[Congressional Record (Bound Edition), Volume 145 (1999), Part 12]
[House]
[Pages 17098-17198]
[From the U.S. Government Publishing Office, www.gpo.gov]



                     FINANCIAL FREEDOM ACT OF 1999

  Mr. ARCHER. Mr. Speaker, pursuant to House Resolution 256, I call up 
the bill (H.R. 2488) to amend the Internal Revenue Code of 1986 to 
reduce individual income tax rates, to provide marriage penalty relief, 
to reduce taxes on savings and investments, to provide estate and gift 
tax relief, to provide incentives for education savings and health 
care, and for other purposes, and ask for its immediate consideration 
in the House.
  The Clerk read the title of the bill.
  The SPEAKER pro tempore (Mr. Combest). Pursuant to House Resolution 
256, the bill is considered read for amendment.
  The text of H.R. 2488 is as follows:

                               H.R. 2488

       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 ``Financial 
     Freedom Act of 1999''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Section 15 Not To Apply.--No amendment made by this Act 
     shall be treated as a change in a rate of tax for purposes of 
     section 15 of the Internal Revenue Code of 1986.
       (d) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; etc.

                    TITLE I--BROAD-BASED TAX RELIEF

    Subtitle A--10-Percent Reduction in Individual Income Tax Rates

Sec. 101. 10-percent reduction in individual income tax rates.

                Subtitle B--Marriage Penalty Tax Relief

Sec. 111. Elimination of marriage penalty in standard deduction.
Sec. 112. Elimination of marriage penalty in deduction for interest on 
              education loans.
Sec. 113. Rollover from regular IRA to Roth IRA.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

Sec. 121. Repeal of Alternative Minimum Tax on Individuals.

       TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

Sec. 201. Exemption of certain interest and dividend income from tax.
Sec. 202. Reduction in individual capital gain tax rates.
Sec. 203. Capital gains tax rates applied to capital gains of 
              designated settlement funds.
Sec. 204. Special rule for members of uniformed services and foreign 
              service, and other employees, in determining exclusion of 
              gain from sale of principal residence.
Sec. 205. Treatment of certain dealer derivative financial instruments, 
              hedging transactions, and supplies as ordinary assets.
Sec. 206. Worthless securities of financial institutions.

     TITLE III--INCENTIVES FOR BUSINESS INVESTMENT AND JOB CREATION

Sec. 301. Reduction in corporate capital gain tax rate.
Sec. 302. Repeal of alternative minimum tax on corporations.

                 TITLE IV--EDUCATION SAVINGS INCENTIVES

Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
Sec. 403. Exclusion of certain amounts received under the National 
              Health Service Corps scholarship program, the F. Edward 
              Hebert Armed Forces Health Professions Scholarship and 
              Financial Assistance Program, and certain other programs.
Sec. 404. Additional increase in arbitrage rebate exception for 
              governmental bonds used to finance educational 
              facilities.
Sec. 405. Modification of arbitrage rebate rules applicable to public 
              school construction bonds.
Sec. 406. Repeal of 60-month limitation on deduction for interest on 
              education loans.

                    TITLE V--HEALTH CARE PROVISIONS

Sec. 501. Deduction for health and long-term care insurance costs of 
              individuals not participating in employer-subsidized 
              health plans.
Sec. 502. Long-term care insurance permitted to be offered under 
              cafeteria plans and flexible spending arrangements.
Sec. 503. Expansion of availability of medical savings accounts.
Sec. 504. Additional personal exemption for taxpayer caring for elderly 
              family member in taxpayer's home.
Sec. 505. Expanded human clinical trials qualifying for orphan drug 
              credit.
Sec. 506. Inclusion of certain vaccines against streptococcus 
              pneumoniae to list of taxable vaccines.

                      TITLE VI--ESTATE TAX RELIEF

  Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; 
                  Repeal of Step Up in Basis At Death

Sec. 601. Repeal of estate, gift, and generation-skipping taxes.
Sec. 602. Termination of step up in basis at death.
Sec. 603. Carryover basis at death.

  Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal

Sec. 611. Additional reductions of estate and gift tax rates.

   Subtitle C--Unified Credit Replaced With Unified Exemption Amount

Sec. 621. Unified credit against estate and gift taxes replaced with 
              unified exemption amount.

     Subtitle D--Modifications of Generation-Skipping Transfer Tax

Sec. 631. Deemed allocation of GST exemption to lifetime transfers to 
              trusts; retroactive allocations.
Sec. 632. Severing of trusts.

[[Page 17099]]

Sec. 633. Modification of certain valuation rules.
Sec. 634. Relief provisions.

    TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

Sec. 701. Short title.
Sec. 702. Designation of and tax incentives for renewal communities.
Sec. 703. Extension of expensing of environmental remediation costs to 
              renewal communities.
Sec. 704. Extension of work opportunity tax credit for renewal 
              communities
Sec. 705. Conforming and clerical amendments.
Sec. 706. Evaluation and reporting requirements.

                     Subtitle B--Farming Incentive

Sec. 711. Production flexibility contract payments.

                   Subtitle C--Oil and Gas Incentive

Sec. 721. 5-year net operating loss carryback for losses attributable 
              to operating mineral interests of independent oil and gas 
              producers.

                      Subtitle D--Timber Incentive

Sec. 731. Increase in maximum permitted amortization of reforestation 
              expenditures.

                  Subtitle E--Steel Industry Incentive

Sec. 741. Minimum tax relief for steel industry.

                TITLE VIII--RELIEF FOR SMALL BUSINESSES

Sec. 801. Deduction for 100 percent of health insurance costs of self-
              employed individuals.
Sec. 802. Increase in expense treatment for small businesses.
Sec. 803. Repeal of Federal unemployment surtax.
Sec. 804. Restoration of 80 percent deduction for meal expenses.

                   TITLE IX--INTERNATIONAL TAX RELIEF

Sec. 901. Interest allocation rules.
Sec. 902. Look-thru rules to apply to dividends from noncontrolled 
              section 902 corporations.
Sec. 903. Clarification of treatment of pipeline transportation income.
Sec. 904. Subpart F treatment of income from transmission of high 
              voltage electricity.
Sec. 905. Recharacterization of overall domestic loss.
Sec. 906. Treatment of military property of foreign sales corporations.
Sec. 907. Treatment of certain dividends of regulated investment 
              companies.
Sec. 908. Repeal of special rules for applying foreign tax credit in 
              case of foreign oil and gas income.
Sec. 909. Study of proper treatment of European Union under same 
              country exceptions.
Sec. 910. Application of denial of foreign tax credit with respect to 
              certain foreign countries.
Sec. 911. Advance pricing agreements treated as confidential taxpayer 
              information.
Sec. 912. Increase in dollar limitation on section 911 exclusion.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

Sec. 1001. Exemption from income tax for State-created organizations 
              providing property and casualty insurance for property 
              for which such coverage is otherwise unavailable.
Sec. 1002. Modification of special arbitrage rule for certain funds.
Sec. 1003. Charitable split-dollar life insurance, annuity, and 
              endowment contracts.
Sec. 1004. Exemption procedure from taxes on self-dealing.
Sec. 1005. Expansion of declaratory judgment remedy to tax-exempt 
              organizations.
Sec. 1006. Modifications to section 512(b)(13).

                    TITLE XI--REAL ESTATE PROVISIONS

    Subtitle A--Provisions Relating to Real Estate Investment Trusts

   Part I--Treatment of Income and Services Provided by Taxable REIT 
                              Subsidiaries

Sec. 1101. Modifications to asset diversification test.
Sec. 1102. Treatment of income and services provided by taxable REIT 
              subsidiaries.
Sec. 1103. Taxable REIT subsidiary.
Sec. 1104. Limitation on earnings stripping.
Sec. 1105. 100 percent tax on improperly allocated amounts.
Sec. 1106. Effective date.

                       Part II--Health Care REITs

Sec. 1111. Health care REITs.

      Part III--Conformity With Regulated Investment Company Rules

Sec. 1121. Conformity with regulated investment company rules.

 Part IV--Clarification of Exception From Impermissible Tenant Service 
                                 Income

Sec. 1131. Clarification of exception for independent operators.

           Part V--Modification of Earnings and Profits Rules

Sec. 1141. Modification of earnings and profits rules.

