pay FUTA 
     taxes. Instead they may elect to reimburse the unemployment 
     compensation system for unemployment compensation benefits 
     actually paid to their former employees. Generally, Indian 
     tribes are not eligible for the reimbursement treatment 
     allowable to non-profit organizations and State and local 
     governments.


                        Explanation of Provision

       The bill provides that an Indian tribe (including any 
     subdivision, subsidiary, or business enterprise chartered and 
     wholly owned by an Indian tribe) is treated like a non-profit 
     organization or State or local government for FUTA purposes 
     (i.e., given an election to choose the reimbursement 
     treatment).


                             Effective Date

       The provision generally is effective with respect to 
     service performed beginning on or after the date of 
     enactment. Under a transition rule, service performed in the 
     employ of an Indian tribe is not treated as employment for 
     FUTA purposes if: (1) it is service which is performed before 
     the date of enactment and with respect to which FUTA tax has 
     not been paid; and (2) such Indian tribe reimburses a State 
     unemployment fund for unemployment benefits paid for service 
     attributable to such tribe for such period.

6. Additional Funding for the Social Services Block Grant (Sec. 176 of 
                               the Bill)

       The provision amends Section 2003(c) of Title XX of the 
     Social Security Act and provides an additional one-time 
     amount of $700,000,000 for fiscal year 2001.

               II. TAX INCENTIVES FOR AFFORDABLE HOUSING

A. Increase Low-Income Housing Tax Credit Per Capita Amount (Secs. 201 
              and 202 of the Bill and Sec. 42 of the Code)


                              Present Law

       In general, a maximum 70-percent present value tax credit, 
     claimed over a 10-year period is allowed for the cost of 
     rental housing occupied by tenants having incomes below 
     specified levels. The credit percentage for newly constructed 
     or substantially rehabilitated housing that is not Federally 
     subsidized is adjusted monthly by the Internal Revenue 
     Service so that the 10 annual installments have a present 
     value of 70 percent of the total qualified expenditures. The 
     credit percentage for new substantially rehabilitated housing 
     that is Federally subsidized and for existing housing that is 
     substantially rehabilitated is calculated to have a present 
     value of 30 percent of total qualified expenditures.
       To claim low-income housing credits, project owners must 
     receive an allocation of credit from a State or local housing 
     credit agency. However, no allocation is required for 
     buildings at least 50 percent financed with the proceeds of 
     tax-exempt bonds that received an allocation pursuant to the 
     private activity bond volume limitation of Code section 146. 
     Such projects must, however, satisfy the requirements for 
     allocation under the State's qualified allocation plan and 
     meet other requirements.
       A building generally must be placed in service during the 
     calendar year in which it receives a credit allocation. 
     However, a housing credit agency can make a binding 
     commitment, not later than the year in which the building is 
     placed in service, to allocate a specified credit dollar 
     amount to such building beginning in a specified later year. 
     In addition, a project can receive a ``carryover allocation'' 
     if the taxpayer's basis in the project as of the close of the 
     calendar year the allocation is made is more than 10 percent 
     of the taxpayer's reasonably expected basis in the project, 
     and the building is placed in service not later than the 
     close of the second calendar year following the calendar year 
     in which the allocation is made. For purposes of the 10-
     percent test, basis means the taxpayer's adjusted basis in 
     land and depreciable real property, whether or not these 
     amounts are includible in eligible basis. Finally, an 
     allocation of credit for increases in qualified basis may 
     occur in years subsequent to the year the project is placed 
     in service.
       Authority to allocate credits remains at the State (as 
     opposed to local) government level unless State law provides 
     otherwise. Generally, credits may be allocated only from 
     volume authority arising during the calendar year in which 
     the building is placed in service, except in the case of: (1) 
     credits claimed on additions to qualified basis; (2) credits 
     allocated in a later year pursuant to an earlier binding 
     commitment made no later than the year in which the 
     building is placed in service; and (3) carryover 
     allocations.
       Each State annually receives low-income housing credit 
     authority equal to $1.25 per State resident for allocation to 
     qualified low-income projects. In addition to this $1.25 per 
     resident amount, each State's ``housing credit ceiling'' 
     includes the following amounts: (1) the unused State housing 
     credit ceiling (if any) of such State for the preceding 
     calendar year; (2) the amount of the State housing credit 
     ceiling (if any) returned in the calendar year; and (3) the 
     amount of the national pool (if any) allocated to such State 
     by the Treasury Department.
       The national pool consists of States' unused housing credit 
     carryovers. For each State, the unused housing credit 
     carryover for a calendar year consists of the excess (if any) 
     of the unused State housing credit ceiling for such year over 
     the excess (if any) of the aggregate housing credit dollar 
     amount allocated for such year over the sum of $1.25 per 
     resident and the credit returns for such year. The amounts in 
     the national pool are allocated only to a State which, with 
     respect to the previous calendar year allocated its entire 
     housing credit ceiling for the preceding calendar year, and 
     requested a share in the national pool not later than May 1, 
     of the calendar year. The national pool allocation to 
     qualified States is made on a pro rata basis equivalent to 
     the fraction that a State's population enjoys relative to the 
     total population of all qualified States for that year.
       The present-law stacking rule provides that a State is 
     treated as using its annual allocation of credit authority 
     ($1.25 per State resident) and any returns during the 
     calendar year followed by any unused credits carried forward 
     from the preceding year's credit ceiling and finally any 
     applicable allocations from the National pool.


                        Explanation of Provision

       The bill increases the annual State credit caps from $1.25 
     to $1.75 per resident beginning in 2001. Also beginning in 
     2001, the per capita cap is modified so that small population 
     states are given a minimum of $2 million of annual credit 
     cap. The $1.75 per capita credit cap and the $2 million 
     amount are indexed for inflation beginning in calendar year 
     2002.
       The bill also makes two programmatic changes to the credit. 
     First, the bill modifies the stacking rule so that each State 
     is treated as using its allocation of the unused State 
     housing credit ceiling (if any) from the preceding calendar 
     before the current year's allocation of credit (including any 
     credits returned to the State) and then finally any National 
     pool allocations. Second, the bill provides that assistance 
     received under the Native American Housing Assistance and 
     Self-Determination Act of 1986 is not taken into account in 
     determining whether a building is Federally subsidized for 
     purposes of the credit.


                             Effective Date

       The provision is effective for calendar years beginning 
     after December 31, 2000 and buildings placed-in-service after 
     such date in the case of projects that also receive financing 
     with proceeds of tax-exempt bonds which are issued after such 
     date subject to the private activity bond volume limit.

 B. Tax Credit for Renovating Historic Homes (Sec. 211 of the Bill and 
                       New Sec. 25B of the Code)


                              Present Law

       Present law provides an income tax credit for certain 
     expenditures incurred in rehabilitating certified historic 
     structures and certain nonresidential buildings placed in 
     service before 1936 (sec. 47). The amount of the

[[Page S9735]]

     credit is determined by multiplying the applicable 
     rehabilitation percentage by the basis of the property that 
     is attributable to qualified rehabilitation expenditures. The 
     applicable rehabilitation percentage is 20 percent for 
     certified historic structures and 10 percent for qualified 
     rehabilitated buildings (other than certified historic 
     structures) that were originally placed in service before 
     1936.
       A nonresidential building is eligible for the 10-percent 
     credit only if the building is substantially rehabilitated 
     and a specific portion of the existing structure of the 
     building is retained in place upon completion of the 
     rehabilitation. A residential or nonresidential building is 
     eligible for the 20-percent credit that applies to certified 
     historic structures only if the building is substantially 
     rehabilitated (as determined under the eligibility rules for 
     the 10-percent credit). In addition, the building must be 
     listed in the National Register or the building must be 
     located in a registered historic district and must be 
     certified by the Secretary of the Interior as being of 
     historical significance to the district.


                        Explanation of Provision

       The bill permits a taxpayer to claim a 20-percent credit 
     for qualified rehabilitation expenditures made with respect 
     to a qualified historic home which the taxpayer subsequently 
     occupies as his or her principal residence for at least five 
     years. The total credit which can be claimed by the taxpayer 
     is limited to $20,000. Any eligible credit not claimed by the 
     taxpayer in the year in which the qualified rehabilitation 
     expenditures are made may be carried forward to each of the 
     succeeding 10 years.
       The bill applies to (1) structures listed in the National 
     Register; (2) structures located in a registered national, 
     State, or local historic district, and certified by the 
     Secretary of the Interior as being of historic significance 
     to the district, but only if the median income of the census 
     tract within which the building is located is less than twice 
     the State median income; (3) any structure designated as 
     being of historic significance under a State or local 
     statute, if such statute is certified by the Secretary of the 
     Interior as achieving the purpose of preserving and 
     rehabilitating buildings of historic significance.
       A building generally is considered substantially 
     rehabilitated if the qualified rehabilitation expenditures 
     incurred during a 24-month measuring period exceed the 
     greater of (1) the adjusted basis of the building as of the 
     later of the first day of the 24-month period or the 
     beginning of the taxpayer's holding period for the building, 
     or (2) $5,000. Only the $5,000 expenditure requirement 
     applies in the case of structures (1) in empowerment zones, 
     (2) in enterprise communities, (3) in census tracts in which 
     70 percent of families have income which is 80 percent or 
     less of the State median family income, and (4) in areas 
     of chronic distress as designated by the State and 
     approved by the Secretary of Housing and Urban 
     Development. In addition, for all structures, at least 
     five percent of the rehabilitation expenditures must to be 
     allocable to the exterior of the structure.
       To qualify for the credit, the rehabilitation must be 
     certified by a State or local government subject to 
     conditions specified by the Secretary of the Interior.
       A taxpayer who purchases a structure on which qualified 
     rehabilitation expenditures have been made may claim credit 
     for such expenditures if the taxpayer is the first purchaser 
     of the structure within five years of the date the 
     rehabilitation was completed and if no credit was allowed to 
     the seller with respect to the qualified expenditures. 
     Alternatively, a taxpayer may elect to receive a historic 
     rehabilitation mortgage credit certificate in lieu of the 
     credit otherwise allowable. A historic rehabilitation 
     mortgage credit certificate may be transferred to a lending 
     institution in exchange for which the lending institution 
     provides the taxpayer with a reduction in interest rate on a 
     mortgage on a qualifying structure. The lending institution 
     would then claim the allowable credits against its tax 
     liability. In the case of a targeted area or enterprise 
     community or empowerment zone, the taxpayer may elect to 
     allocate all or a portion of the mortgage credit certificate 
     to reduce the down payment required for purchase of the 
     structure.
       If a taxpayer ceases to maintain the structure as his or 
     her personal residence within five years from the date of the 
     rehabilitation, the credit would be recaptured on a pro rata 
     basis.


                             Effective Date

       The provision is effective for expenditures paid or 
     incurred beginning after December 31, 2001.

     C. Exclusion From Gross Income for Certain Forgiven Mortgage 
      Obligations (Sec. 221 of the Bill and Sec. 108 of the Code)


                              Present Law

       Gross income includes all income from whatever source 
     derived, including income from the discharge of indebtedness. 
     However, gross income does not include discharge of 
     indebtedness income if: (1) the discharge occurs in a Title 
     11 case; (2) the discharge occurs when the taxpayer is 
     insolvent; (3) the indebtedness discharged is qualified farm 
     indebtedness; or (4) except in the case of a C corporation, 
     the indebtedness discharged is qualified real property 
     business indebtedness. No exclusion is provided under present 
     law for qualified residential indebtedness.


                        Explanation of Provision

       In the case of an individual taxpayer, the bill provides an 
     exclusion from discharge of indebtedness income to the extent 
     such income is attributable to the sale of real property 
     securing qualified residential indebtedness. Qualified 
     residential indebtedness is defined as indebtedness incurred 
     or assumed by the taxpayer for the acquisition, construction, 
     reconstruction, or substantial improvement of the taxpayer's 
     residence and which is secured by such residence. The 
     taxpayer may elect to have this exclusion apply. The 
     exclusion does not apply to qualified farm indebtedness or 
     qualified real property business indebtedness.


                             Effective Date

       The provision is effective for discharges of indebtedness 
     after the date of enactment.

                       D. Mortgage Revenue Bonds

 1. Increase in Purchase Price Limitation Under Mortgage Subsidy Bond 
Rules Based on Median Family Income (Sec. 231 of the Bill and Sec. 143 
                              of the Code)


                              Present Law

       Qualified mortgage bonds (QMBs) are tax-exempt bonds, the 
     proceeds of which generally must be used to make mortgage 
     loans to first-time homebuyers. The recipients of QMB-
     financed loans must meet purchase price, income, and other 
     restrictions. Generally, the purchase price of an assisted 
     home may not exceed 90 percent (110 percent in targeted 
     areas) of the average area purchase price.


                        Explanation of Provision

       The bill modifies the purchase price rule for QMB 
     financing. Specifically, QMB financing is allowable to 
     qualified residences the purchase price of which does not 
     exceed the greater of (1) 90 percent of the average area 
     purchase price; or (2) 3.5 times the applicable median family 
     income. The applicable median family income is defined as 
     under the present-law QMB income restriction.


                             Effective Date

       The provision is effective for bonds issued after the date 
     of enactment.