          Part VI--Study Relating to Taxable REIT Subsidiaries

Sec. 1151. Study relating to taxable REIT subsidiaries.

     Subtitle B--Modification of At-Risk Rules for Publicly Traded 
                               Securities

Sec. 1161. Treatment under at-risk rules of publicly traded nonrecourse 
              debt.

     Subtitle C--Treatment of Construction Allowances and Certain 
                 Contributions To Capital of Retailers

Sec. 1171. Exclusion from gross income of qualified lessee construction 
              allowances not limited for certain retailers to short-
              term leases.
Sec. 1172. Exclusion from gross income for certain contributions to the 
              capital of certain retailers.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

Sec. 1201. Increase in benefit and contribution limits.
Sec. 1202. Plan loans for subchapter S owners, partners, and sole 
              proprietors.
Sec. 1203. Modification of top-heavy rules.
Sec. 1204. Elective deferrals not taken into account for purposes of 
              deduction limits.
Sec. 1205. Reduced PBGC premium for new plans of small employers.
Sec. 1206. Reduction of additional PBGC premium for new and small 
              plans.
Sec. 1207. Repeal of coordination requirements for deferred 
              compensation plans of State and local governments and 
              tax-exempt organizations.
Sec. 1208. Elimination of user fee for requests to IRS regarding 
              pension plans.
Sec. 1209. Deduction limits.
Sec. 1210. Option to treat elective deferrals as after-tax 
              contributions.

                Subtitle B--Enhancing Fairness for Women

Sec. 1211. Additional salary reduction catch-up contributions.
Sec. 1212. Equitable treatment for contributions of employees to 
              defined contribution plans.
Sec. 1213. Faster vesting of certain employer matching contributions.
Sec. 1214. Simplify and update the minimum distribution rules.
Sec. 1215. Clarification of tax treatment of division of section 457 
              plan benefits upon divorce.

          Subtitle C--Increasing Portability for Participants

Sec. 1221. Rollovers allowed among various types of plans.
Sec. 1222. Rollovers of IRAs into workplace retirement plans.
Sec. 1223. Rollovers of after-tax contributions.
Sec. 1224. Hardship exception to 60-day rule.
Sec. 1225. Treatment of forms of distribution.
Sec. 1226. Rationalization of restrictions on distributions.
Sec. 1227. Purchase of service credit in governmental defined benefit 
              plans.
Sec. 1228. Employers may disregard rollovers for purposes of cash-out 
              amounts.
Sec. 1229. Minimum distribution and inclusion requirements for deferred 
              compensation plans of State and local governments.

       Subtitle D--Strengthening Pension Security and Enforcement

Sec. 1231. Repeal of 150 percent of current liability funding limit.
Sec. 1232. Maximum contribution deduction rules modified and applied to 
              all defined benefit plans.
Sec. 1233. Missing participants.
Sec. 1234. Excise tax relief for sound pension funding.
Sec. 1235. Excise tax on failure to provide notice by defined benefit 
              plans significantly reducing future benefit accruals.

                Subtitle E--Reducing Regulatory Burdens

Sec. 1241. Repeal of the multiple use test.
Sec. 1242. Modification of timing of plan valuations.
Sec. 1243. Flexibility and nondiscrimination and line of business 
              rules.
Sec. 1244. Substantial owner benefits in terminated plans.
Sec. 1245. ESOP dividends may be reinvested without loss of dividend 
              deduction.
Sec. 1246. Notice and consent period regarding distributions.
Sec. 1247. Repeal of transition rule relating to certain highly 
              compensated employees.
Sec. 1248. Employees of tax-exempt entities.

[[Page 17100]]

Sec. 1249. Clarification of treatment of employer-provided retirement 
              advice.
Sec. 1250. Provisions relating to plan amendments.
Sec. 1251. Model plans for small businesses.
Sec. 1252. Simplified annual filing requirement for plans with fewer 
              than 25 employees.
Sec. 1253. Intermediate sanctions for inadvertent failures.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

Sec. 1301. Exclusion for foster care payments to apply to payments by 
              qualified placement agencies.
Sec. 1302. Mileage reimbursements to charitable volunteers excluded 
              from gross income.
Sec. 1303. W-2 to include employer social security taxes.

         Subtitle B--Provisions Primarily Affecting Businesses

Sec. 1311. Distributions from publicly traded partnerships treated as 
              qualifying income of regulated investment companies.
Sec. 1312. Special passive activity rule for publicly traded 
              partnerships to apply to regulated investment companies.
Sec. 1313. Large electric trucks, vans, and buses eligible for 
              deduction for clean-fuel vehicles in lieu of credit.
Sec. 1314. Modifications to special rules for nuclear decommissioning 
              costs.
Sec. 1315. Consolidation of life insurance companies with other 
              corporations.

            Subtitle C--Provisions Relating to Excise Taxes

Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking 
              Underground Storage Tank Trust Fund.
Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by 
              railroads and on inland waterway transportation.
Sec. 1323. Repeal of excise tax on fishing tackle boxes.

                      Subtitle D--Other Provisions

Sec. 1331. Increase in volume cap on private activity bonds.
Sec. 1332. Tax treatment of Alaska Native Settlement Trusts.
Sec. 1333. Increase in threshold for Joint Committee reports on refunds 
              and credits.

                    Subtitle E--Tax Court Provisions

Sec. 1341. Tax Court filing fee in all cases commenced by filing 
              petition.
Sec. 1342. Expanded use of Tax Court practice fee.
Sec. 1343. Confirmation of authority of Tax Court to apply doctrine of 
              equitable recoupment.

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

Sec. 1401. Research credit.
Sec. 1402. Subpart F exemption for active financing income.
Sec. 1403. Taxable income limit on percentage depletion for marginal 
              production.
Sec. 1404. Work Opportunity Credit and Welfare-to-Work Credit.

                       TITLE XV--REVENUE OFFSETS

Sec. 1501. Returns relating to cancellations of indebtedness by 
              organizations lending money.
Sec. 1502. Extension of Internal Revenue Service user fees.
Sec. 1503. Limitations on welfare benefit funds of 10 or more employer 
              plans.
Sec. 1504. Increase in elective withholding rate for nonperiodic 
              distributions from deferred compensation plans.
Sec. 1505. Controlled entities ineligible for REIT status.
Sec. 1506. Treatment of gain from constructive ownership transactions.
Sec. 1507. Transfer of excess defined benefit plan assets for retiree 
              health benefits.
Sec. 1508. Modification of installment method and repeal of installment 
              method for accrual method taxpayers.

                    TITLE XVI--TECHNICAL CORRECTIONS

Sec. 1601. Amendments related to Tax and Trade Relief Extension Act of 
              1998.
Sec. 1602. Amendments related to Internal Revenue Service Restructuring 
              and Reform Act of 1998.
Sec. 1603. Amendments related to Taxpayer Relief Act of 1997.
Sec. 1604. Other technical corrections.
Sec. 1605. Clerical changes.

                    TITLE I--BROAD-BASED TAX RELIEF

    Subtitle A--10-Percent Reduction in Individual Income Tax Rates

     SEC. 101. 10-PERCENT REDUCTION IN INDIVIDUAL INCOME TAX 
                   RATES.

       (a) Regular Income Tax Rates.--
       (1) In general.--Subsection (f) of section 1 is amended by 
     adding at the end the following new paragraph:
       ``(8) Rate reductions.--In prescribing the tables under 
     paragraph (1) which apply with respect to taxable years 
     beginning in a calendar year after 2000, each rate in such 
     tables (without regard to this paragraph) shall be reduced by 
     the number of percentage points (rounded to the next lowest 
     tenth) equal to the applicable percentage (determined in 
     accordance with the following table) of such rate:

``For taxable years beginning in calendarThe applicable percentage is--
      2001 through 2004............................................2.5 
      2005 through 2007............................................5.0 
      2008.........................................................7.5 
      2009 and thereafter......................................10.0.'' 
       (2) Technical amendments.--
       (A) Subparagraph (B) of section 1(f)(2) is amended by 
     inserting ``except as provided in paragraph (8),'' before 
     ``by not changing''.
       (B) Subparagraph (C) of section 1(f)(2) is amended by 
     inserting ``and the reductions under paragraph (8) in the 
     rates of tax'' before the period.
       (C) The heading for subsection (f) of section 1 is amended 
     by inserting ``Rate Reductions;'' before ``Adjustments''.
       (D) Section 1(g)(7)(B)(ii)(II) is amended by striking ``15 
     percent'' and inserting ``the percentage applicable to the 
     lowest income bracket in subsection (c)''.
       (E) Subparagraphs (A)(ii)(I) and (B)(i) of section 1(h)(1) 
     are each amended by striking ``28 percent'' and inserting 
     ``25.2 percent''.
       (F) Section 531 is amended by striking ``39.6 percent of 
     the accumulated taxable income'' and inserting ``the product 
     of the accumulated taxable income and the percentage 
     applicable to the highest income bracket in section 1(c)''.
       (G) Section 541 is amended by striking ``39.6 percent of 
     the undistributed personal holding company income'' and 
     inserting ``the product of the undistributed personal holding 
     company income and the percentage applicable to the highest 
     income bracket in section 1(c)''.
       (H) Section 3402(p)(1)(B) is amended by striking 
     ``specified is 7, 15, 28, or 31 percent'' and all that 
     follows and inserting ``specified is--
       ``(i) 7 percent,
       ``(ii) a percentage applicable to 1 of the 3 lowest income 
     brackets in section 1(c), or
       ``(iii) such other percentage as is permitted under 
     regulations prescribed by the Secretary.''
       (I) Section 3402(p)(2) is amended by striking ``15 percent 
     of such payment'' and inserting ``the product of such payment 
     and the percentage applicable to the lowest income bracket in 
     section 1(c)''.
       (J) Section 3402(q)(1) is amended by striking ``28 percent 
     of such payment'' and inserting ``the product of such payment 
     and the percentage applicable to the next to the lowest 
     income bracket in section 1(c)''.
       (K) Section 3402(r)(3) is amended by striking ``31 
     percent'' and inserting ``the rate applicable to the third 
     income bracket in such section''.
       (L) Section 3406(a)(1) is amended by striking ``31 percent 
     of such payment'' and inserting ``the product of such payment 
     and the percentage applicable to the third income bracket in 
     section 1(c)''.
       (b) Minimum Tax Rates.--Subparagraph (A) of section 
     55(b)(1) is amended by adding at the end the following new 
     clause:
       ``(iv) Rate reduction.--In the case of taxable years 
     beginning after 2000, each rate in clause (i) (without regard 
     to this clause) shall be reduced by the number of percentage 
     points (rounded to the next lowest tenth) equal to the 
     applicable percentage (determined in accordance with section 
     1(f)(8)) of such rate.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

                Subtitle B--Marriage Penalty Tax Relief

     SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD 
                   DEDUCTION.

       (a) In General.--Paragraph (2) of section 63(c) (relating 
     to standard deduction) is amended--
       (1) by striking ``$5,000'' in subparagraph (A) and 
     inserting ``twice the dollar amount in effect under 
     subparagraph (C) for the taxable year'',
       (2) by adding ``or'' at the end of subparagraph (B),
       (3) by striking ``in the case of'' and all that follows in 
     subparagraph (C) and inserting ``in any other case.'', and
       (4) by striking subparagraph (D).
       (b) Phase-in.--Subsection (c) of section 63 is amended by 
     adding at the end the following new paragraph:
       ``(7) Phase-in of increase in basic standard deduction.--In 
     the case of taxable years beginning before January 1, 2003--
       ``(A) paragraph (2)(A) shall be applied by substituting for 
     `twice'--
       ``(i) `1.778 times' in the case of taxable years beginning 
     during 2001, and
       ``(ii) `1.889 times' in the case of taxable years beginning 
     during 2002, and
       ``(B) the basic standard deduction for a married individual 
     filing a separate return shall be one-half of the amount 
     applicable under paragraph (2)(A).


[[Page 17101]]


     If any amount determined under subparagraph (A) is not a 
     multiple of $50, such amount shall be rounded to the next 
     lowest multiple of $50.''.
       (c) Technical Amendments.--
       (1) Subparagraph (B) of section 1(f)(6) is amended by 
     striking ``(other than with'' and all that follows through 
     ``shall be applied'' and inserting ``(other than with respect 
     to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''.
       (2) Paragraph (4) of section 63(c) is amended by adding at 
     the end the following flush sentence:

     ``The preceding sentence shall not apply to the amount 
     referred to in paragraph (2)(A).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 112. ELIMINATION OF MARRIAGE PENALTY IN DEDUCTION FOR 
                   INTEREST ON EDUCATION LOANS.

       (a) In General.--Subparagraph (B) of section 221(b)(2) 
     (relating to limitation based on modified adjusted gross 
     income) is amended--
       (1) by striking ``$60,000'' in clause (i)(II) and inserting 
     ``twice such amount'', and
       (2) by inserting ``($30,000 in the case of a joint 
     return)'' after ``$15,000'' in clause (ii).
       (b) Conforming Amendment.--Paragraph (1) of section 221(g) 
     is amended by striking ``and $60,000 amounts in subsection 
     (b)(2) shall each'' and inserting ``amount in subsection 
     (b)(2) shall''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 113. ROLLOVER FROM REGULAR IRA TO ROTH IRA.

       (a) In General.--Clause (i) of section 408A(c)(3)(B) is 
     amended by inserting ``($160,000 in the case of a joint 
     return)'' after ``$100,000''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

     SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS.

       (a) In General.--Subsection (a) of section 55 is amended by 
     adding at the end the following new flush sentence:

     ``For purposes of this title, the tentative minimum tax on 
     any taxpayer other than a corporation for any taxable year 
     beginning after December 31, 2007, shall be zero.''
       (b) Reduction of Tax on Individuals Prior to Repeal.--
     Section 55 is amended by adding at the end the following new 
     subsection:
       ``(f) Phaseout of Tax on Individuals.--
       ``(1) In general.--The tax imposed by this section on a 
     taxpayer other than a corporation for any taxable year 
     beginning after December 31, 2002, and before January 1, 
     2008, shall be the applicable percentage of the tax which 
     would be imposed but for this subsection.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
    2003...........................................................80  
    2004...........................................................70  
    2005...........................................................60  
    2006 or 2007................................................50.''  
       (c) Nonrefundable Personal Credits Fully Allowed Against 
     Regular Tax Liability.--
       (1) In general.--Subsection (a) of section 26 (relating to 
     limitation based on amount of tax) is amended to read as 
     follows:
       ``(a) Limitation Based on Amount of Tax.--The aggregate 
     amount of credits allowed by this subpart for the taxable 
     year shall not exceed the taxpayer's regular tax liability 
     for the taxable year.''
       (2) Child credit.--Subsection (d) of section 24 is amended 
     by striking paragraph (2) and by redesignating paragraph (3) 
     as paragraph (2).
       (d) Limitation on Use of Credit for Prior Year Minimum Tax 
     Liability.--Subsection (c) of section 53 is amended to read 
     as follows:
       ``(c) Limitation.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the credit allowable under subsection (a) for any 
     taxable year shall not exceed the excess (if any) of--
       ``(A) the regular tax liability of the taxpayer for such 
     taxable year reduced by the sum of the credits allowable 
     under subparts A, B, D, E, and F of this part, over
       ``(B) the tentative minimum tax for the taxable year.
       ``(2) Taxable years beginning after 2007.--In the case of 
     any taxable year beginning after 2007, the credit allowable 
     under subsection (a) to a taxpayer other than a corporation 
     for any taxable year shall not exceed 90 percent of the 
     excess (if any) of--
       ``(A) regular tax liability of the taxpayer for such 
     taxable year, over
       ``(B) the sum of the credits allowable under subparts A, B, 
     D, E, and F of this part.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

       TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

     SEC. 201. EXEMPTION OF CERTAIN INTEREST AND DIVIDEND INCOME 
                   FROM TAX.

       (a) In General.--Part III of subchapter B of chapter 1 
     (relating to amounts specifically excluded from gross income) 
     is amended by inserting after section 115 the following new 
     section:

     ``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST 
                   RECEIVED BY INDIVIDUALS.