2. Mortgage Financing for Residences Located in Presidentially Declared 
     Disaster Areas (Sec. 232 of the Bill and Sec. 143 of the Code)


                              Present Law

       Qualified mortgage bonds are private activity tax-exempt 
     bonds issued by States and local governments acting as 
     conduits to provide mortgage loans to first-time home buyers 
     who satisfy specified income limits and who purchase homes 
     that cost less than statutory maximums. The income and 
     purchase price limits are increased for homes purchased in 
     economically distressed areas, and a portion of loans made in 
     such areas is exempt from some requirements.
       Present law waives the three buyer targeting requirements 
     (the first-time homebuyer, purchase price, and income limit 
     requirements) for a portion of the loans made with proceeds 
     of a qualified mortgage bond issue if the loans are made to 
     finance homes in statutorily prescribed economically 
     distressed areas.
       For bonds issued during 1997 and 1998, a special exception 
     exempted loans made in Presidentially declared disaster areas 
     within two years of the declaration from the first-time 
     homebuyer limit. In addition, the more liberal income and 
     purchase price rules applicable to economically distressed 
     areas applied to such loans. There was no requirement that 
     the specially treated loans be made to repair or replace 
     housing damaged or destroyed by the disaster.


                        explanation of provision

       The bill reinstates, with modifications, the prior-law 
     exception for certain qualified mortgage bond financed loans 
     in Presidentially declared disaster areas. First, the bill: 
     (1) allows loans for replacement housing for housing 
     destroyed in the disaster without regard to the first-time 
     homebuyer requirement; and (2) increases the borrower income 
     and house purchase price requirements to those that apply in 
     targeted areas of economic distress. Second, the bill 
     increases the per-borrower ``home improvement loan'' maximum 
     from $15,000 to $100,000 and extends the more liberal 
     borrower income limits for targeted areas to loans for repair 
     of housing damaged by the disaster. In both cases, the 
     exception applies only to loans made during the two-year 
     period after the area was declared a qualified disaster area. 
     A qualified disaster area is defined as an area determined by 
     the President (1) to warrant assistance under the Robert T. 
     Stafford Disaster Relief and Emergency Assistance Act and (2) 
     with respect to which the Federal share of disaster payments 
     exceeds 75 percent.


                             effective date

       The provision is effective for bonds issued after December 
     31, 2000.

   E. Provide Tax Exemption for Organizations Created by a State to 
Provide Property and Casualty Insurance Coverage for Property for Which 
 Such Coverage Is Otherwise Unavailable (Sec. 241 of the Bill and New 
                      Sec. 501(c)(28) of the Code)


                              present law

     In general
       A life insurance company is subject to tax on its life 
     insurance company taxable income, which is its life insurance 
     income reduced by life insurance deductions (sec. 801).

[[Page S9736]]

     Similarly, a property and casualty insurance company is 
     subject to tax on its taxable income, which is determined as 
     the sum of its underwriting income and investment income (as 
     well as gains and other income items) (sec. 831). Present law 
     provides that the term ``corporation'' includes an insurance 
     company (sec. 7701(a)(3)).
       In general, the Internal Revenue Service (``IRS'') takes 
     the position that organizations that provide insurance for 
     their members or other individuals are not considered to be 
     engaged in a tax-exempt activity. The IRS maintains that such 
     insurance activity is either (1) a regular business of a kind 
     ordinarily carried on for profit, or (2) an economy or 
     convenience in the conduct of members' businesses because it 
     relieves the members from obtaining insurance on an 
     individual basis.
       Certain insurance risk pools have qualified for tax 
     exemption under Code section 501(c)(6). In general, these 
     organizations (1) assign any insurance policies and 
     administrative functions to their member organizations 
     (although they may reimburse their members for amounts paid 
     and expenses); (2) serve an important common business 
     interest of their members; and (3) must be membership 
     organizations financed, at least in part, by membership dues.
       State insurance risk pools may also qualify for tax exempt 
     status under section 501(c)(4) as a social welfare 
     organization or under section 115 as serving an essential 
     governmental function of a State. In seeking qualification 
     under section 501(c)(4), insurance organizations generally 
     are constrained by the restrictions on the provision of 
     ``commercial-type insurance'' contained in section 501(m). 
     Section 115 generally provides that gross income does not 
     include income derived from the exercise of any essential 
     governmental function or accruing to a State or any political 
     subdivision thereof.
       Certain specific provisions provide tax-exempt status to 
     organizations meeting statutory requirements.
     Health coverage for high-risk individuals
       Section 501(c)(26) provides tax-exempt status to any 
     membership organization that is established by a State 
     exclusively to provide coverage for medical care on a 
     nonprofit basis to certain high-risk individuals, provided 
     certain criteria are satisfied. The organization may 
     provide coverage for medical care either by issuing 
     insurance itself or by entering into an arrangement with a 
     health maintenance organization (``HMO'').
       High-risk individuals eligible to receive medical care 
     coverage from the organization must be residents of the State 
     who, due to a pre-existing medical condition, are unable to 
     obtain health coverage for such condition through insurance 
     or an HMO, or are able to acquire such coverage only at a 
     rate that is substantially higher than the rate charged for 
     such coverage by the organization. The State must determine 
     the composition of membership in the organization. For 
     example, a State could mandate that all organizations that 
     are subject to insurance regulation by the State must be 
     members of the organization.
       The provision further requires the State or members of the 
     organization to fund the liabilities of the organization to 
     the extent that premiums charged to eligible individuals are 
     insufficient to cover such liabilities. Finally, no part of 
     the net earnings of the organization can inure to the benefit 
     of any private shareholder or individual.
     Workers' compensation reinsurance organizations
       Section 501(c)(27)(A) provides tax-exempt status to any 
     membership organization that is established by a State before 
     June 1, 1996, exclusively to reimburse its members for 
     workers' compensation insurance losses, and that satisfies 
     certain other conditions. A State must require that the 
     membership of the organization consist of all persons who 
     issue insurance covering workers' compensation losses in such 
     State, and all persons and governmental entities who self-
     insure against such losses. In addition, the organization 
     must operate as a nonprofit organization by returning surplus 
     income to members or to workers' compensation policyholders 
     on a periodic basis and by reducing initial premiums in 
     anticipation of investment income.
     State workmen's compensation act companies
       Section 501(c)(27)(B) provides tax-exempt status for any 
     organization that is created by State law, and organized and 
     operated exclusively to provide workmen's compensation 
     insurance and related coverage that is incidental to 
     workmen's compensation insurance, and that meets certain 
     additional requirements. The workmen's compensation insurance 
     must be required by State law, or be insurance with respect 
     to which State law provides significant disincentives if it 
     is not purchased by an employer (such as loss of exclusive 
     remedy or forfeiture of affirmative defenses such as 
     contributory negligence). The organization must provide 
     workmen's compensation to any employer in the State (for 
     employees in the State or temporarily assigned out-of-State) 
     seeking such insurance and meeting other reasonable 
     requirements. The State must either extend its full faith and 
     credit to the initial debt of the organization or provide the 
     initial operating capital of such organization. For this 
     purpose, the initial operating capital can be provided by 
     providing the proceeds of bonds issued by a State authority; 
     the bonds may be repaid through exercise of the State's 
     taxing authority, for example. For periods after the date of 
     enactment, either the assets of the organization must revert 
     to the State upon dissolution, or State law must not permit 
     the dissolution of the organization absent an act of the 
     State legislature. Should dissolution of the organization 
     become permissible under applicable State law, then the 
     requirement that the assets of the organization revert to the 
     State upon dissolution applies. Finally, the majority of the 
     board of directors (or comparable oversight body) of the 
     organization must be appointed by an official of the 
     executive branch of the State or by the State legislature, or 
     by both.


                        explanation of provision

       The provision provides tax-exempt status for any 
     association created before January 1, 1999, by State law and 
     organized and operated exclusively to provide property and 
     casualty insurance coverage for property located within the 
     State for which the State has determined that coverage in the 
     authorized insurance market is limited or unavailable at 
     reasonable rates, provided certain requirements are met.
       Under the provision, no part of the net earnings of the 
     association may inure to the benefit of any private 
     shareholder or individual. Except as provided in the case of 
     dissolution, no part of the assets of the association may be 
     used for, or diverted to, any purpose other than: (1) to 
     satisfy, in whole or in part, the liability of the 
     association for, or with respect to, claims made on policies 
     written by the association; (2) to invest in investments 
     authorized by applicable law; (3) to pay reasonable and 
     necessary administration expenses in connection with the 
     establishment and operation of the association and the 
     processing of claims against the association; or (4) to make 
     remittances pursuant to State law to be used by the State to 
     provide for the payment of claims on policies written by the 
     association, purchase reinsurance covering losses under such 
     policies, or to support governmental programs to prepare for 
     or mitigate the effects of natural catastrophic events. The 
     provision requires that the State law governing the 
     association permit the association to levy assessments on 
     insurance companies authorized to sell property and casualty 
     insurance in the State, or on property and casualty insurance 
     policyholders with insurable interests in property located in 
     the State to fund deficits of the association, including the 
     creation of reserves. The provision requires that the plan of 
     operation of the association be subject to approval by the 
     chief executive officer or other official of the State, by 
     the State legislature, or both. In addition, the provision 
     requires that the assets of the association revert upon 
     dissolution to the State, the State's designee, or an entity 
     designated by the State law governing the association, or 
     that State law not permit the dissolution of the association.
       The provision provides a special rule in the case of any 
     entity or fund created before January 1, 1999, pursuant to 
     State law and organized and operated exclusively to receive, 
     hold, and invest remittances from an association exempt from 
     tax under the provision, to make disbursements to pay claims 
     on insurance contracts issued by the association, and to make 
     disbursements to support governmental programs to prepare for 
     or mitigate the effects of natural catastrophic events. The 
     special rule provides that the entity or fund may elect to be 
     disregarded as a separate entity and be treated as part of 
     the association exempt from tax under the provision, from 
     which it receives such remittances. The election is required 
     to be made no later than 30 days following the date on which 
     the association is determined to be exempt from tax under the 
     provision, and would be effective as of the effective date of 
     that determination.
       An organization described in the provision is treated as 
     having unrelated business taxable income in the amount of its 
     taxable income (computed as if the organization were not 
     exempt from tax under the proposal), if at the end of the 
     immediately preceding taxable year, the organization's net 
     equity exceeded 15 percent of the total coverage in force 
     under insurance contracts issued by the organization and 
     outstanding at the end of that preceding year.
       Under the provision, no income or gain is recognized solely 
     as a result of the change in status to that of an association 
     exempt from tax under the provision.


                             Effective Date

       The provision is effective for taxable years beginning 
     after December 31, 2000. No inference is intended as to the 
     tax status under present law of associations described in the 
     provision.

         III. TAX INCENTIVES FOR URBAN AND RURAL INFRASTRUCTURE

 A. Increase State Volume Limits on Tax-Exempt Private Activity Bonds 
            (Sec. 301 of the Bill and Sec. 146 of the Code)


                              Present Law

       Interest on bonds issued by States and local governments is 
     excluded from income if the proceeds of the bonds are used to 
     finance activities conducted and paid for by the governmental 
     units (sec. 103). Interest on bonds issued by these 
     governmental units to finance activities carried out and paid 
     for by private persons (``private activity bonds'') is 
     taxable unless the activities are specified in the Internal 
     Revenue Code. Private activity bonds on which interest may be 
     tax-exempt include bonds for privately operated 
     transportation facilities (airports, docks and

[[Page S9737]]

     wharves, mass transit, and high speed rail facilities), 
     privately owned and/or provided municipal services (water, 
     sewer, solid waste disposal, and certain electric and heating 
     facilities), economic development (small manufacturing 
     facilities and redevelopment in economically depressed 
     areas), and certain social programs (low-income rental 
     housing, qualified mortgage bonds, student loan bonds, and 
     exempt activities of charitable organizations described in 
     sec. 501(c)(3)).
       The volume of tax-exempt private activity bonds that States 
     and local governments may issue for most of these purposes in 
     each calendar year is limited by State-wide volume limits. 
     The current annual volume limits are $50 per resident of the 
     State or $150 million if greater. The volume limits do not 
     apply to private activity bonds to finance airports, docks 
     and wharves, certain governmentally owned, but privately 
     operated solid waste disposal facilities, certain high speed 
     rail facilities, and to certain types of private activity 
     tax-exempt bonds that are subject to other limits on their 
     volume (qualified veterans' mortgage bonds and certain 
     ``new'' empowerment zone and enterprise community bonds).
       The current annual volume limits that apply to private 
     activity tax-exempt bonds increase to $75 per resident of 
     each State or $225 million, if greater, beginning in calendar 
     year 2007. The increase is, ratably phased in, beginning with 
     $55 per capita or $165 million, if greater, in calendar year 
     2003.


                        Explanation of Provision

       The bill increases the present-law annual State private 
     activity bond volume limits to $75 per resident of each State 
     or $225 million (if greater) beginning in calendar year 2001. 
     In addition, the $75 per resident and the $225 million State 
     limit will be indexed for inflation beginning in calendar 
     year 2002.


                             Effective Date

       The provisions are effective for calendar years after 
     December 31, 2000.

B. Extension and Modification to Expensing of Environmental Remediation 
         Costs (Sec. 302 of the Bill and Sec. 198 of the Code)


                              Present Law

       Taxpayers can elect to treat certain environmental 
     remediation expenditures that would otherwise be chargeable 
     to capital account as deductible in the year paid or incurred 
     (sec. 198). The deduction applies for both regular and 
     alternative minimum tax purposes. The expenditure must be 
     incurred in connection with the abatement or control of 
     hazardous substances at a qualified contaminated site.
       A ``qualified contaminated site'' generally is any property 
     that (1) is held for use in a trade or business, for the 
     production of income, or as inventory; (2) is certified by 
     the appropriate State environmental agency to be located 
     within a targeted area; and (3) contains (or potentially 
     contains) a hazardous substance (so-called ``brownfields''). 
     Targeted areas are defined as: (1) empowerment zones and 
     enterprise communities as designated under present law; (2) 
     sites announced before February 1997, as being subject to one 
     of the 76 Environmental Protection Agency (``EPA'') 
     Brownfields Pilots; (3) any population census tract with a 
     poverty rate of 20 percent or more; and (4) certain 
     industrial and commercial areas that are adjacent to tracts 
     described in (3) above. However, sites that are identified on 
     the national priorities list under the Comprehensive 
     Environmental Response, Compensation, and Liability Act of 
     1980 cannot qualify as targeted areas.
       Eligible expenditures are those paid or incurred before 
     January 1, 2002.


                        Explanation of Provision

       The bill extends the expiration date for eligible 
     expenditures to include those paid or incurred before January 
     1, 2004.
       In addition, the bill eliminates the targeted area 
     requirement, thereby, expanding eligible sites to include any 
     site containing (or potentially containing) a hazardous 
     substance that is certified by the appropriate State 
     environmental agency. However, expenditures undertaken at 
     sites that are identified on the national priorities list 
     under the Comprehensive Environmental Response, Compensation, 
     and Liability Act of 1980 would continue to not qualify as 
     eligible expenditures.


                             Effective Date

       The provision to extend the expiration date is effective 
     upon the date of enactment. The provision to expand the class 
     of eligible sites is effective for expenditures paid or 
     incurred after the date of enactment.

 C. Broadband Internet Access Tax Credit (Sec. 303 of the Bill and New 
                         Sec. 48A of the Code)


                              Present Law

       Present law does not provide a credit for investments in 
     telecommunications infrastructure.


                        Explanation of Provision

       The bill provides a 10 percent credit of the qualified 
     expenditures incurred by the taxpayer with respect to 
     qualified equipment with which the taxpayer offers ``current 
     generation'' broadband services to subscribers in rural and 
     underserved areas. In the addition, the bill provides a 20 
     percent credit of the qualified expenditures incurred by the 
     taxpayer with respect to qualified equipment with which the 
     taxpayer offers ``next generation'' broadband services to 
     subscribers in rural areas, underserved areas, and to 
     residential subscribers. Current generation broadband 
     services is defined as the transmission of signals at a rate 
     of at least 1.5 million bits per second to the subscriber and 
     at a rate of at least 200,000 bits per second from the 
     subscriber. Next generation broadband services is defined as 
     the transmission of signals at a rate of at least 22 million 
     bits per second to the subscriber and at a rate of at least 
     10 million bits per second from the subscriber.
       Qualified expenditures are those amounts otherwise 
     chargeable to the capital account with respect to the 
     purchase and installation of qualified equipment for which 
     depreciation is allowable under section 168. In the case of 
     current generation broadband services, qualified expenditures 
     are those that are incurred by the taxpayer after December 
     31, 2000, and before January 1, 2004. In the case of next 
     generation broadband services, qualified expenditures are 
     those that are incurred by the taxpayer after December 31, 
     2001, and before January 1, 2005. The expenditures are taken 
     into account for purposes of claiming the credit in the first 
     taxable year in which the taxpayer provides broadband service 
     to at least 10 percent of the potential subscribers. In the 
     case of a taxpayer who incurs expenditures for equipment 
     capable of serving both subscribers in qualifying areas and 
     other areas, qualifying expenditures are determined by 
     multiplying otherwise qualifying expenditures by the ratio of 
     the number of potential qualifying subscribers to all 
     potential subscribers the qualifying equipment would be 
     capable of serving.
       Qualifying equipment must be capable of providing broadband 
     services at any time to each subscriber who is utilizing such 
     services. In the case of a telecommunications carrier, 
     qualifying equipment is only that equipment that extends from 
     the last point of switching to the outside of the building in 
     which the subscriber is located. In the case of a commercial 
     mobile service carrier, qualifying equipment is only that 
     equipment that extends from the customer side of a mobile 
     telephone switching office to a transmission/reception 
     antenna (including the antenna) of the subscriber. In the 
     case of a cable operator or open video system operator, 
     qualifying equipment is only that equipment that extends from 
     the customer side of the headend to the outside of the 
     building in which the subscriber is located. In the case of a 
     satellite carrier or other wireless carrier (other than a 
     telecommunications carrier), qualifying equipment is only 
     that equipment that extends from a transmission/reception 
     antenna (including the antenna) to a transmission/reception 
     antenna on the outside of the building used by the 
     subscriber. In addition, any packet switching equipment 
     deployed in connection with other qualifying equipment is 
     qualifying equipment, regardless of location, provided that 
     it is the last such equipment in a series as part of 
     transmission of a signal to a subscriber or the first in a 
     series in the transmission of a signal from a subscriber.
       A rural area is any census tract which is not within 10 
     miles of any incorporated or census designated place with a 
     population of more than 25,000 and which is not within a 
     county with a population density of more than 500 people per 
     square mile. An underserved area is any census tract which is 
     located in an empowerment zone, enterprise community, renewal 
     zone, or any census tract in which the poverty level is 
     greater than or equal to 30 percent and in which the median 
     family income is less than 70 percent of the greater of 
     metropolitan area median family income or statewide median 
     family income. A residential subscriber is any individual who 
     purchases broadband service to be delivered to his or her 
     dwelling.


                             Effective Date

       The provision is effective for expenditures incurred after 
     December 31, 2000.

  D. Tax-Credit Bonds for the National Railroad Passenger Corporation 
(``Amtrak'') and the Alaska Railroad (Sec. 304 of the Bill and New Sec. 
                            54 of the Code)


                              Present Law

       Present law does not authorize the issuance by any private, 
     for-profit corporation of bonds the interest on which is tax-
     exempt or eligible for an income tax credit. Tax-exempt bonds 
     may be issued by States or local governments to finance their 
     governmental activities or to finance certain capital 
     expenditures of private businesses or loans to individuals. 
     Additionally, States or local governments may issue tax-
     credit bonds to finance the operation of ``qualified zone 
     academies.''
     Tax-exempt bonds
       Interest on bonds issued by States or local governments to 
     finance direct activities of those governmental units is 
     excluded from tax (sec. 103). In addition, interest on 
     certain bonds (``private activity bonds'') issued by States 
     or local governments acting as conduits to provide financing 
     for private businesses or individuals is excluded from income 
     if the purpose of the borrowing is specifically approved in 
     the Code (sec. 141). Examples of approved private activities 
     for which States or local governments may provide tax-exempt 
     financing include transportation facilities (airports, ports, 
     mass commuting facilities, and certain high speed intercity 
     rail facilities); public works facilities such as water, 
     sewer, and solid waste disposal; and certain social welfare 
     programs such as low-income rental housing, student loans, 
     and mortgage loans to certain first-time homebuyers. High 
     speed intercity rail

[[Page S9738]]

     facilities eligible for tax-exempt financing include land, 
     rail, and stations (but not rolling stock) for fixed guideway 
     rail transportation of passengers and their baggage using 
     vehicles that are reasonably expected to operate at speeds in 
     excess of 150 miles per hour between scheduled stops.
       Issuance of most private activity bonds is subject to 
     annual State volume limits of $50 per resident ($150 million 
     if greater). These volume limits are scheduled to increase to 
     $75 per resident ($225 million if greater) over the period 
     2003 through 2007.
       Investment earnings on all tax-exempt bonds, including 
     earnings on invested sinking funds associated with such bonds 
     is restricted by the Code to prevent the issuance of bonds 
     earlier or in a greater amount than necessary for the purpose 
     of the borrowing. In general, all profits on investment of 
     such proceeds must be rebated to the Federal Government. 
     Interest on bonds associated with invested sinking funds is 
     taxable.
     Tax-credit bonds for qualified zone academies
       As an alternative to traditional tax-exempt bonds, certain 
     States or local governments are given authority to issue 
     ``qualified zone academy bonds.'' A total of $400 million of 
     qualified zone academy bonds is authorized to be issued in 
     each year of 1998 through 2001. The $400 million is allocated 
     to States according to their respective populations of 
     individuals below the poverty line.
       Qualified zone academy bonds are taxable bonds with respect 
     to which the investor receives an income tax credit equal to 
     an assumed interest rate set by the Treasury Department to 
     allow issuance of the bonds without discount and without 
     interest cost to the issuer. The bonds may be used for 
     renovating, providing equipment to, developing course 
     materials for, or training teachers in eligible schools. 
     Eligible schools are elementary and secondary schools with 
     respect to which private entities make contributions equaling 
     at least 10 percent of the bond proceeds.
       Only financial institutions are eligible to claim the 
     credits on qualified zone academy bonds. The amount of the 
     credit is taken into income. The credit may be claimed 
     against both regular income tax and AMT liability.
       There are no arbitrage restrictions applicable to 
     investment earnings on qualified zone academy bond proceeds.


                        Explanation of Provision

       The provision authorizes the National Railroad Passenger 
     Corporation (``Amtrak'') and the Alaska Railroad to issue an 
     aggregate amount of $10 billion of tax-credit bonds to 
     finance its capital projects. Annual issuance of the bonds 
     may not exceed $1 billion per year (plus any authorized 
     amount that was not issued in previous years) during the ten 
     Fiscal Year period, 2001-2010. Unused bond authority could be 
     carried forward to succeeding years until used, subject to a 
     limitation that no tax-credit bonds could be issued after 
     fiscal year 2015.
       Projects eligible for tax-credit bond financing are defined 
     as the acquisition, construction of equipment, rolling stock, 
     and other capital improvements for (1) the northeast rail 
     corridor between Washington, D.C. and Boston, Massachusetts; 
     (2) high-speed rail corridors designated under section 
     104(d)(2) of Title 23 of the United States Code; and (3) non-
     designated high-speed rail corridors, including station 
     rehabilitation, track or signal improvements, or grade 
     crossing elimination. The last purpose is limited to a 
     maximum of 10 percent of the proceeds of any bond issue. At 
     least 70 percent of the tax-credit bonds must be issued for 
     projects described in (2) and (3).
       As with qualified zone academy bonds, the interest rate on 
     Amtrak/Alaska Railroad tax-credit bonds will be set to allow 
     issuance of the bonds at par, i.e., without any interest cost 
     to Amtrak or the Alaska Railroad. In general, proceeds of 
     Amtrak/Alaska Railroad tax-credit bonds would have to be 
     spent within 36 months after the bonds are issued. As of the 
     date the bonds were issued, Amtrak or the Alaska Railroad 
     must certify that it reasonably expects--
       (1) to incur a binding obligation with a third party to 
     spend at least 10 percent of the bond proceeds within six 
     months (or in the case of self-constructed property, to have 
     commenced construction within six months);
       (2) to spend the bond proceeds with due diligence; and
       (3) to spend at least 95 percent of the proceeds for 
     qualifying capital costs within three years.
       Amtrak/Alaska Railroad tax credit bonds may only be issued 
     for projects that are approved by the Department of 
     Transportation and with respect to which the issuing railroad 
     has binding commitments from one or more States to make 
     matching contributions of at least 20 percent of the project 
     cost. Projects having State matching contributions in excess 
     of 20 percent are given a preference. The State matching 
     contributions, along with earnings on investment of the tax-
     credit bond proceeds must be invested in a trust account 
     (i.e., an sinking fund) and used along with earnings on the 
     trust account for repayment of the principal amount of the 
     bonds.
       Amtrak/Alaska Railroad tax-credit bonds can be owned (and 
     income tax credits claimed) by any taxpayer. The amount of 
     the credit will be included in the bondholder's income. 
     Additionally, provisions are included in the proposal to 
     allow the credits to be stripped and sold to different 
     investors than the investors in the bond principal.
       The required State matching contribution may not be derived 
     from Federal monies. Any Federal Highway Trust Fund monies 
     transferred to the States are treated as Federal monies for 
     this purpose. During the period when tax-credit bonds are 
     authorized, Amtrak is not allowed to receive any Highway 
     Trust Fund monies other than those authorized on the date of 
     the provision's enactment.
       Amtrak is required annually to submit a five-year capital 
     plan to Congress, and to satisfy independent oversight 
     requirements with respect to the management of tax-credit-
     bond-financed projects. Finally, the Treasury Department is 
     required to certify annually that funds deposited in the 
     escrow accounts for repayment of tax-credit bonds (with 
     actual and projected earnings thereon) are sufficient to 
     ensure full repayment of the bond principal.


                             Effective Date

       The provision is effective for tax credit bonds issued by 
     Amtrak or the Alaska Railroad after September 30, 2000.

 E. Clarification of Contribution in Aid of Construction (Sec. 305 of 
                   the Bill and Sec. 118 of the Code)


                              Present Law

       Section 118(a) provides that gross income of a corporation 
     does not include a contribution to its capital. In general, 
     section 118(b) provides that a contribution to the capital of 
     a corporation does not include any contribution in aid of 
     construction or any other contribution by a customer or 
     potential customer. However, for any amount of money or 
     property received by a regulated public utility that provides 
     water or sewerage disposal services such amount shall be 
     considered a contribution to capital (excludible from gross 
     income) so long as such amount: (1) is a contribution in aid 
     of construction, and (2) is not included in the taxpayer's 
     rate base for rate-making purposes. If the contribution is in 
     property other than water or sewerage disposal facilities, 
     the amount is generally excludible from gross income only if 
     the amount is expended to acquire or construct water or 
     sewerage disposal facilities within a specified time period.