       ``(a) Exclusion From Gross Income.--Gross income does not 
     include dividends and interest otherwise includible in gross 
     income which are received during the taxable year by an 
     individual.
       ``(b) Limitations.--
       ``(1) Maximum amount.--The aggregate amount excluded under 
     subsection (a) for any taxable year shall not exceed--
       ``(A) in the case of any taxable year beginning in 2001 or 
     2002, $100 ($200 in the case of a joint return), and
       ``(B) in the case of any taxable year beginning after 2002, 
     $200 ($400 in the case of a joint return).
       ``(2) Certain dividends excluded.--Subsection (a) shall not 
     apply to any dividend from a corporation which for the 
     taxable year of the corporation in which the distribution is 
     made is a corporation exempt from tax under section 521 
     (relating to farmers' cooperative associations).
       ``(c) Special Rules.--For purposes of this section--
       ``(1) Exclusion not to apply to capital gain dividends from 
     regulated investment companies and real estate investment 
     trusts.--

  ``For treatment of capital gain dividends, see sections 854(a) and 
857(c).
       ``(2) Certain nonresident aliens ineligible for 
     exclusion.--In the case of a nonresident alien individual, 
     subsection (a) shall apply only in determining the taxes 
     imposed for the taxable year pursuant to sections 871(b)(1) 
     and 877(b).
       ``(3) Dividends from employee stock ownership plans.--
     Subsection (a) shall not apply to any dividend described in 
     section 404(k).''.
       (b) Conforming Amendments.--
       (1) Subparagraph (C) of section 32(c)(5) is amended by 
     striking ``or'' at the end of clause (i), by striking the 
     period at the end of clause (ii) and inserting ``; or'', and 
     by inserting after clause (ii) the following new clause:
       ``(iii) interest and dividends received during the taxable 
     year which are excluded from gross income under section 
     116.''.
       (2) Subparagraph (A) of section 32(i)(2) is amended by 
     inserting ``(determined without regard to section 116)'' 
     before the comma.
       (3) Subparagraph (B) of section 86(b)(2) is amended to read 
     as follows:
       ``(B) increased by the sum of--
       ``(i) the amount of interest received or accrued by the 
     taxpayer during the taxable year which is exempt from tax, 
     and
       ``(ii) the amount of interest and dividends received during 
     the taxable year which are excluded from gross income under 
     section 116.''.
       (4) Subsection (d) of section 135 is amended by 
     redesignating paragraph (4) as paragraph (5) and by inserting 
     after paragraph (3) the following new paragraph:
       ``(4) Coordination with section 116.--This section shall be 
     applied before section 116.''.
       (5) Paragraph (2) of section 265(a) is amended by inserting 
     before the period ``, or to purchase or carry obligations or 
     shares, or to make deposits, to the extent the interest 
     thereon is excludable from gross income under section 116''.
       (6) Subsection (c) of section 584 is amended by adding at 
     the end the following new flush sentence:

     ``The proportionate share of each participant in the amount 
     of dividends or interest received by the common trust fund 
     and to which section 116 applies shall be considered for 
     purposes of such section as having been received by such 
     participant.''.
       (7) Subsection (a) of section 643 is amended by 
     redesignating paragraph (7) as paragraph (8) and by inserting 
     after paragraph (6) the following new paragraph:
       ``(7) Dividends or interest.--There shall be included the 
     amount of any dividends or interest excluded from gross 
     income pursuant to section 116.''.
       (8) Section 854(a) is amended by inserting ``section 116 
     (relating to partial exclusion of dividends and interest 
     received by individuals) and'' after ``For purposes of''.
       (9) Section 857(c) is amended to read as follows:
       ``(c) Restrictions Applicable to Dividends Received From 
     Real Estate Investment Trusts.--
       ``(1) Treatment for section 116.--For purposes of section 
     116 (relating to partial exclusion of dividends and interest 
     received by individuals), a capital gain dividend (as defined 
     in subsection (b)(3)(C)) received from a real estate 
     investment trust which meets the requirements of this part 
     shall not be considered as a dividend.
       ``(2) Treatment for section 243.--For purposes of section 
     243 (relating to deductions for dividends received by 
     corporations), a dividend received from a real estate 
     investment trust which meets the requirements of this part 
     shall not be considered as a dividend.''.

[[Page 17102]]

       (10) The table of sections for part III of subchapter B of 
     chapter 1 is amended by inserting after the item relating to 
     section 115 the following new item:

``Sec. 116. Partial exclusion of dividends and interest received by 
              individuals.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 202. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES.

       (a) In General.--
       (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by 
     striking ``10 percent'' and inserting ``7.5 percent''.
       (2) The following sections are each amended by striking 
     ``20 percent'' and inserting ``15 percent'':
       (A) Section 1(h)(1)(C).
       (B) Section 55(b)(3)(C).
       (C) Section 1445(e)(1).
       (D) The second sentence of section 7518(g)(6)(A).
       (E) The second sentence of section 607(h)(6)(A) of the 
     Merchant Marine Act, 1936.
       (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended by 
     striking ``25 percent'' and inserting ``20 percent''.
       (b) Conforming Amendments.--
       (1) Section 311 of the Taxpayer Relief Act of 1997 is 
     amended by striking subsection (e).
       (2) Section 1(h) is amended--
       (A) by striking paragraphs (2), (9), and (13),
       (B) by redesignating paragraphs (3) through (8) as 
     paragraphs (2) through (7), respectively, and
       (C) by redesignating paragraphs (10), (11), and (12) as 
     paragraphs (8), (9), and (10), respectively.
       (3) Paragraph (3) of section 55(b) is amended by striking 
     ``In the case of taxable years beginning after December 31, 
     2000, rules similar to the rules of section 1(h)(2) shall 
     apply for purposes of subparagraphs (B) and (C).''.
       (4) Paragraph (7) of section 57(a) is amended--
       (A) by striking ``42 percent'' and inserting ``6 percent'', 
     and
       (B) by striking the last sentence.
       (c) Transitional Rules for Taxable Years Which Include July 
     1, 1999.--For purposes of applying section 1(h) of the 
     Internal Revenue Code of 1986 in the case of a taxable year 
     which includes July 1, 1999--
       (1) The amount of tax determined under subparagraph (B) of 
     section 1(h)(1) of such Code shall be the sum of--
       (A) 7.5 percent of the lesser of--
       (i) the net capital gain taking into account only gain or 
     loss properly taken into account for the portion of the 
     taxable year on or after such date (determined without regard 
     to collectibles gain or loss, gain described in section 
     (1)(h)(6)(A)(i) of such Code, and section 1202 gain), or
       (ii) the amount on which a tax is determined under such 
     subparagraph (without regard to this subsection), plus
       (B) 10 percent of the excess (if any) of--
       (i) the amount on which a tax is determined under such 
     subparagraph (without regard to this subsection), over
       (ii) the amount on which a tax is determined under 
     subparagraph (A).
       (2) The amount of tax determined under subparagraph (C) of 
     section (1)(h)(1) of such Code shall be the sum of--
       (A) 15 percent of the lesser of--
       (i) the excess (if any) of the amount of net capital gain 
     determined under subparagraph (A)(i) of paragraph (1) of this 
     subsection over the amount on which a tax is determined under 
     subparagraph (A) of paragraph (1) of this subsection, or
       (ii) the amount on which a tax is determined under such 
     subparagraph (C) (without regard to this subsection), plus
       (B) 20 percent of the excess (if any) of--
       (i) the amount on which a tax is determined under such 
     subparagraph (C) (without regard to this subsection), over
       (ii) the amount on which a tax is determined under 
     subparagraph (A) of this paragraph.
       (3) The amount of tax determined under subparagraph (D) of 
     section (1)(h)(1) of such Code shall be the sum of--
       (A) 20 percent of the lesser of--
       (i) the amount which would be determined under section 
     1(h)(6)(A)(i) of such Code taking into account only gain 
     properly taken into account for the portion of the taxable 
     year on or after such date, or
       (ii) the amount on which a tax is determined under such 
     subparagraph (D) (without regard to this subsection), plus  
       (B) 25 percent of the excess (if any) of--
       (i) the amount on which a tax is determined under such 
     subparagraph (D) (without regard to this subsection), over
       (ii) the amount on which a tax is determined under 
     subparagraph (A) of this paragraph.  
       (4) For purposes of applying section 55(b)(3) of such Code, 
     rules similar to the rules of paragraphs (1), (2), and (3) of 
     this subsection shall apply.
       (5) In applying this subsection with respect to any pass-
     thru entity, the determination of when gains and loss are 
     properly taken into account shall be made at the entity 
     level.
       (6) Terms used in this subsection which are also used in 
     section 1(h) of such Code shall have the respective meanings 
     that such terms have in such section.
       (d) Effective Dates.--
       (1) In general.--Except as otherwise provided by this 
     subsection, the amendments made by this section shall apply 
     to taxable years ending after June 30, 1999.
       (2) Withholding.--The amendment made by subsection 
     (a)(2)(C) shall apply to amounts paid after the date of the 
     enactment of this Act.
       (3) Small business stock.--The amendments made by 
     subsection (b)(4) shall apply to dispositions on or after 
     July 1, 1999.