                        Explanation of Provision

       The provision specifically defines contribution in aid of 
     construction to include customer connection fees (including 
     amounts paid to connect the customer's line to or extend a 
     main water or sewer line). Thus, the provision permits 
     customer connection fees received by a regulated public 
     utility that provides water or sewerage disposal services to 
     be treated as nontaxable contributions to capital (excludible 
     from gross income). Amounts paid as a service charge for 
     starting or stopping services to a customer continue to be 
     includible in gross income of a taxpayer.


                             Effective Date

       The provision is effective for amounts received after the 
     date of enactment.

 F. Treatment of Leasehold Improvements (Sec. 306 of the Bill and Sec. 
                            168 of the Code)


                              Present Law

     Depreciation of leasehold improvements
       Depreciation allowances for property used in a trade or 
     business generally are determined under the modified 
     Accelerated Cost Recovery System (``MACRS'') of section 168. 
     Depreciation allowances for improvements made on leased 
     property are determined under MACRS, even if the MACRS 
     recovery period assigned to the property is longer than the 
     term of the lease (sec. 168(i)(8)). This rule applies 
     regardless whether the lessor or lessee places the leasehold 
     improvements in service. If a leasehold improvement 
     constitutes an addition or improvement to nonresidential real 
     property already placed in service, the improvement is 
     depreciated using the straight-line method over a 39-year 
     recovery period, beginning in the month the addition or 
     improvement was placed in service (secs. 168(b)(3), (c)(1), 
     (d)(2), and (i)(6)).
     Treatment of dispositions of leasehold improvements
       A lessor of leased property that disposes of a leasehold 
     improvement which was made by the lessor for the lessee of 
     the property may take the adjusted basis of the improvement 
     into account for purposes of determining gain or loss if the 
     improvement is irrevocably disposed of or abandoned by the 
     lessor at the termination of the lease. This rule conforms 
     the treatment of lessors and lessees with respect to 
     leasehold improvements disposed of at the end of a term of 
     lease. For purposes of applying this rule, it is expected 
     that a lessor must be able to separately account for the 
     adjusted basis of the leasehold improvement that is 
     irrevocably disposed of or abandoned. This rule does not 
     apply to the extent section 280B applies to the demolition 
     of a structure, a portion of which may include leasehold 
     improvements.


                        Explanation of Provision

       The provision provides that 15-year property for purposes 
     of the depreciation rules of section 168 includes qualified 
     leasehold improvement property. The straight line method is 
     required to be used with respect to qualified leasehold 
     improvement property.
       Qualified leasehold improvement property is any improvement 
     to an interior portion of a building that is nonresidential 
     real property, provided certain requirements are met. The 
     improvement must be made under or pursuant to a lease either 
     by the lessee (or sublessee) of that portion of the building, 
     or

[[Page S9739]]

     by the lessor of that portion of the building. That portion 
     of the building is to be occupied exclusively by the lessee 
     (or any sublessee). The original use of the qualified 
     leasehold improvement property must begin with the lessee, 
     and must begin after December 31, 2006. The improvement must 
     be placed in service more than three years after the date the 
     building was first placed in service.
       Qualified leasehold improvement property does not include 
     any improvement for which the expenditure is attributable to 
     the enlargement of the building, any elevator or escalator, 
     any structural component benefitting a common area, or the 
     internal structural framework of the building.
       No special rule is specified for the class life of 
     qualified leasehold improvement property. Therefore, the 
     general rule that the class life for nonresidential real and 
     residential rental property is 40 years applies.
       For purposes of the provision, a commitment to enter into a 
     lease is treated as a lease, and the parties to the 
     commitment are treated as lessor and lessee, provided the 
     lease is in effect at the time the qualified leasehold 
     improvement property is placed in service. A lease between 
     related persons is not considered a lease for this purpose.


                             Effective Date

       The provision is effective for qualified leasehold 
     improvement property placed in service after December 31, 
     2006.

                       IV. TAX RELIEF FOR FARMERS

A. Farm, Fish, and Ranch Risk Management Accounts (``FFARRM Accounts'') 
          (Sec. 401 of the Bill and New Sec. 468C of the Code)


                              Present Law

       There is no provision in present law allowing the elective 
     deferral of farm or fishing income.


                        Explanation of Provision

       The bill allows taxpayers engaged in an eligible business 
     to establish FFARRM accounts. An eligible business is any 
     trade or business of farming in which the taxpayer actively 
     participates, including the operation of a nursery or sod 
     farm or the raising or harvesting of crop-bearing or 
     ornamental trees. An eligible business also is the trade or 
     business of commercial fishing as that term is defined under 
     section (3) of the Magnuson-Stevens Fishery Conservation and 
     Management Act (16 U.S.C. 1802) and includes the trade or 
     business of catching, taking or harvesting fish that are 
     intended to enter commerce through sale, barter or trade.
       Contributions to a FFARRM account are deductible and are 
     limited to 20 percent of the taxable income that is 
     attributable to the eligible business. The deduction is taken 
     into account in determining adjusted gross income and reduces 
     the income attributable to the eligible business for all 
     income tax purposes other than the determination of the 20 
     percent of eligible income limitation on contributions to a 
     FFARRM account. Contributions to a FFARRM account do not 
     reduce earnings from self-employment. Accordingly, 
     distributions are not included in self-employment income.
       A FFARRM account is taxed as a grantor trust and any 
     earnings are required to be distributed currently. Thus, any 
     income earned in the FFARRM account is taxed currently to the 
     farmer or fisherman who established the account. Amounts can 
     remain on deposit in a FFARRM account for up to five years. 
     Any amount that has not been distributed by the close of the 
     fourth year following the year of deposit is deemed to be 
     distributed and includible in the gross income of the account 
     owner.


                             Effective Date

       The provision is effective for taxable years beginning 
     after December 31, 2000.

 B. Exclusion of Rental Income From SECA Tax (Sec. 402 of the Bill and 
                         Sec. 1402 of the Code)


                              Present Law

       Generally, SECA taxes are imposed on an individual's net 
     earnings from self employment. Net earnings from self-
     employment generally means gross income (including the 
     individual's net distributive share of partnership income) 
     derived by an individual from any trade or business carried 
     on by the individual less applicable deductions. One 
     exclusion from net earnings from self employment involves 
     certain real estate rentals. Under this rule, net earnings 
     from self employment do not include income from the rental of 
     real estate and from personal property leased with the real 
     estate unless the rental income is received under an 
     arrangement between an owner or tenant of land and another 
     individual that provides: (1) such other individual shall 
     produce agricultural or horticultural commodities on such 
     land; and (2) there shall be material participation by the 
     owner or tenant with respect to any such agricultural or 
     horticultural commodities. Other rules apply to rental 
     payments received by an individual in the course of the 
     individual's trade or business as a real estate dealer.


                        Explanation of Provision

       The bill provides that net earnings from self employment do 
     not include income from the rental of real estate under a 
     lease agreement (rather than an arrangement) between an owner 
     or tenant of land and another individual which provides that: 
     (1) such other individual shall produce agricultural or 
     horticultural commodities on such land; and (2) there shall 
     be material participation by the owner or tenant in the 
     production or management of the production of such 
     agricultural or horticultural commodities.


                             Effective Date

       The provision is effective for taxable years beginning 
     after December 31, 2000.

  C. Exclusion of Conservation Reserve Program Payments From SECA Tax 
            (Sec. 403 of the Bill and Sec. 1402 of the Code)


                              Present Law

       Generally, SECA tax is imposed on an individual's self-
     employment income within the Social Security wage base. Net 
     earnings from self-employment generally means gross income 
     (including the individual's net distributive share of 
     partnership income) derived by an individual from any trade 
     or business carried on by the individual less applicable 
     deductions. A recent court decision found that payments made 
     under the conservation reserve program are includible in an 
     individual's self-employment income for purposes of SECA tax.


                        Explanation of Provision

       The bill provides that net earnings from self-employment do 
     not include conservation reserve program payments for SECA.


                             Effective Date

       The provision is effective for payments made after December 
     31, 2000.

 D. Exemption of Agricultural Bonds From Private Activity Bond Volume 
          Cap (Sec. 404 of the Bill and Sec. 146 of the Code)


                              Present Law

       Interest on bonds issued by States and local governments is 
     excluded from income if the proceeds of the bonds are used to 
     finance activities conducted and paid for by the governmental 
     units (sec. 103). Interest on bonds issued by these 
     governmental units to finance activities carried out and paid 
     for by private persons (``private activity bonds'') is 
     taxable unless the activities are specified in the Internal 
     Revenue Code. Private activity bonds on which interest may be 
     tax-exempt include bonds issued to finance loans to first-
     time farmers for the acquisition of land and certain 
     equipment (``aggie bonds'').
       The volume of tax-exempt private activity bonds that States 
     and local governments may issue in each calendar year 
     (including aggie bonds) is limited by State-wide volume 
     limits. The current annual volume limits are the greater of: 
     (1) $50 per resident of the State; or (2) $150 million. The 
     volume limits do not apply to private activity bonds to 
     finance airports, docks and wharves, certain governmentally 
     owned, but privately operated solid waste disposal 
     facilities, certain high speed rail facilities, and to 
     certain types of private activity tax-exempt bonds that are 
     subject to other limits on their volume (qualified veterans' 
     mortgage bonds and certain ``new'' empowerment zone and 
     enterprise community bonds).


                        Explanation of Provision

       The bill exempts ``aggie bonds'' from the State volume 
     limits.


                             Effective Date

       The provision applies to bonds issued after December 31, 
     2000.

 E. Modifications to Section 512(b)(13) (Sec. 405 of the Bill and Sec. 
                            512 of the Code)


                              Present Law

       In general, interest, rents, royalties and annuities are 
     excluded from the unrelated business income (``UBI'') of tax-
     exempt organizations. However, section 512(b)(13) treats 
     otherwise excluded rent, royalty, annuity, and interest 
     income as UBI if such income is received from a taxable or 
     tax-exempt subsidiary that is 50 percent controlled by the 
     parent tax-exempt organization. In the case of a stock 
     subsidiary, ``control'' means ownership by vote or value of 
     more than 50 percent of the stock. In the case of a 
     partnership or other entity, control means ownership of more 
     than 50 percent of the profits, capital or beneficial 
     interests. In addition, present law applies the constructive 
     ownership rules of section 318 for purposes of section 
     512(b)(13). Thus, a parent exempt organization is deemed to 
     control any subsidiary in which it holds more than 50 percent 
     of the voting power or value, directly (as in the case of a 
     first-tier subsidiary) or indirectly (as in the case of a 
     second-tier subsidiary).
       Under present law, interest, rent, annuity, or royalty 
     payments made by a controlled entity to a tax-exempt 
     organization are includible in the latter organization's UBI 
     and are subject to the unrelated business income tax to the 
     extent the payment reduces the net unrelated income (or 
     increases any net unrelated loss) of the controlled entity.
       The Taxpayer Relief Act of 1997 (the ``1997 Act'') made 
     several modifications, as described above, to the control 
     requirement of section 512(b)(13). In order to provide 
     transitional relief, the changes made by the 1997 Act do not 
     apply to any payment received or accrued during the first two 
     taxable years beginning on or after the date of enactment of 
     the 1997 Act (August 5, 1997) if such payment is received or 
     accrued pursuant to a binding written contract in effect on 
     June 8, 1997, and at all times thereafter before such payment 
     (but not pursuant to any contract provision that permits 
     optional accelerated payments).


                        Explanation of Provision

       The bill provides that interest, rent, annuity, or royalty 
     payments made by a controlled subsidiary to a tax-exempt 
     parent is not Unrelated Business Income except to the extent 
     that such payments exceed arm's length values, as determined 
     under sec. 482 principles.

[[Page S9740]]

                             Effective Date

       The provision generally is effective for payments received 
     or accrued after December 31, 2000. The binding written 
     contract exception contained in the 1997 Act will apply to 
     any payment received or accrued under such contract prior to 
     January 1, 2001.

 F. Charitable Deduction for Contributions of Food Inventory (Sec. 406 
                 of the Bill and Sec. 170 of the Code)


                              Present Law

       The maximum charitable contribution deduction that may be 
     claimed by a corporation for any one taxable year is limited 
     to 10 percent of the corporation's taxable income for that 
     year (disregarding charitable contributions and with certain 
     other modifications) (sec. 170(b)(2)). Corporations also are 
     subject to certain limitations based on the type of property 
     contributed. In the case of a charitable contribution of 
     short-term gain property, inventory, or other ordinary income 
     property, the amount of the deduction generally is limited to 
     the taxpayer's basis (generally, cost) in the property. 
     However, special rules in the Code provide an augmented 
     deduction for certain corporate contributions. Under these 
     special rules, the amount of the augmented deduction is equal 
     to the lesser of (1) the basis of the donated property plus 
     one-half of the amount of ordinary income that would have 
     been realized if the property had been sold, or (2) twice the 
     basis of the donated property. To be eligible for the 
     enhanced deduction, the taxpayer must establish that the fair 
     market value of the donated item exceeds basis. The valuation 
     of food inventory has been the subject of ongoing disputes 
     between taxpayers and the IRS.
       The special treatment applies only to donations made by C 
     corporations. S corporations, personal holding companies, and 
     service organizations are not eligible donors.