     SEC. 203. CAPITAL GAINS TAX RATES APPLIED TO CAPITAL GAINS OF 
                   DESIGNATED SETTLEMENT FUNDS.

       (a) In General.--Paragraph (1) of section 468B(b) (relating 
     to taxation of designated settlement funds) is amended by 
     inserting ``(subject to section 1(h))'' after ``maximum 
     rate''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 204. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND 
                   FOREIGN SERVICE, AND OTHER EMPLOYEES, IN 
                   DETERMINING EXCLUSION OF GAIN FROM SALE OF 
                   PRINCIPAL RESIDENCE.

       (a) In General.--Subsection (d) of section 121 (relating to 
     exclusion of gain from sale of principal residence) is 
     amended by adding at the end the following new paragraphs:
       ``(9) Members of uniformed services and foreign service.--
       ``(A) In general.--The running of the 5-year period 
     described in subsection (a) shall be suspended with respect 
     to an individual during any time that such individual or such 
     individual's spouse is serving on qualified official extended 
     duty as a member of the uniformed services or of the Foreign 
     Service.
       ``(B) Qualified official extended duty.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified official extended 
     duty' means any period of extended duty as a member of the 
     uniformed services or a member of the Foreign Service during 
     which the member serves at a duty station which is at least 
     50 miles from such property or is under Government orders to 
     reside in Government quarters.
       ``(ii) Uniformed services.--The term `uniformed services' 
     has the meaning given such term by section 101(a)(5) of title 
     10, United States Code, as in effect on the date of the 
     enactment of the Financial Freedom Act of 1999.
       ``(iii) Foreign service of the united states.--The term 
     `member of the Foreign Service' has the meaning given the 
     term `member of the Service' by paragraph (1), (2), (3), (4), 
     or (5) of section 103 of the Foreign Service Act of 1980, as 
     in effect on the date of the enactment of the Financial 
     Freedom Act of 1999.
       ``(iv) Extended duty.--The term `extended duty' means any 
     period of active duty pursuant to a call or order to such 
     duty for a period in excess of 90 days or for an indefinite 
     period.
       ``(10) Other employees.--
       ``(A) In general.--The running of the 5-year period 
     described in subsection (a) shall be suspended with respect 
     to an individual during any time that such individual or such 
     individual's spouse is serving as an employee for a period in 
     excess of 90 days in an assignment by the such employee's 
     employer outside the United States.
       ``(B) Limitations and special rules.--
       ``(i) Maximum period of suspension.--The suspension under 
     subparagraph (A) with respect to a principal residence shall 
     not exceed (in the aggregate) 5 years.
       ``(ii) Members of uniformed services and foreign service.--
     Subparagraph (A) shall not apply to an individual to whom 
     paragraph (9) applies.
       ``(iii) Self-employed individual not considered an 
     employee.--For purposes of this paragraph, the term 
     `employee' does not include an individual who is an employee 
     within the meaning of section 401(c)(1) (relating to self-
     employed individuals).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales and exchanges after the date of the 
     enactment of this Act.

     SEC. 205. TREATMENT OF CERTAIN DEALER DERIVATIVE FINANCIAL 
                   INSTRUMENTS, HEDGING TRANSACTIONS, AND SUPPLIES 
                   AS ORDINARY ASSETS.

       (a) In General.--Section 1221 (defining capital assets) is 
     amended--
       (1) by striking ``For purposes'' and inserting the 
     following:
       ``(a) In General.--For purposes'',
       (2) by striking the period at the end of paragraph (5) and 
     inserting a semicolon, and
       (3) by adding at the end the following:
       ``(6) any commodities derivative financial instrument held 
     by a commodities derivatives dealer, unless--
       ``(A) it is established to the satisfaction of the 
     Secretary that such instrument has no connection to the 
     activities of such dealer as a dealer, and
       ``(B) such instrument is clearly identified in such 
     dealer's records as being described in subparagraph (A) 
     before the close of the day on which it was acquired, 
     originated, or entered into (or such other time as the 
     Secretary may by regulations prescribe);
       ``(7) any hedging transaction which is clearly identified 
     as such before the close of the day on which it was acquired, 
     originated,

[[Page 17103]]

     or entered into (or such other time as the Secretary may by 
     regulations prescribe); or
       ``(8) supplies of a type regularly used or consumed by the 
     taxpayer in the ordinary course of a trade or business of the 
     taxpayer.
       ``(b) Definitions and Special Rules.--
       ``(1) Commodities derivative financial instruments.--For 
     purposes of subsection (a)(6)--
       ``(A) Commodities derivatives dealer.--The term 
     `commodities derivatives dealer' means a person which 
     regularly offers to enter into, assume, offset, assign, or 
     terminate positions in commodities derivative financial 
     instruments with customers in the ordinary course of a trade 
     or business.
       ``(B) Commodities derivative financial instrument.--
       ``(i) In general.--The term `commodities derivative 
     financial instrument' means any contract or financial 
     instrument with respect to commodities (other than a share of 
     stock in a corporation, a beneficial interest in a 
     partnership or trust, a note, bond, debenture, or other 
     evidence of indebtedness, or a section 1256 contract (as 
     defined in section 1256(b)) the value or settlement price of 
     which is calculated by or determined by reference to a 
     specified index.
       ``(ii) Specified index.--The term `specified index' means 
     any one or more or any combination of--

       ``(I) a fixed rate, price, or amount, or
       ``(II) a variable rate, price, or amount,

     which is based on any current, objectively determinable 
     financial or economic information which is not within the 
     control of any of the parties to the contract or instrument 
     and is not unique to any of the parties' circumstances.
       ``(2) Hedging transaction.--
       ``(A) In general.--For purposes of this section, the term 
     `hedging transaction' means any transaction entered into by 
     the taxpayer in the normal course of the taxpayer's trade or 
     business primarily--
       ``(i) to manage risk of price changes or currency 
     fluctuations with respect to ordinary property which is held 
     or to be held by the taxpayer, or
       ``(ii) to manage risk of interest rate or price changes or 
     currency fluctuations with respect to borrowings made or to 
     be made, or ordinary obligations incurred or to be incurred, 
     by the taxpayer.
       ``(B) Treatment of nonidentification or improper 
     identification of hedging transactions.--Notwithstanding 
     subsection (a)(7), the Secretary shall prescribe regulations 
     to properly characterize of any income, gain, expense, or 
     loss arising from a transaction--
       ``(i) which is a hedging transaction but which was not 
     identified as such in accordance with subsection (a)(7), or
       ``(ii) which was so identified but is not a hedging 
     transaction.
       ``(3) Regulations.--The Secretary shall prescribe such 
     regulations as are appropriate to carry out the purposes of 
     paragraph (6) and (7) of subsection (a) in the case of 
     transactions involving related parties.''.
       (b) Management of Risk.--
       (1) Section 475(c)(3) is amended by striking ``reduces'' 
     and inserting ``manages''.
       (2) Section 871(h)(4)(C)(iv) is amended by striking ``to 
     reduce'' and inserting ``to manage''.
       (3) Clauses (i) and (ii) of section 988(d)(2)(A) are each 
     amended by striking ``to reduce'' and inserting ``to 
     manage''.
       (4) Paragraph (2) of section 1256(e) is amended to read as 
     follows:
       ``(2) Definition of hedging transaction.--For purposes of 
     this subsection, the term `hedging transaction' means any 
     hedging transaction (as defined in section 1221(b)(2)(A)) if, 
     before the close of the day on which such transaction was 
     entered into (or such earlier time as the Secretary may 
     prescribe by regulations), the taxpayer clearly identifies 
     such transaction as being a hedging transaction.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to any instrument held, acquired, or entered 
     into, any transaction entered into, and supplies held or 
     acquired on or after the date of enactment of this Act.