                        Explanation of Provision

       The bill amends Code section 170 to expand the augmented 
     deduction such that any taxpayer engaged in the trade or 
     business of farming is eligible to claim an enhanced 
     deduction for donations of food inventory under section 
     170(e)(3).
       The value of the enhanced deduction can be no greater than 
     twice the taxpayer's basis in the donated property. The bill 
     provides that in the case of a cash method taxpayer, the 
     taxpayer's basis in the donated food will equal half of the 
     fair market value of the donated food.
       The bill modifies and clarifies the determination of fair 
     market value for the donation of food inventory. Under the 
     bill, the fair market value of donated food which cannot or 
     will not be sold solely due to internal standards of the 
     taxpayer, lack of market, or similar circumstances is 
     determined without regard to such factors and, if applicable, 
     by taking into account the price at which the same or similar 
     food items are sold by the taxpayer at the time of the 
     contribution or in the recent past.
       The bill does not apply for taxable years beginning after 
     December 31, 2003.


                             Effective Date

       The provision is effective for taxable years beginning 
     after December 31, 2000.

     G. Coordinate Farmers and Fisherman Income Averaging and the 
Alternative Minimum Tax (Sec. 407 of the Bill and Secs. 55 and 1301 of 
                               the Code)


                              Present Law

       An individual taxpayer engaged in a farming business as 
     defined by section 263A(e)(4) may elect to compute his or her 
     current year tax liability by averaging, over the prior 
     three-year period, all or portion of his or her taxable 
     income from the trade or business of farming. The averaging 
     election is not coordinated with the alternative minimum tax. 
     Thus, some farmers may become subject to the alternative 
     minimum tax solely as a result of the averaging election.


                        Explanation of Provision

       The bill extends to individuals engaged in the trade or 
     business of fishing the election that is available to 
     individual farmers to use income averaging.
       The bill also coordinates farmers and fishermen income 
     averaging with the alternative minimum tax. Under the bill, a 
     farmer will owe alternative minimum tax only to the extent he 
     or she will owe alternative minimum tax had averaging not 
     been elected. This result is achieved by excluding the impact 
     of the election to average farm income from the calculation 
     of both regular tax and tentative minimum tax, solely for the 
     purpose of determining alternative minimum tax.


                             Effective Date

       The provision is effective for taxable years beginning 
     after December 31, 2000.

  H. Cooperative Marketing to Include Value Added Processing Through 
        Animals (Sec. 408 of the Bill and Sec. 1388 of the Code)


                              Present Law

       Under present law, taxable cooperatives in essence are 
     treated as pass-through entities in that the cooperative is 
     not subject to corporate income tax to the extent the 
     cooperative timely pays patronage dividends. Tax-exempt 
     cooperatives (sec. 521) are cooperatives of farmers, fruit 
     growers, and like organizations organized and operated on a 
     cooperative basis for the purpose of marketing the products 
     of members or other producers and turning back the proceeds 
     of sales, less necessary marketing expenses on the basis of 
     either the quantity or the value of products furnished by 
     them.
       The Internal Revenue Service takes the position that a 
     cooperative is not marketing the products of members or other 
     producers where the cooperative adds value through the use of 
     animals (e.g., farmers sell corn to cooperative which is feed 
     to chickens which produce eggs).


                        Explanation of Provision

       The bill provides that marketing products of members or 
     other producers includes feeding products of members or other 
     producers to cattle, hogs, fish, chickens, or other animals 
     and selling the resulting animals or animal products.


                             Effective Date

       The provision is effective for taxable years beginning 
     after the date of enactment.

   I. Extend Declaratory Judgment Procedures to Farmers' Cooperative 
     Organizations (Sec. 409 of the Bill and Sec. 7428 of the Code)


                              Present Law

       Cooperatives may deduct from their taxable income amounts 
     distributed to patrons in the form of patronage dividends, 
     and certain other amounts paid or allocated to patrons, to 
     the extent the net earnings of the cooperative from business 
     done with or for patrons, provided that there is a pre-
     existing obligation to distribute such amounts (sec. 1382). 
     Cooperatives that qualify as farmers' cooperatives under 
     section 521 may claim additional deductions for dividends on 
     capital stock and patronage-based distributions of 
     nonpatronage income.
       Under present law, there is limited access to judicial 
     review of disputes regarding the initial or continuing 
     qualification of a farmer's cooperative described in section 
     521. The only remedies available to such an organization are 
     to file a petition in the U.S. Tax Court for relief following 
     the issuance of a notice of deficiency or to pay tax and sue 
     for a refund in a U.S. district court or the U.S. Court of 
     Federal Claims.
       In limited circumstances, declaratory judgment procedures 
     are available, which generally permit a taxpayer to seek 
     judicial review of an IRS determination prior to the issuance 
     of a notice of deficiency and prior to payment of tax. 
     Examples of declaratory judgment procedures which are 
     available include disputes involving the status of a tax-
     exempt organization under section 501(c)(3), the 
     qualification of retirement plans, the value of gifts, the 
     status of certain governmental obligations, or eligibility of 
     an estate to pay tax in installments under section 6166. In 
     such cases, taxpayers may challenge adverse determinations by 
     commencing a declaratory judgment action. For example, where 
     the IRS denies an organization's application for recognition 
     of exemption under section 501(c)(3) or fails to act on such 
     application, or where the IRS informs a section 501(c)(3) 
     organization that it is considering revoking or adversely 
     modifying its tax-exempt status, present law authorizes the 
     organization to seek a declaratory judgment regarding its tax 
     exempt status.
       Declaratory judgment procedures are not available under 
     present law to a cooperative with respect to an IRS 
     determination regarding its status as a farmers' cooperative 
     under section 521.


                        Explanation of Provision

       The bill extends the declaratory judgment procedures to 
     cooperatives. Such a case may be commenced in the U.S. Tax 
     Court, a U.S. district court, or the U.S. Court of Federal 
     Claims, and such court has jurisdiction to determine a 
     cooperative's initial or continuing qualification of a 
     farmers' cooperative described in sec. 521.


                             Effective Date

       The provision is effective with respect to pleadings filed 
     after the date of enactment, but only with respect to 
     determinations (or requests for determinations) made after 
     January 1, 2000.

 J. Small Ethanol Producer Credit (Sec. 410 of the Bill and Sec. 40 of 
                               the Code)


                              Present Law

       ``Small ethanol producers'' are allowed a 10-cents-per-
     gallon production income tax credit on up to 15 million 
     gallons of production annually. This credit is in addition to 
     the 54-cents-per-gallon benefit available for ethanol 
     generally.
       Under present law, cooperatives in essence are treated as 
     pass-through entities in that the cooperative is not subject 
     to corporate income tax to the extent the cooperative timely 
     pays patronage dividends. Under present law, the only credits 
     that may be flowed-through to cooperative patrons are the 
     rehabilitation credit (sec. 47), the energy property credit 
     (sec. 48(a)), and the reforestation credit (sec. 48(b)), but 
     not the small ethanol producer credit.


                        Explanation of Provision

       The bill: (1) provides that the small producer credit is 
     not a ``passive credit''; (2) allows the credit to be claimed 
     against the alternative minimum tax; and (3) repeals the 
     present rule that the amount of the credit is included in 
     income.
       The bill also allows cooperatives to elect to pass-through 
     small ethanol producer credits to its patrons. The credit 
     allowed to a patron is that proportion of the credit the 
     cooperative elects to pass-through for that year as the 
     amount of patronage of that patron for that year bears to 
     total patronage of all patrons for that year.

[[Page S9741]]

                             Effective Date

       The provision is effective for taxable years beginning 
     after date of enactment.

   K. Payment of Dividends on Stock of Cooperatives Without Reducing 
  Patronage Dividends (Sec. 411 of the Bill and Sec. 1388 of the Code)


                              Present Law

       Cooperatives, including tax-exempt farmers' cooperatives, 
     are treated like a conduit for Federal income tax purposes 
     since a cooperative may deduct patronage dividends paid from 
     its taxable income. In general, patronage dividends are 
     amounts paid to patrons (1) on the basis of the quantity or 
     value of business done with or for its patrons, (2) under a 
     valid enforceable written obligation to the patron to pay 
     such amount, which obligation existed before the cooperative 
     received such amounts, and (3) which is determined by 
     reference to the net earnings of the cooperative from 
     business done with or for its patrons.
       Treasury Regulations provide that net earnings are reduced 
     by dividends paid on capital stock or other proprietary 
     capital interests. The effect of this rule is to reduce the 
     amount of earnings that the cooperative can treat as 
     patronage earnings which reduces the amount that cooperative 
     can deduct as patronage dividends.


                        Explanation of Provision

       The bill allows cooperatives to pay dividends on capital 
     stock without those dividends reducing excludable patronage-
     sourced income to the extent that the cooperative's 
     organizational documents provide that the dividends do not 
     reduce amounts owed to patrons.


                             Effective Date

       The provision applies to distributions in taxable years 
     beginning after the date of enactment.

             V. TAX INCENTIVES FOR THE PRODUCTION OF ENERGY

  A. Allow Geological and Geophysical Costs to be Deducted Currently 
            (Sec. 501 of the Bill and Sec. 263 of the Code)


                              Present Law

     In general
       Under present law, current deductions are not allowed for 
     any amount paid for new buildings or for permanent 
     improvements or betterments made to increase the value of any 
     property or estate (sec. 263(a)). Treasury Department 
     regulations define capital amounts to include amounts paid or 
     incurred (1) to add to the value, or substantially prolong 
     the useful life, of property owned by the taxpayer or (2) to 
     adapt property to a new or different use.
       The proper income tax treatment of geological and 
     geophysical costs (``G&G costs'') associated with oil and gas 
     production has been the subject of a number of court 
     decisions and administrative rulings. G&G costs are incurred 
     by the taxpayer for the purpose of obtaining and accumulating 
     data that will serve as a basis for the acquisition and 
     retention of oil or gas properties by taxpayers exploring for 
     the minerals. Courts have ruled that such costs are capital 
     in nature and are not deductible as ordinary and necessary 
     business expenses. Accordingly, the costs attributable to 
     such exploration are allocable to the cost of the property 
     acquired or retained. The term ``property'' includes an 
     economic interest in a tract or parcel of land 
     notwithstanding that a mineral deposit has not been 
     established or proven at the time the costs are incurred.
     Revenue Ruling 77-188
       In Revenue Ruling 77-188 (hereinafter referred to as the 
     ``1977 ruling''), the Internal Revenue Service (``IRS'') 
     provided guidance regarding the proper tax treatment of G&G 
     costs. The ruling describes a typical geological and 
     geophysical exploration program as containing the following 
     elements:
       It is customary in the search for mineral producing 
     properties for a taxpayer to conduct an exploration program 
     in one or more identifiable project areas. Each project area 
     encompasses a territory that the taxpayer determines can be 
     explored advantageously in a single integrated operation. 
     This determination is made after analyzing certain variables 
     such as the size and topography of the project area to be 
     explored, the existing information available with respect to 
     the project area and nearby areas, and the quantity of 
     equipment, the number of personnel, and the amount of money 
     available to conduct a reasonable exploration program over 
     the project area.
       The taxpayer selects a specific project area from which 
     geological and geophysical data are desired and conducts a 
     reconnaissance-type survey utilizing various geological and 
     geophysical exploration techniques that are designed to yield 
     data that will afford a basis for identifying specific 
     geological features with sufficient mineral potential to 
     merit further exploration.
       Each separable, noncontiguous portion of the original 
     project area in which such a specific geological feature is 
     identified is a separate ``area of interest.'' The original 
     project area is subdivided into as many small projects as 
     there are areas of interest located and identified within the 
     original project area. If the circumstances permit a detailed 
     exploratory survey to be conducted without an initial 
     reconnaissance-type survey, the project area and the area of 
     interest will be coextensive.
       The taxpayer seeks to further define the geological 
     features identified by the prior reconnaissance-type surveys 
     by additional, more detailed, exploratory surveys conducted 
     with respect to each area of interest. For this purpose, the 
     taxpayer engages in more intensive geological and geophysical 
     exploration employing methods that are designed to yield 
     sufficiently accurate sub-surface data to afford a basis for 
     a decision to acquire or retain properties within or adjacent 
     to a particular area of interest or to abandon the entire 
     area of interest as unworthy of development by mine or well.
       The 1977 ruling provides that if, on the basis of data 
     obtained from the preliminary geological and geophysical 
     exploration operations, only one area of interest is located 
     and identified within the original project area, then the 
     entire expenditure for those exploratory operations is to be 
     allocated to that one area of interest and thus capitalized 
     into the depletable basis of that area of interest. On the 
     other hand, if two or more areas of interest are located and 
     identified within the original project area, the entire 
     expenditure for the exploratory operations is to be allocated 
     equally among the various areas of interest.
       The 1977 ruling further provides that if, on the basis of 
     data obtained from a detailed survey that does not relate 
     exclusively to any particular property within a particular 
     area of interest, an oil or gas property is acquired or 
     retained within or adjacent to that area of interest, the 
     entire G&G exploration expenditures, including those incurred 
     prior to the identification of the particular area of 
     interest but allocated thereto, are to be allocated to the 
     property as a capital cost under section 263(a).
       If, however, from the data obtained by the exploratory 
     operations no areas of interest are located and identified by 
     the taxpayer within the original project area, then the 1977 
     ruling states that the entire amount of the G&G costs related 
     to the exploration is deductible as a loss under section 165 
     for the taxable year in which that particular project area is 
     abandoned as a potential source of mineral production.


                        Explanation of Provision

       The provision allows geological and geophysical costs 
     incurred in connection with oil and gas exploration in the 
     United States to be deducted currently.


                             Effective Date

       The provision is effective for G&G costs incurred or paid 
     in taxable years beginning after December 31, 2001.

 B. Allow Certain Oil and Gas ``Delay Rental Payments'' to be Deducted 
       Currently (Sec. 502 of the Bill and Sec. 263 of the Code)


                              Present Law

       Present law generally requires costs associated with 
     inventory and property held for resale to be capitalized 
     rather than currently deducted as they are incurred. (sec. 
     2634). Oil and gas producers typically contract for mineral 
     production in exchange for royalty payments. If mineral 
     production is delayed, these contracts provide for ``delay 
     rental payments'' as a condition of their extension. The 
     Treasury Department has taken the position that the uniform 
     capitalization rules of section 263A require delay rental 
     payments to be capitalized.


                        Explanation of Provision

       The provision allows delay rental payments to be deducted 
     currently.


                             Effective Date

       The provision applies to delay rental payments incurred in 
     taxable years beginning after December 31, 2001.
       No inference is intended from the proposal as to the proper 
     treatment of pre-effective date delay rental payments.

C. Allow Net Operating Losses from Oil and Gas Properties to be Carried 
  Back for Up to Five Years (Sec. 503 of the Bill and Sec. 172 of the 
                                 Code)


                              Present Law

       A net operating loss (``NOL'') generally is the amount by 
     which business deductions of a taxpayer exceed business gross 
     income. In general, an NOL may be carried back two years and 
     carried forward 20 years to offset taxable income in such 
     years. A carryback of an NOL results in the refund of Federal 
     income tax for the carryback year. A carryforward of an NOL 
     reduces Federal income tax for the carryforward year. Special 
     NOL carryback rules apply to (1) casualty and theft losses of 
     individual taxpayers, (2) Presidentially declared disasters 
     for taxpayers engaged in a farming business or a small 
     business, (3) real estate investment trusts, (4) specified 
     liability losses, (5) excess interest losses, and (6) farm 
     losses.


                        Explanation of Provision

       The provision provides a special five-year carryback for 
     certain eligible oil and gas losses of independent producers. 
     The carryforward period remains 20 years. An ``eligible oil 
     and gas loss'' is defined as the lesser of (1) the amount 
     which would be the taxpayer's NOL for the taxable year if 
     only income and deductions attributable to operating mineral 
     interests in oil and gas wells were taken into account, or 
     (2) the amount of such net operating loss for such taxable 
     year. In calculating the amount of a taxpayer's NOL 
     carrybacks, the portion of the NOL that is attributable to an 
     eligible oil and gas loss is treated as a separate NOL and 
     taken into account after the remaining portion of the NOL for 
     the taxable year.


                             Effective Date

       The proposal applies to NOLs arising in taxable years 
     beginning after December 31, 2001.

[[Page S9742]]

D. Temporary Suspension of Percentage of Depletion Deduction Limitation 
 Based on 65 Percent of Taxable Income (Sec. 504 of the Bill and Sec. 
                           613A of the Code)


                              Present Law

       Depletion, like depreciation, is a form of capital cost 
     recovery. In both cases, the taxpayer is allowed a deduction 
     in recognition of the fact that an asset--in the case of 
     depletion for oil or gas interests, the mineral reserve 
     itself--is being expended in order to produce income. Certain 
     costs incurred prior to drilling an oil or gas property are 
     recovered through the depletion deduction. These include 
     costs of acquiring the lease or other interest in the 
     property and geological and geophysical costs (in advance of 
     actual drilling). Depletion is available to any person having 
     an economic interest in a producing property.
       Two methods of depletion currently are allowable under the 
     Code: (1) the cost depletion method, and (2) the percentage 
     depletion method (secs. 611-613). Under the cost depletion 
     method, the taxpayer deducts that portion of the adjusted 
     basis of the depletable property which is equal to the ratio 
     of units sold from that property during the taxable year to 
     the number of units remaining as of the end of taxable year 
     plus the number of units sold during the taxable year. Thus, 
     the amount recovered under cost depletion may never exceed 
     the taxpayer's basis in the property.
       Under the percentage depletion method, generally, 15 
     percent of the taxpayer's gross income from an oil- or gas-
     producing property is allowed as a deduction in each taxable 
     year (sec. 613A(c)). The amount deducted generally may not 
     exceed 100 percent of the net income from that property in 
     any year (the ``net-income limitation'') (sec. 613(a)). 
     Additionally, the percentage depletion deduction for all oil 
     and gas properties may not exceed 65 percent of the 
     taxpayer's overall taxable income (determined before such 
     deduction and adjusted for certain loss carrybacks and trust 
     distributions) (sec. 613A(d)(1)).


                        Explanation of Provision

       The provision suspends the 65-percent-of-taxable-income 
     limit for taxable years beginning after December 31, 2000 and 
     before January 1, 2004.


                             Effective Date

       The provision is effective for taxable years beginning 
     after December 31, 2000.

E. Tax Credit for Oil and Gas Production from Marginal Wells (sec. 505 
                 of the bill and sec. 54A of the Code)


                              Present Law

       There is no income tax credit for oil or gas production 
     from marginal wells generally. Present law does, however, 
     provide a tax credit for production requiring the use of 
     certain tertiary recovery methods (the ``enhanced oil 
     recovery credit'') (sec. 43).


                        Explanation of Provision

       The provision provides an income tax credit equal to $3 per 
     barrel of qualified crude oil produced from a marginal well 
     and 50 cents per 1,000 cubic feet of qualified natural gas 
     production. Qualified production is defined as production up 
     to 1,095 barrels per year (3 barrels per day).
       The credit applies fully only when oil prices are below 
     $14. The credit phases-out ratably when the price of oil is 
     between $14 and $17 per barrel for oil (and equivalent 
     amounts for natural gas).
       The credit can be claimed against both the regular income 
     tax and the alternative minimum tax.


                             Effective Date

       The proposal applies to production in taxable years 
     beginning after December 31, 2000.

F. Natural Gas Gathering Lines Treated as 7-Year Property (Sec. 506 of 
                the Bill and Sec. 168(e)(3) of the Code)


                              Present Law

       The applicable recovery period for assets placed in service 
     under the Modified Accelerated Cost Recovery System is based 
     on the ``class life of the property.'' The class lives of 
     assets placed in service after 1986 are set forth in Revenue 
     Procedure 87-56. Revenue Procedure 87-56 includes two asset 
     classes that could describe natural gas gathering lines owned 
     by non-producers of natural gas. Asset class 13.2, describing 
     assets used in the exploration for and production of 
     petroleum and natural gas deposits, provides a class life of 
     14 years and a depreciation recovery period of seven years. 
     Asset class 46.0, describing pipeline transportation, 
     provides a class life of 22 years and a recovery period of 15 
     years. The uncertainty regarding the appropriate recovery 
     period has resulted in litigation between taxpayers and the 
     IRS. Recently, the 10th Circuit Court of Appeals held that 
     natural gas gathering lines owned by non-producers fall 
     within the scope of Asset class 13.2 (i.e., seven-year 
     recovery period).


                        Explanation of Provision

       The bill establishes a statutory seven-year recovery period 
     for all natural gas gathering lines. A natural gas gathering 
     line would be defined to include pipe, equipment, and 
     appurtenances that are (1) determined to be a gathering line 
     by the Federal Energy Regulatory Commission, or (2) used to 
     deliver natural gas from the wellhead or a common point to 
     the point at which such gas first reaches (a) a gas 
     processing plant, (b) an interconnection with an interstate 
     transmission line, (c) an interconnection with an intrastate 
     transmission line, or (d) a direct interconnection with a 
     local distribution company, a gas storage facility, or an 
     industrial consumer.


                             Effective Date

       The provision is effective for property placed in service 
     on or after the date of enactment. No inference would be 
     intended as to the proper treatment of such property placed 
     in service before the date of enactment.

 G. Clarification of Treatment of Pipeline Transportation Income (Sec. 
               507 of the Bill and Sec. 954 of the Code)


                              Present Law

       Under the subpart F rules, U.S. 10-percent shareholders of 
     a controlled foreign corporation (``CFC'') are subject to 
     U.S. tax currently on their shares of certain income earned 
     by the foreign corporation, whether or not such income is 
     distributed to the shareholders (referred to as ``subpart F 
     income''). Subpart F income includes foreign base company 
     income, which in turn includes five categories of income: 
     foreign personal holding company income, foreign base company 
     sales income, foreign base company services income, foreign 
     base company shipping income, and foreign base company oil 
     related income (sec. 954(a)).
       Foreign base company oil related income is income derived 
     outside the United States from the processing of minerals 
     extracted from oil or gas wells into their primary products; 
     the transportation, distribution, or sale of such minerals or 
     primary products; the disposition of assets used by the 
     taxpayer in a trade or business involving the foregoing; or 
     the performance of any related services. However, foreign 
     base company oil related income does not include income 
     derived from a source within a foreign country in connection 
     with: (1) oil or gas which was extracted from a well located 
     in such foreign country or, (2), oil, gas, or a primary 
     product of oil or gas which is sold by the CFC or a related 
     person for use or consumption within such foreign country or 
     is loaded in such country as fuel on a vessel or aircraft. An 
     exclusion also is provided for income of a CFC that is a 
     small producer (i.e., a corporation whose average daily oil 
     and natural gas production, including production by related 
     corporations, is less than 1,000 barrels).


                        Explanation of Provision

       The bill provides an additional exception to the definition 
     of foreign base company oil related income. Under the bill, 
     foreign base company oil related income does not include 
     income derived from a source within a foreign country in 
     connection with the pipeline transportation of oil or gas 
     within such foreign country. Thus, the exception applies 
     whether or not the CFC that owns the pipeline also owns any 
     interest in the oil or gas transported. In addition, the 
     exception applies to income earned from the transportation of 
     oil or gas by pipeline in a country in which the oil or gas 
     was neither extracted nor consumed within such foreign 
     country.


                             Effective Date

       The provision is effective for taxable years of CFCs 
     beginning after December 31, 2001, and taxable years of U.S. 
     shareholders with or within which such taxable years of CFCs 
     end.

               TITLE VI. TAX INCENTIVES FOR CONSERVATION

  A. Exclusion of 50 Percent of Gain on Sales of Land or Interests in 
Land or Water to Eligible Entities for Conservation Purposes (Sec. 601 
               of the Bill and New Sec. 121A of the Code)


                              Present Law

       Gain from the sale or exchange of land held more than one 
     year generally is treated as long-term capital gain.
       Generally the net capital gain of an individual (i.e., 
     long-term capital gain less short-term capital loss) is 
     subject to a maximum rate of 20 percent.


                        Explanation of Provision

       The bill provides a 50-percent exclusion from a taxpayer's 
     gross income for gain realized on the qualifying sale of 
     land, or an interest in land or water, provided the land, or 
     interest in land or water, has been held by the taxpayer or 
     the taxpayer's family for at least three years prior to the 
     date of sale. A qualifying sale is a sale to any agency of 
     the Federal Government, a State government, or a local 
     government, or a sale to 501(c)(3) organization that is 
     organized and operated primarily to meet a qualified 
     conservation purpose. In addition, to be a qualifying sale, 
     the entity acquiring the land, or interest in land or water, 
     must provide the taxpayer with a letter detailing that the 
     intent of the purchase is to further a qualified conservation 
     purpose. A qualified conservation purpose is (1) the 
     preservation of land areas for outdoor recreation by, or the 
     education of, the general public, (2) the protection of a 
     relatively natural habitat of fish, wildlife, or plants, or 
     similar ecosystem, or (3) the preservation of open space 
     (including farmland and forest land) where the preservation 
     is for the scenic enjoyment of the general public or pursuant 
     to a clearly delineated Federal, State or local governmental 
     conservation policy that will yield a significant public 
     benefit.


                             Effective Date

       The provision is effective for sales after December 31, 
     2003.

[[Page S9743]]

 B. Expand the Estate Tax Rule for Conservation Easements (Sec. 602 of 
                  the Bill and Sec. 2031 of the Code)


                              Present Law

       An executor may elect to exclude from the taxable estate 40 
     percent of the value of any land subject to a qualified 
     conservation easement, up to a maximum exclusion of $100,000 
     in 1998, $200,000 in 1999, $300,000 in 2000, $400,000 in 
     2001, and $500,000 in 2002 and thereafter (sec. 2031(c)). The 
     exclusion percentage is reduced by 2 percentage points for 
     each percentage point (or fraction thereof) by which the 
     value of the qualified conservation easement is less than 30 
     percent of the value of the land (determined without regard 
     to the value of such easement and reduced by the value of any 
     retained development right).
       A qualified conservation easement is one that meets the 
     following requirements: (1) the land is located within 25 
     miles of a metropolitan area (as defined by the Office of 
     Management and Budget) or a national park or wilderness area, 
     or within 10 miles of an Urban National Forest (as designated 
     by the Forest Service of the U.S. Department of Agriculture); 
     (2) the land has been owned by the decedent or a member of 
     the decedent's family at all times during the three-year 
     period ending on the date of the decedent's death; and (3) a 
     qualified conservation contribution (within the meaning of 
     sec. 170(h)) of a qualified real property interest (as 
     generally defined in sec. 170(h)(2)(C)) was granted by the 
     decedent or a member of his or her family. For purposes of 
     the provision, preservation of a historically important land 
     area or a certified historic structure does not qualify as a 
     conservation purpose.
       In order to qualify for the exclusion, a qualifying 
     easement must have been granted by the decedent, a member of 
     the decedent's family, the executor of the decedent's estate, 
     or the trustee of a trust holding the land, no later than the 
     date of the election. To the extent that the value of such 
     land is excluded from the taxable estate, the basis of such 
     land acquired at death is a carryover basis (i.e., the basis 
     is not stepped-up to its fair market value at death). 
     Property financed with acquisition indebtedness is eligible 
     for this provision only to the extent of the net equity in 
     the property. The exclusion from estate taxes does not extend 
     to the value of any development rights retained by the 
     decedent or donor.