     SEC. 206. WORTHLESS SECURITIES OF FINANCIAL INSTITUTIONS.

       (a) In General.--The first sentence following section 
     165(g)(3)(B) (relating to securities of affiliated 
     corporation) is amended to read as follows: ``In computing 
     gross receipts for purposes of the preceding sentence, (i) 
     gross receipts from sales or exchanges of stocks and 
     securities shall be taken into account only to the extent of 
     gains therefrom, and (ii) gross receipts from royalties, 
     rents, dividends, interest, annuities, and gains from sales 
     or exchanges of stocks and securities derived from (or 
     directly related to) the conduct of an active trade or 
     business of an insurance company subject to tax under 
     subchapter L or a qualified financial institution (as defined 
     in subsection (l)(3)) shall be treated as from such sources 
     other than royalties, rents, dividends, interest, annuities, 
     and gains.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to securities which become worthless in taxable 
     years beginning after December 31, 1999.

     TITLE III--INCENTIVES FOR BUSINESS INVESTMENT AND JOB CREATION

     SEC. 301. REDUCTION IN CORPORATE CAPITAL GAIN TAX RATE.

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

     ``SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

       ``(a) General Rule.--If for any taxable year a corporation 
     has a net capital gain, then, in lieu of the tax imposed by 
     sections 11, 511, or 831(a) or (b), there is hereby imposed a 
     tax (if such tax is less than the tax imposed by such 
     sections) which shall consist of the sum of--
       ``(1) a tax computed on the taxable income reduced by the 
     net capital gain, at the rates and in the manner as if this 
     subsection had not been enacted, plus
       ``(2) the applicable percentage of the net capital gain 
     (or, if less, taxable income).
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2000.............................................................34  
  2001.............................................................33  
  2002.............................................................32  
  2003.............................................................31  
  2004.............................................................30  
  2005.............................................................29  
  2006.............................................................28  
  2007.............................................................27  
  2008.............................................................26  
  2009 and thereafter.............................................25.  
       ``(c) Cross References.--For computation of the alternative 
     tax--
       ``(1) in the case of life insurance companies, see section 
     801(a)(2),
       ``(2) in the case of regulated investment companies and 
     their shareholders, see section 852(b)(3)(A) and (D), and
       ``(3) in the case of real estate investment trusts, see 
     section 857(b)(3)(A).''
       (b) Technical Amendments.--
       (1) Paragraphs (1) and (2) of section 1445(e) are each 
     amended by striking ``35 percent'' and inserting ``the 
     applicable percentage determined under section 1201(b) for 
     the calendar year in which the payment is made''.
       (2)(A) The second sentence of section 7518(g)(6)(A) is 
     amended by striking ``34 percent'' and inserting ``the 
     applicable percentage (within the meaning of section 
     1201(b))''.
       (B) The second sentence of section 607(h)(6)(A) of the 
     Merchant Marine Act, 1936, is amended by striking ``34 
     percent'' and inserting ``the applicable percentage (within 
     the meaning of section 1201(b) of the Internal Revenue Code 
     of 1986)''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 1999.
       (2) Withholding.--The amendment made by subsection (b)(1) 
     shall apply to amounts paid after December 31, 1999.

     SEC. 302. REPEAL OF ALTERNATIVE MINIMUM TAX ON CORPORATIONS.

       (a) In General.--The last sentence of section 55(a), as 
     amended by section 121, is amended by striking ``on any 
     taxpayer other than a corporation''.
       (b) Repeal of 90 Percent Limitation on Foreign Tax 
     Credit.--
       (1) In general.--Section 59(a) (relating to alternative 
     minimum tax foreign tax credit) is amended by striking 
     paragraph (2) and by redesignating paragraphs (3) and (4) as 
     paragraphs (2) and (3), respectively.
       (2) Conforming amendment.--Section 53(d)(1)(B)(i)(II) is 
     amended by striking ``and if section 59(a)(2) did not 
     apply''.
       (c) Limitation on Use of Credit for Prior Year Minimum Tax 
     Liability.--
       (1) In general.--Subsection (c) of section 53, as amended 
     by section 121, is amended by redesignating paragraph (2) as 
     paragraph (3) and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Corporations for taxable years beginning after 
     2002.--In the case of corporation for any taxable year 
     beginning after 2002 and before 2008, the limitation under 
     paragraph (1) shall be increased by the applicable percentage 
     (determined in accordance with the following table) of the 
     tentative minimum tax for the taxable year.

``For taxable years beginning in calendarThe applicable percentage is--
  2003.............................................................20  
  2004.............................................................30  
  2005.............................................................40  
  2006 or 2007....................................................50.  
     In no event shall the limitation determined under this 
     paragraph be greater than the sum of the tax imposed by 
     section 55 and the regular tax reduced by the sum of the 
     credits allowed under subparts A, B, D, E, and F of this 
     part.''
       (2) Conforming amendment.--Section 55(e) is amended by 
     striking paragraph (5).
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraphs (2) and 
     (3), the amendments made by this section shall apply to 
     taxable years beginning after December 31, 2002.
       (2) Repeal of 90 percent limitation on foreign tax 
     credit.--The amendments made by subsection (b) shall apply to 
     taxable years beginning after December 31, 2001.
       (3) Subsection (c)(2).--The amendment made by subsection 
     (c)(2) shall apply to taxable years beginning after December 
     31, 2007.

[[Page 17104]]



                 TITLE IV--EDUCATION SAVINGS INCENTIVES

     SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT 
                   ACCOUNTS.

       (a) Maximum Annual Contributions.--
       (1) In general.--Section 530(b)(1)(A)(iii) (defining 
     education individual retirement account) is amended by 
     striking ``$500'' and inserting ``$2,000''.
       (2) Conforming amendment.--Section 4973(e)(1)(A) is amended 
     by striking ``$500'' and inserting ``$2,000''.
       (b) Tax-Free Expenditures for Elementary and Secondary 
     School Expenses.--
       (1) In general.--Section 530(b)(2) (defining qualified 
     higher education expenses) is amended to read as follows:
       ``(2) Qualified education expenses.--
       ``(A) In general.--The term `qualified education expenses' 
     means--
       ``(i) qualified higher education expenses (as defined in 
     section 529(e)(3)), and
       ``(ii) qualified elementary and secondary education 
     expenses (as defined in paragraph (4)).
       ``(B) Qualified state tuition programs.--Such term shall 
     include any contribution to a qualified State tuition program 
     (as defined in section 529(b)) on behalf of the designated 
     beneficiary (as defined in section 529(e)(1)); but there 
     shall be no increase in the investment in the contract for 
     purposes of applying section 72 by reason of any portion of 
     such contribution which is not includible in gross income by 
     reason of subsection (d)(2).''
       (2) Qualified elementary and secondary education 
     expenses.--Section 530(b) (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new paragraph:
       ``(4) Qualified elementary and secondary education 
     expenses.--
       ``(A) In general.--The term `qualified elementary and 
     secondary education expenses' means--
       ``(i) expenses for tuition, fees, academic tutoring, 
     special needs services, books, supplies, computer equipment 
     (including related software and services), and other 
     equipment which are incurred in connection with the 
     enrollment or attendance of the designated beneficiary of the 
     trust as an elementary or secondary school student at a 
     public, private, or religious school, and
       ``(ii) expenses for room and board, uniforms, 
     transportation, and supplementary items and services 
     (including extended day programs) which are required or 
     provided by a public, private, or religious school in 
     connection with such enrollment or attendance.
       ``(B) Special rule for homeschooling.--Such term shall 
     include expenses described in subparagraph (A)(i) in 
     connection with education provided by homeschooling if the 
     requirements of any applicable State or local law are met 
     with respect to such education.
       ``(C) School.--The term `school' means any school which 
     provides elementary education or secondary education 
     (kindergarten through grade 12), as determined under State 
     law.''
       (3) Conforming amendments.--Section 530 is amended--
       (A) by striking ``higher'' each place it appears in 
     subsections (b)(1) and (d)(2), and
       (B) by striking ``higher'' in the heading for subsection 
     (d)(2).
       (c) Waiver of Age Limitations for Children With Special 
     Needs.--Section 530(b)(1) (defining education individual 
     retirement account) is amended by adding at the end the 
     following flush sentence:

     ``The age limitations in subparagraphs (A)(ii) and (E) and 
     paragraphs (5) and (6) of subsection (d) shall not apply to 
     any designated beneficiary with special needs (as determined 
     under regulations prescribed by the Secretary).''
       (d) Entities Permitted To Contribute to Accounts.--Section 
     530(c)(1) (relating to reduction in permitted contributions 
     based on adjusted gross income) is amended by striking ``The 
     maximum amount which a contributor'' and inserting ``In the 
     case of a contributor who is an individual, the maximum 
     amount the contributor''.
       (e) Time When Contributions Deemed Made.--
       (1) In general.--Section 530(b) (relating to definitions 
     and special rules), as amended by subsection (b)(2), is 
     amended by adding at the end the following new paragraph:
       ``(5) Time when contributions deemed made.--An individual 
     shall be deemed to have made a contribution to an education 
     individual retirement account on the last day of the 
     preceding taxable year if the contribution is made on account 
     of such taxable year and is made not later than the time 
     prescribed by law for filing the return for such taxable year 
     (not including extensions thereof).''
       (2) Extension of time to return excess contributions.--
     Subparagraph (C) of section 530(d)(4) (relating to additional 
     tax for distributions not used for educational expenses) is 
     amended--
       (A) by striking clause (i) and inserting the following new 
     clause:
       ``(i) such distribution is made before the 1st day of the 
     6th month of the taxable year following the taxable year, 
     and'', and
       (B) by striking ``due date of return'' in the heading and 
     inserting ``certain date''.
       (f) Coordination With Hope and Lifetime Learning Credits 
     and Qualified Tuition Programs.--
       (1) In general.--Section 530(d)(2)(C) is amended to read as 
     follows:
       ``(C) Coordination with hope and lifetime learning credits 
     and qualified tuition programs.--For purposes of subparagraph 
     (A)--
       ``(i) Credit coordination.--The total amount of qualified 
     higher education expenses with respect to an individual for 
     the taxable year shall be reduced--

       ``(I) as provided in section 25A(g)(2), and
       ``(II) by the amount of such expenses which were taken into 
     account in determining the credit allowed to the taxpayer or 
     any other person under section 25A.

       ``(ii) Coordination with qualified tuition programs.--If, 
     with respect to an individual for any taxable year--

       ``(I) the aggregate distributions during such year to which 
     subparagraph (A) and section 529(c)(3)(B) apply, exceed
       ``(II) the total amount of qualified education expenses 
     (after the application of clause (i)) for such year,

     the taxpayer shall allocate such expenses among such 
     distributions for purposes of determining the amount of the 
     exclusion under subparagraph (A) and section 529(c)(3)(B).''
       (2) Conforming amendments.--
       (A) Subsection (e) of section 25A is amended to read as 
     follows:
       ``(e) Election Not To Have Section Apply.--A taxpayer may 
     elect not to have this section apply with respect to the 
     qualified tuition and related expenses of an individual for 
     any taxable year.''
       (B) Section 135(d)(2)(A) is amended by striking 
     ``allowable'' and inserting ``allowed''.
       (C) Section 530(d)(2)(D) is amended--
       (i) by striking ``or credit'', and
       (ii) by striking ``credit or'' in the heading.
       (D) Section 4973(e)(1) is amended by adding ``and'' at the 
     end of subparagraph (A), by striking subparagraph (B), and by 
     redesignating subparagraph (C) as subparagraph (B).
       (g) Renaming Education Individual Retirement Accounts as 
     Education Savings Accounts.--
       (1) In general.--
       (A) Section 530 (as amended by the preceding provisions of 
     this section) is amended by striking ``education individual 
     retirement account'' each place it appears and inserting 
     ``education savings account''.
       (B) The heading for paragraph (1) of section 530(b) is 
     amended by striking ``Education individual retirement 
     account'' and inserting ``Education savings account''.
       (C) The heading for section 530 is amended to read as 
     follows:

     ``SEC. 530. EDUCATION SAVINGS ACCOUNTS.''.

       (D) The item in the table of contents for part VII of 
     subchapter F of chapter 1 relating to section 530 is amended 
     to read as follows:

``Sec. 530. Education savings accounts.''.
       (2) Conforming amendments.--
       (A) The following provisions are each amended by striking 
     ``education individual retirement'' each place it appears and 
     inserting ``education savings'':
       (i) Section 25A(e)(2).
       (ii) Section 26(b)(2)(E).
       (iii) Section 72(e)(9).
       (iv) Section 135(c)(2)(C).
       (v) Subsections (a) and (e) of section 4973.
       (vi) Subsections (c) and (e) of section 4975.
       (vii) Section 6693(a)(2)(D).
       (B) The headings for each of the following provisions are 
     amended by striking ``education individual retirement 
     accounts'' each place it appears and inserting ``education 
     savings accounts''.
       (i) Section 72(e)(9).
       (ii) Section 135(c)(2)(C).
       (iii) Section 4973(e).
       (iv) Section 4975(c)(5).
       (h) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2000.
       (2) Subsection (g).--The amendments made by subsection (g) 
     shall take effect on the date of the enactment of this Act.

     SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

       (a) Eligible Educational Institutions Permitted To Maintain 
     Qualified Tuition Programs.--
       (1) In general.--Section 529(b)(1) (defining qualified 
     State tuition program) is amended by inserting ``or by 1 or 
     more eligible educational institutions'' after ``maintained 
     by a State or agency or instrumentality thereof ''.
       (2) Private qualified tuition programs limited to benefit 
     plans.--Clause (ii) of section 529(b)(1)(A) is amended by 
     inserting ``in the case of a program established and 
     maintained by a State or agency or instrumentality thereof,'' 
     before ``may make''.
       (3) Conforming amendments.--
       (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 
     530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are each amended by 
     striking ``qualified State tuition'' each place it appears 
     and inserting ``qualified tuition''.
       (B) The headings for sections 72(e)(9) and 135(c)(2)(C) are 
     each amended by striking ``qualified state tuition'' and 
     inserting ``qualified tuition''.
       (C) The headings for sections 529(b) and 530(b)(2)(B) are 
     each amended by striking

[[Page 17105]]

     ``Qualified state tuition'' and inserting ``Qualified 
     tuition''.
       (D) The heading for section 529 is amended by striking 
     ``state''.
       (E) The item relating to section 529 in the table of 
     sections for part VIII of subchapter F of chapter 1 is 
     amended by striking ``State''.
       (b) Exclusion From Gross Income of Education Distributions 
     From Qualified Tuition Programs.--
       (1) In general.--Section 529(c)(3)(B) (relating to 
     distributions) is amended to read as follows:
       ``(B) Distributions for qualified higher education 
     expenses.--
       ``(i) In general.--For purposes of this paragraph--

       ``(I) no amount shall be includible in gross income under 
     subparagraph (A) by reason of a distribution which consists 
     of providing a benefit to the distributee which, if paid for 
     by the distributee, would constitute payment of a qualified 
     higher education expense, and
       ``(II) in the case of distributions not described in 
     subclause (I), the amount otherwise includible in gross 
     income under subparagraph (A) shall be reduced by an amount 
     which bears the same ratio to the otherwise includible amount 
     as the qualified higher education expenses (other than 
     expenses paid by distributions described in subclause (I)) 
     bear to the aggregate of such distributions.

       ``(ii) Exception for institutional programs.--In the case 
     of any taxable year beginning before January 1, 2004, clause 
     (i) shall not apply with respect to any distribution during 
     such taxable year under a qualified tuition program 
     established and maintained by 1 or more eligible educational 
     institutions.
       ``(iii) In-kind distributions.--Any benefit furnished to a 
     designated beneficiary under a qualified tuition program 
     shall be treated as a distribution to the beneficiary for 
     purposes of this paragraph.
       ``(iv) Coordination with hope and lifetime learning 
     credits.--The total amount of qualified higher education 
     expenses with respect to an individual for the taxable year 
     shall be reduced--

       ``(I) as provided in section 25A(g)(2), and
       ``(II) by the amount of such expenses which were taken into 
     account in determining the credit allowed to the taxpayer or 
     any other person under section 25A.