                        Explanation of Provision

       The bill expands the availability of qualified conservation 
     easements by eliminating the geographical boundary 
     restrictions. Under the bill, the land qualifies without 
     regard to the distance from which the land is situated from a 
     metropolitan area, national park, wilderness area, or Urban 
     National Forest.


                             Effective Date

       The provision is effective for estates of decedents dying 
     after December 31, 2001.

C. Cost-Sharing Payments Under the Partners for Wildlife Program (Sec. 
               603 of the Bill and Sec. 126 of the Code)


                              Present Law

       Under present law, gross income does not include the 
     excludable portion of payments made to taxpayers by federal 
     and state governments for a share of the cost of improvements 
     to property under certain conservation programs. These 
     programs include payments received under (1) the rural clean 
     water program authorized by section 208(j) of the Federal 
     Water Pollution Control Act, (2) the rural abandoned mine 
     program authorized by section 406 of the Surface Mining 
     Control and Reclamation Act of 1977, (3) the water bank 
     program authorized by the Water Bank Act, (4) the emergency 
     conservation measures program authorized by title IV of the 
     Agricultural Credit Act of 1978, (5) the agriculture 
     conservation program authorized by the Soil Conservation and 
     Domestic Allotment Act, (6) the great plains conservation 
     program authorized by section 16 of the Soil Conservation and 
     Domestic Policy Act, (7) the resource conservation and 
     development program authorized by the Bankhead-Jones Farm 
     Tenant Act and by the Soil Conservation and Domestic 
     Allotment Act, (8) the forestry incentives program authorized 
     by section 4 of the Cooperative Forestry Assistance Act of 
     1978, (9) any small watershed program administered by the 
     Secretary of Agriculture which is determined by the Secretary 
     of the Treasury or his delegate to be substantially similar 
     to the type of programs described in items (1) through (8), 
     and (10) any program of a State, possession of the United 
     States, a political subdivision of any of the foregoing, or 
     the District of Columbia under which payments are made to 
     individuals primarily for the purpose of conserving soil, 
     protecting or restoring the environment, improving forests, 
     or providing a habitat for wildlife.


                        Explanation of Provision

       The provision expands the types of qualified cost-sharing 
     payments to include payments under the Partners for Wildlife 
     Program.


                             Effective Date

       The provision applies to payments received after the date 
     of enactment.

  D. Incentive for Certain Energy Efficient Property Used in Business 
          (Sec. 604 of the Bill and New Sec. 199 of the Code)


                              Present Law

       No special deduction is currently provided for expenses 
     incurred for energy efficient building property.


                        Explanation of Provision

       The provision allows a deduction from income for expenses 
     incurred for energy efficient commercial building property. 
     Energy-efficient commercial building property is defined as 
     property that reduces annual energy and power costs with 
     respect to lighting, cooling, heating, ventilation, and hot 
     water supply by 50 percent or more in comparison to a 
     reference building. A reference building is defined as one 
     which meets the requirements of Standard 90.1-1999 of the 
     American Society of Heating, Refrigerating, and Air 
     Conditioning Engineers and the Illuminating Engineering 
     Society of North America. The maximum deduction would be 
     $2.25 per square foot. For all property eligible for the 
     deduction, the depreciable basis of the property is reduced 
     by the amount of the deduction. For public property, such as 
     schools, the Secretary shall issue regulations to allow the 
     deduction to be allocated to the person primarily responsible 
     for designing the property in lieu of the public entity 
     owner.


                             Effective Date

       The deduction is effective for taxable years beginning 
     after December 31, 2000, and before January 1, 2004.

 E. Extension and Modification of Tax Credit for Electricity Produced 
      from Biomass (Sec. 605 of the Bill and Sec. 45 of the Code)


                              Present Law

     Section 45
       An income tax credit is allowed for the production of 
     electricity from either qualified wind energy facilities, 
     qualified ``closed-loop'' biomass facilities, or qualified 
     poultry waste facilities (sec. 45). The current value of the 
     credit is 1.7 cents/kilowatt hour of electricity produced and 
     the value of the credit is indexed for inflation. The credit 
     applies to electricity produced by a qualified wind energy 
     facility placed in service after December 31, 1993, and 
     before January 1, 2002, to electricity produced by a 
     qualified closed-loop biomass facility placed in service 
     after December 31, 1992, and before January 1, 2002, and to a 
     qualified poultry waste facility placed in service after 
     December 31, 1999, and before January 1, 2002. The credit is 
     allowable for production during the 10-year period after a 
     facility is originally placed in service.
       Closed-loop biomass is the use of plant matter, where the 
     plants are grown for the sole purpose of being used to 
     generate electricity. It does not include the use of waste 
     materials (including, but not limited to, scrap wood, manure, 
     and municipal or agricultural waste). The credit also is not 
     available to taxpayers who use standing timber to produce 
     electricity. In order to claim the credit, a taxpayer must 
     own the facility and sell the electricity produced by the 
     facility to an unrelated party.
     Section 29
       Certain fuels produced from ``nonconventional sources'' and 
     sold to unrelated parties are eligible for an income tax 
     credit equal to $3 (generally adjusted for inflation) per 
     barrel or BTU oil barrel equivalent (sec. 29) (referred to as 
     the ``section 29 credit''). Qualified fuels must be produced 
     within the United States. Qualified fuels include:
       (1) oil produced from shale and tar sands;
       (2) gas produced from geopressured brine, Devonian shale, 
     coal seams, tight formations (``tight sands''), or biomass; 
     and
       (3) liquid, gaseous, or solid synthetic fuels produced from 
     coal (including lignite).
       In general, the credit is available only with respect to 
     fuels produced from wells drilled or facilities placed in 
     service after December 31, 1979, and before January 1, 1993. 
     An exception extends the January 1, 1993 expiration date for 
     facilities producing gas from biomass and synthetic fuel from 
     coal if the facility producing the fuel is placed in service 
     before July 1, 1998, pursuant to a binding contract entered 
     into before January 1, 1997.
       The credit may be claimed for qualified fuels produced and 
     sold before January 1, 2003 (in the case of nonconventional 
     sources subject to the January 1, 1993 expiration date) or 
     January 1, 2008 (in the case of biomass gas and synthetic 
     fuel facilities eligible for the extension period).


                        Explanation of Provision

       The bill provides that the present-law tax credit for 
     electricity produced by wind, closed-loop biomass, and 
     poultry waste facilities is expanded to include electricity 
     produced from certain other biomass (in addition to closed-
     loop biomass and poultry waste) and electricity produced from 
     landfill gas. Taxpayers producing electricity from other 
     biomass or landfill gas may claim credit for production of 
     electricity for three years commencing on the later of 
     January 1, 2001, or the date the facility is placed in 
     service.
       ``Other biomass'' is defined as solid nonhazardous, 
     cellulose waste material which is segregated from other waste 
     materials and which is derived from forest resources, but not 
     including old growth timber. The term includes urban sources 
     such as waste pallets, crates, manufacturing and construction 
     wood waste, and tree trimmings, or agricultural sources 
     (including orchard tree crops, grain, vineyard, legumes, 
     sugar, and other crop by-products or residues). However, the 
     term does not include unsegregated municipal solid waste, 
     paper that is commonly recycled, or certain chemically 
     treated wood

[[Page S9744]]

     wastes. Qualifying other biomass and landfill gas facilities 
     are limited to facilities owned by the taxpayer.
       A special rule modifies present-law definition of qualified 
     closed-loop biomass facilities to include facilities in which 
     electricity is produced from closed-loop biomass fuels co-
     fired with coal.
       In the case of other biomass facilities, the credit applies 
     to electricity produced after December 31, 2000 from 
     facilities that are placed in service before January 1, 2002 
     (including facilities placed in service before the date of 
     enactment of this provision). In the case of landfill gas 
     facilities, the credit applies to electricity produced after 
     December 31, 2000, from facilities placed in service after 
     December 31, 1999, and before January 1, 2002. In the case of 
     closed-loop biomass facilities in which closed-loop biomass 
     fuel is co-fired with coal, the credit applies to electricity 
     produced after December 31, 2000, from facilities that are 
     placed in service before January 1, 2002 (including 
     facilities placed in service before the date of enactment of 
     this provision).


                             Effective Date

       The provision is effective upon the date of enactment.

F. Credit for Certain Energy Efficient Motor Vehicles (Sec. 606 of the 
                   Bill and New Sec. 30B of the Code)


                              Present Law

       Present law does not provide a credit for the purchase of 
     hybrid vehicles. However, taxpayers may claim a credit of 10 
     percent of the cost of an electric vehicle up to a maximum 
     credit of $4,000 (sec. 30). A qualified electric vehicle is a 
     vehicle powered primarily by an electric motor drawing 
     current from rechargeable batteries, fuel cells, or other 
     portable sources of electrical current. The credit does not 
     apply to property placed in service after December 31, 2004 
     and is reduced ratably between 2002 and 2004.
       Taxpayers may claim an immediate deduction (expensing) for 
     up to $2,000 of the cost of a qualified clean-fuel vehicle 
     which is a car and up to $50,000 in the case of certain 
     trucks or vans (sec. 179A). For the purpose of the deduction, 
     gasoline and diesel fuel are not clean-burning fuels. The 
     deduction expires after December 31, 2004, and is phased out 
     ratably between 2002 and 2004.


                        Explanation of Provision

       The bill provides a temporary tax credit for qualified 
     hybrid vehicles, with a rechargeable energy system used in 
     business and for personal use. For vehicles with a 
     rechargeable energy system that provides five percent to less 
     than 10 percent of the maximum available power, the credit 
     amount is $500; for a system that provides 10 percent to less 
     than 20 percent of maximum available power the credit is 
     $1,000; for a system that provides 20 percent to less than 30 
     percent of maximum available power, the credit is $1,500; and 
     for a system that provides 30 percent or greater of maximum 
     available power, the credit is $2,000. The credit amount is 
     increased for qualified hybrid vehicles that also actively 
     employ a regenerative braking system that supplies energy to 
     the rechargeable energy storage system. For a hybrid vehicle 
     with a regenerative braking system that provides 20 percent 
     to less than 40 percent of the energy available from braking 
     in a typical 60 miles per hour to zero miles per hour braking 
     event, the additional credit amount is $250, for 40 percent 
     to less than 60 percent, the additional credit would be $500, 
     and for 60 percent or greater, the additional credit is 
     $1,000.
       In addition, the sponsors note that this proposal is one 
     portion of a package of proposals in the Alternative Fuels 
     Incentives Act. The proposals in that legislation include a 
     tax credit for alternative fuel vehicles, a tax credit for 
     retail sales of alternative motor vehicle fuels, and an 
     extension of the deduction for certain refueling property. 
     The sponsors note the Committee has explored these incentives 
     in a hearing and will continue to seek to address these 
     proposals in appropriate legislation.


                             Effective Date

       The credit is available for a hybrid vehicle placed in 
     service after December 31, 2003, and before January 1, 2005.

                     VII. ADDITIONAL TAX PROVISIONS

  A. Limitation on Use of Non-Accrual Experience Method of Accounting 
            (Sec. 701 of the Bill and Sec. 448 of the Code)


                              Present Law

       An accrual method taxpayer generally must recognize income 
     when all the events have occurred that fix the right to 
     receive the income and the amount of the income can be 
     determined with reasonable accuracy. An accrual method 
     taxpayer may deduct the amount of any receivable that was 
     previously included in income that becomes worthless during 
     the year.
       Accrual method taxpayers are not required to include in 
     income amounts to be received for the performance of services 
     which, on the basis of experience, will not be collected (the 
     ``non-accrual experience method''). The availability of this 
     method is conditioned on the taxpayer not charging interest 
     or a penalty for failure to timely pay the amount charged.
       A cash method taxpayer is not required to include an amount 
     in income until it is received. A taxpayer generally may not 
     use the cash method if purchase, production, or sale of 
     merchandise is an income producing factor. Such taxpayers 
     generally are required to keep inventories and use an accrual 
     method of accounting. In addition, corporations (and 
     partnerships with corporate partners) generally may not use 
     the cash method of accounting if their average annual gross 
     receipts exceed $5 million. An exception to this $5 million 
     rule is provided for qualified personal service corporations. 
     A qualified personal service corporation is a corporation (1) 
     substantially all of whose activities involve the performance 
     of services in the fields of health, law, engineering, 
     architecture, accounting, actuarial science, performing arts 
     or consulting and (2) substantially all of the stock of which 
     is owned by current or former employees performing such 
     services, their estates or heirs. Qualified personal service 
     corporations are allowed to use the cash method without 
     regard to whether their average annual gross receipts exceed 
     $5 million.


                        Explanation of Provision

       The provision provides that the non-accrual experience 
     method of accounting will be available only for amounts to be 
     received for the performance of qualified personal services. 
     Amounts to be received for all other services will be subject 
     to the general rule regarding inclusion in income. Qualified 
     personal services are personal services in the fields of 
     health, law, engineering, architecture, accounting, actuarial 
     science, performing arts or consulting. As under present law, 
     the availability of this method is conditioned on the 
     taxpayer not charging interest or a penalty for failure to 
     timely pay the amount charged.
       It is believed that the formula contained in Temp. Reg. 
     Section 1.448-2T does not clearly reflect the amount of 
     income that, based on experience, will not be collected for 
     many qualified personal services providers, especially for 
     those where significant time elapses between the rendering of 
     the service and a final determination that the account will 
     not be collected. Providers of qualified personal services 
     should not be subject to a formula that requires the 
     payment of taxes on receivables that will not be 
     collected. It is intended that the Secretary of the 
     Treasury be directed to amend the temporary regulations to 
     provide a more accurate determination for such qualified 
     personal service providers of amounts to be excluded from 
     income that, based on the taxpayer's experience, will not 
     be collected. In amending such regulations, the Secretary 
     of the Treasury should consider providing flexibility with 
     respect to any formula used to compute the amount of the 
     exclusion, to address the different factual situations of 
     taxpayers.


                             Effective Date

       The provision is effective for taxable years ending after 
     date of enactment. Any change in the taxpayer's method of 
     accounting necessitated as a result of the provision are 
     treated as a voluntary change initiated by the taxpayer with 
     the consent of the Secretary of the Treasury. Any required 
     section 481(a) adjustment is to be taken into account over a 
     period not to exceed four years under principles consistent 
     with those in Rev. Proc. 98-60.

 B. Repeal of Section 1706 of the Tax Reform Act of 1986 (Sec. 702 of 
                               the Bill)


                              Present Law

       Under present law, determination of whether a worker is an 
     employee or independent contractor is generally made under a 
     common-law test. Section 530 of the Revenue Act of 1978 
     provides safe harbors under which a service recipient may 
     treat a worker as an independent contractor for employment 
     tax purposes (regardless of their status under the common-law 
     test) if certain requirements are satisfied. One of the 
     requirements of safe-harbor relief under section 530 is that 
     the taxpayer (or a predecessor) must not have treated any 
     worker holding a substantially similar position as an 
     employee for purposes of employment taxes for any period 
     after 1977. In determining whether workers hold substantially 
     similar positions, one of the factors that is to be taken 
     into account is the relationship of the parties, including 
     the degree of supervision and control of the worker by the 
     taxpayer.
       Under section 1706 of the Tax Reform Act of 1986, section 
     530 safe-harbor relief does not apply to certain technical 
     services personnel.


                        Explanation of Provision

       The bill repeals section 1706 of the Tax Reform Act of 
     1986. Thus, section 530 safe-harbor relief is available with 
     respect to workers covered by section 1706, if the 
     requirements of the safe harbor are otherwise satisfied. The 
     bill does not repeal the consistency requirement with respect 
     to workers covered by section 1706.


                             Effective Date

       The bill is effective for periods beginning after the date 
     of enactment.

C. Expansion of Exemption From Personal Holding Company Tax for Lending 
or Finance Business Companies (Sec. 703 of the Bill and Section 542 of 
                               the Code)


                              Present Law

       Personal holding companies (``PHC'') are subject to a 39.6 
     percent tax on undistributed PHC income. This tax can be 
     avoided by distributing the income to shareholders, who then 
     pay shareholder level tax. PHCs are closely held companies 
     with at least 60 percent ``personal holding company income'' 
     (``PHCI''). This is generally passive income, including 
     interest, dividends, and rents. Certain rent is excluded from 
     the definition, if rent is at least 50 percent of the 
     adjusted ordinary gross income of the company and

[[Page S9745]]

     other undistributed PHCI does not exceed 10 percent of the 
     adjusted ordinary gross income.
       In the case of a group of corporations filing a 
     consolidated return, with certain exceptions, the application 
     of the PHC tax to the group and any member thereof is 
     generally determined on the basis of consolidated income and 
     consolidated PHCI. If any member of the group is excluded 
     from the definition of a PHC under certain provisions 
     (including one for certain lending or finance businesses), 
     then each other member of the group is tested separately for 
     PHC status.
       A special rule of present law excludes a lending or finance 
     business from the definition of a PHC if certain requirements 
     are met. At least 60 percent of its income must come from the 
     active conduct of a lending or finance business, and no more 
     than 20 percent of its adjusted gross income may be from 
     certain other PHCI. A lending or finance business does not 
     include a business of making loans longer than 144 months (12 
     years). Also, the deductions attributable to this active 
     lending or finance business (but not including interest 
     expense) must be at least 5 percent of income over $500,000 
     (plus 15 percent of income under that amount).


                        Explanation of Provision

       The provision modifies the personal holding company 
     exclusion for lending or finance companies to provide that, 
     in determining whether a member of an affiliated group (as 
     defined in section 1504(a)(1)) filing a consolidated return 
     is a lending or finance company, only corporations engaged in 
     a lending or finance business are taken into account, and all 
     such companies are aggregated for purposes of this 
     determination. The effect of this rule is to treat a 
     corporation as a lending or finance company if all companies 
     engaged in a lending or finance business in the affiliated 
     group, in the aggregate, satisfy the requirements of the 
     exclusion.
       The provision also repeals the business expense requirement 
     and the limitation on the maturity of loans made by a lending 
     or finance business.
       The provision also broadens the definition of a lending or 
     finance business to include providing financial or investment 
     advisory services, as well as engaging in leasing, including 
     entering into leases and/or purchasing, servicing, and/or 
     disposing of leases and leased assets.
       Rents that are not derived from the active and regular 
     conduct of a lending or finance business would continue to be 
     treated under the present law personal holding company income 
     rules.


                             Effective Date

       The provision is effective for taxable years beginning 
     after December 31, 2000.

 D. Charitable Contribution Deduction for Certain Expenses Incurred in 
Support of Native Alaskan Subsistence Whaling (Sec. 704 of the Bill and 
                         Sec. 170 of the Code)


                              Present Law

       In computing taxable income, individuals who do not elect 
     the standard deduction may claim itemized deductions, 
     including a deduction (subject to certain limitations) for 
     charitable contributions or gifts made during the taxable 
     year to a qualified charitable organization or governmental 
     entity (sec. 170). Individuals who elect the standard 
     deduction may not claim a deduction for charitable 
     contributions made during the taxable year.
       No charitable contribution deduction is allowed for a 
     contribution of services. However, unreimbursed expenditures 
     made incident to the rendition of services to an 
     organization, contributions to which are deductible, may 
     constitute a deductible contribution (Treas. Reg. sec. 
     1.170A-1(g)). Specifically, section 170(j) provides that no 
     charitable contribution deduction is allowed for traveling 
     expenses (including amounts expended for meals and lodging) 
     while away from home, whether paid directly or by 
     reimbursement, unless there is no significant element of 
     personal pleasure, recreation, or vacation in such travel.


                        Explanation of Provision

       The bill allows individuals to claim a deduction under 
     section 170 not exceeding $7,500 per taxable year for certain 
     expenses incurred in carrying out sanctioned whaling 
     activities. The deduction is available only to an individual 
     who is recognized by the Alaska Eskimo Whaling Commission as 
     a whaling captain charged with the responsibility of 
     maintaining and carrying out sanctioned whaling activities. 
     The deduction is available for reasonable and necessary 
     expenses paid by the taxpayer during the taxable year for (1) 
     the acquisition and maintenance of whaling boats, weapons, 
     and gear used in sanctioned whaling activities, (2) the 
     supplying of food for the crew and other provisions for 
     carrying out such activities, and (3) storage and 
     distribution of the catch from such activities.
       For purposes of the provision, the term ``sanctioned 
     whaling activities'' means subsistence bowhead whale hunting 
     activities conducted pursuant to the management plan of the 
     Alaska Eskimo Whaling Commission.


                             Effective Date

       The provision is effective for taxable years ending after 
     December 31, 2000.

  E. Treatment of Purchase of Structured Settlements (Sec. 705 of the 
                  Bill and New Sec. 5891 of the Code)


                              Present Law

       Present law provides tax-favored treatment for structured 
     settlement arrangements for the payment of damages on account 
     of personal injury or sickness.
       Under present law, an exclusion from gross income is 
     provided for amounts received for agreeing to a qualified 
     assignment to the extent that the amount received does not 
     exceed the aggregate cost of any qualified funding asset 
     (sec. 130). A qualified assignment means any assignment of a 
     liability to make periodic payments as damages (whether by 
     suit or agreement) on account of a personal injury or 
     sickness (in a case involving physical injury or physical 
     sickness), provided the liability is assumed from a person 
     who is a party to the suit or agreement, and the terms of the 
     assignment satisfy certain requirements. Generally, these 
     requirements are that (1) the periodic payments are fixed as 
     to amount and time; (2) the payments cannot be accelerated, 
     deferred, increased, or decreased by the recipient; (3) the 
     assignee's obligation is no greater than that of the 
     assignor; and (4) the payments are excludable by the 
     recipient under section 104(a)(2) as damages on account of 
     personal injuries or sickness.
       A qualified funding asset means an annuity contract issued 
     by an insurance company licensed in the U.S., or any 
     obligation of the United States, provided the annuity 
     contract or obligation meets statutory requirements. An 
     annuity that is a qualified funding asset is not subject to 
     the rule requiring current inclusion of the income on the 
     contract which generally applies to annuity contract holders 
     that are not natural persons (e.g., corporations) (sec. 
     72(u)(3)(C)). In addition, when the payments on the annuity 
     are received by the structured settlement company and 
     included in income, the company generally may deduct the 
     corresponding payments to the injured person, who, in turn, 
     excludes the payments from his or her income (sec. 104). 
     Thus, neither the amount received for agreeing to the 
     qualified assignment of the liability to pay damages, nor the 
     income on the annuity that funds the liability to pay 
     damages, generally is subject to tax.
       The exclusion for recipients of the periodic payments 
     received under a structured settlement arrangement as damages 
     for personal physical injuries or physical sickness can be 
     contrasted with the treatment of investment earnings that are 
     not paid as damages. If a recipient of damages chooses to 
     receive a lump sum payment (excludable from income under sec. 
     104), and then to invest it himself, generally the earnings 
     on the investment are includable in income. For example, if 
     the recipient uses the lump sum to purchase an annuity 
     contract providing for periodic payments, then a portion of 
     each payment under the annuity contract is includable in 
     income, and the balance is excludable under present-law rules 
     based on the ratio of the individual's investment in the 
     contract to the expected return on the contract (sec. 72(b)).
       Present law provides that the payments to the injured 
     person under the qualified assignment cannot be accelerated, 
     deferred, increased, or decreased by the recipient. 
     Consistent with these requirements, it is understood that 
     contracts under structured settlement arrangements generally 
     contain anti-assignment clauses. It is understood, however, 
     that injured persons may nonetheless be willing to accept 
     discounted lump sum payments from certain ``factoring'' 
     companies in exchange for their payment streams. The tax 
     effect on the parties of these transactions may not be 
     completely clear under present law.


                        Explanation of Provision

       The provision generally imposes an excise tax on any person 
     acquiring a payment stream under a structured settlement 
     arrangement. The amount of the excise tax is 40 percent of 
     the excess of (1) the undiscounted amount of the payment 
     stream acquired, over (2) the total amount actually paid.
       The 40 percent excise tax does not apply, however, if the 
     transfer is approved in advance in a final court order (or 
     order of the responsible administrative authority) that 
     finds: (1) that the transaction does not contravene any 
     Federal or State statute or the order of any court or 
     responsible administrative authority; and (2) is in the best 
     interest of the payee, taking into account the welfare and 
     support of the payee's dependents. Rules are provided for 
     determining the applicable State statute.
       The provision also provides that the acquisition 
     transaction does not affect the application of certain 
     present-law rules, if those rules were satisfied at the time 
     the structured settlement was entered into. The rules are 
     section 130 (relating to an exclusion from gross income for 
     personal injury liability assignments), section 72 (relating 
     to annuities), sections 104(a)(1) and (2) (relating to an 
     exclusion for amounts received under workers' compensation 
     acts and for damages on account of personal physical injuries 
     or physical sickness), and section 461(h) (relating to the 
     time of economic performance in determining the taxable year 
     of a deduction).


                             Effective Date

       The provision generally is effective for acquisition 
     transactions entered into on or after 30 days following 
     enactment. A transition rule applies during the period from 
     that date to July 1, 2002. If no applicable State law 
     (relating to the best interest of the payee) applies to a 
     transfer during that period, then the exception from the 40 
     percent

[[Page S9746]]

     excise tax is available without the otherwise required court 
     (or administrative) order, provided certain disclosure 
     requirements are met. Under the transition rule, the person 
     acquiring the structured settlement payments is required to 
     disclose in advance to the payee: (1) the amounts and due 
     dates of the payments to be transferred; (2) the aggregate 
     amount to be transferred; (3) the consideration to be 
     received by the payee; (4) the discounted present value of 
     the transferred payments; and (5) the expenses to be paid by 
     the payee or deducted from the payee's proceeds.
       The provision providing that the acquisition transaction 
     does not affect the application of certain present-law rules 
     is effective for transactions entered into before, on, or 
     after the 30th day following enactment.
                                 ______