       ``(v) Coordination with education savings accounts.--If, 
     with respect to an individual for any taxable year--

       ``(I) the aggregate distributions to which clause (i) and 
     section 530(d)(2)(A) apply, exceed
       ``(II) the total amount of qualified higher education 
     expenses otherwise taken into account under clause (i) (after 
     the application of clause (iv)) for such year,

     the taxpayer shall allocate such expenses among such 
     distributions for purposes of determining the amount of the 
     exclusion under clause (i) and section 530(d)(2)(A).''
       (2) Conforming amendments.--
       (A) Section 135(d)(2)(B) is amended by striking ``the 
     exclusion under section 530(d)(2)'' and inserting ``the 
     exclusions under sections 529(c)(3)(B)(i) and 530(d)(2)''.
       (B) Section 221(e)(2)(A) is amended by inserting ``529,'' 
     after ``135,''.
       (c) Rollover to Different Program for Benefit of Same 
     Designated Beneficiary.--Section 529(c)(3)(C) (relating to 
     change in beneficiaries) is amended--
       (1) by striking ``transferred to the credit'' in clause (i) 
     and inserting ``transferred--

       ``(I) to another qualified tuition program for the benefit 
     of the designated beneficiary, or
       ``(II) to the credit'',

       (2) by adding at the end the following new clause:
       ``(iii) Limitation on certain rollovers.--Clause (i)(I) 
     shall not apply to any amount transferred with respect to a 
     designated beneficiary if, at any time during the 1-year 
     period ending on the day of such transfer, any other amount 
     was transferred which was not includible in gross income by 
     reason of clause (i)(I).'', and
       (3) by inserting ``or programs'' after ``beneficiaries'' in 
     the heading.
       (d) Member of Family Includes First Cousin.--Section 
     529(e)(2) (defining member of family) is amended by striking 
     ``and'' at the end of subparagraph (B), by striking the 
     period at the end of subparagraph (C) and by inserting ``; 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(D) any first cousin of such beneficiary.''
       (e) Definition of Qualified Higher Education Expenses.--
       (1) In general.--Subparagraph (A) of section 529(e)(3) 
     (relating to definition of qualified higher education 
     expenses) is amended to read as follows:
       ``(A) In general.--The term `qualified higher education 
     expenses' means--
       ``(i) tuition and fees required for the enrollment or 
     attendance of a designated beneficiary at an eligible 
     educational institution for courses of instruction of such 
     beneficiary at such institution, and
       ``(ii) expenses for books, supplies, and equipment which 
     are incurred in connection with such enrollment or 
     attendance, but not to exceed the allowance for books and 
     supplies included in the cost of attendance (as defined in 
     section 472 of the Higher Education Act of 1965 (20 U.S.C. 
     1087ll), as in effect on the date of enactment of the 
     Financial Freedom Act of 1999) as determined by the eligible 
     educational institution.''.
       (2) Exception for education involving sports, etc.--
     Paragraph (3) of section 529(e) (relating to qualified higher 
     education expenses) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Exception for education involving sports, etc.--The 
     term `qualified higher education expenses' shall not include 
     expenses with respect to any course or other education 
     involving sports, games, or hobbies unless such course or 
     other education is part of the beneficiary's degree program 
     or is taken to acquire or improve job skills of the 
     beneficiary.''.
       (f) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2000.
       (2) Qualified higher education expenses.--The amendments 
     made by subsection (e) shall apply to amounts paid for 
     education furnished after December 31, 1999.

     SEC. 403. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE 
                   NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP 
                   PROGRAM, THE F. EDWARD HEBERT ARMED FORCES 
                   HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL 
                   ASSISTANCE PROGRAM, AND CERTAIN OTHER PROGRAMS.

       (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,
       ``(B) the Armed Forces Health Professions Scholarship and 
     Financial Assistance program under subchapter I of chapter 
     105 of title 10, United States Code,
       ``(C) the National Institutes of Health Undergraduate 
     Scholarship program under section 487D of the Public Health 
     Service Act, or
       ``(D) any State program determined by the Secretary to have 
     substantially similar objectives as such programs.''
       (b) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by subsection (a) shall apply to amounts 
     received in taxable years beginning after December 31, 1993.
       (2) State programs.--Section 117(c)(2)(D) of the Internal 
     Revenue Code of 1986 (as added by the amendments made by 
     subsection (a)) shall apply to amounts received in taxable 
     years beginning after December 31, 1999.

     SEC. 404. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION 
                   FOR GOVERNMENTAL BONDS USED TO FINANCE 
                   EDUCATIONAL FACILITIES.

       (a) In General.--Section 148(f)(4)(D)(vii) (relating to 
     increase in exception for bonds financing public school 
     capital expenditures) is amended by striking ``$5,000,000'' 
     the second place it appears and inserting ``$10,000,000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to obligations issued in calendar years beginning 
     after December 31, 1999.

     SEC. 405. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE 
                   TO PUBLIC SCHOOL CONSTRUCTION BONDS.

       (a) In General.--Subparagraph (C) of section 148(f)(4) is 
     amended by adding at the end the following new clause:
       ``(xviii) 4-year spending requirement for public school 
     construction issue.--

       ``(I) In general.--In the case of a public school 
     construction issue, the spending requirements of clause (ii) 
     shall be treated as met if at least 10 percent of the 
     available construction proceeds of the construction issue are 
     spent for the governmental purposes of the issue within the 
     1-year period beginning on the date the bonds are issued, 30 
     percent of such proceeds are spent for such purposes within 
     the 2-year period beginning on such date, 60 percent of such 
     proceeds are spent for such purposes within the 3-year period 
     beginning on such date, and 100 percent of such proceeds are 
     spent for such purposes within the 4-year period beginning on 
     such date.
       ``(II) Public school construction issue.--For purposes of 
     this clause, the term `public school construction issue' 
     means any construction issue if no bond which is part of such 
     issue is a private activity bond and all of the available 
     construction proceeds of such issue are to be used for the 
     construction (as defined in clause (iv)) of public school 
     facilities to provide education or training below the 
     postsecondary level or for the acquisition of land that is 
     functionally related and subordinate to such facilities.
       ``(III) Other rules to apply.--Rules similar to the rules 
     of the preceding provisions of

[[Page 17106]]

     this subparagraph which apply to clause (ii) also apply to 
     this clause.''.

       (b) Effective Date.--The amendment made by this section 
     shall apply to obligations issued after December 31, 1999.

     SEC. 406. REPEAL OF 60-MONTH LIMITATION ON DEDUCTION FOR 
                   INTEREST ON EDUCATION LOANS.

       (a) In General.--Section 221 (relating to interest on 
     education loans) is amended by striking subsection (d) and by 
     redesignating subsections (e), (f), and (g) as subsections 
     (d), (e), and (f), respectively.
       (b) Conforming Amendment.--Subsection (e) of section 6050S 
     is amended by striking ``section 221(e)(1)'' and inserting 
     ``section 221(d)(1)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to loan interest payments made after December 31, 
     1999, in taxable years ending after such date.

                    TITLE V--HEALTH CARE PROVISIONS

     SEC. 501. DEDUCTION FOR HEALTH AND LONG-TERM CARE INSURANCE 
                   COSTS OF INDIVIDUALS NOT PARTICIPATING IN 
                   EMPLOYER-SUBSIDIZED HEALTH PLANS.

       (a) In General.--Part VII of subchapter B of chapter 1 is 
     amended by redesignating section 222 as section 223 and by 
     inserting after section 221 the following new section:

     ``SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE COSTS.

       ``(a) In General.--In the case of an individual, there 
     shall be allowed as a deduction an amount equal to the 
     applicable percentage of the amount paid during the taxable 
     year for insurance which constitutes medical care for the 
     taxpayer, the taxpayer's spouse, and dependents.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning                            The applicable
  in calendar year--                                    percentage is--
  2001.............................................................25  
  2002.............................................................40  
  2003, 2004, 2005, and 2006.......................................50  
  2007.............................................................75  
  2008 and thereafter............................................100.  
       ``(c) Limitation Based on Other Coverage.--
       ``(1) Coverage under certain subsidized employer plans.--
       ``(A) In general.--Subsection (a) shall not apply to any 
     taxpayer for any calendar month for which the taxpayer 
     participates in any health plan maintained by any employer of 
     the taxpayer or of the spouse of the taxpayer if 50 percent 
     or more of the cost of coverage under such plan (determined 
     under section 4980B) is paid or incurred by the employer.
       ``(B) Employer contributions to cafeteria plans, flexible 
     spending arrangements, and medical savings accounts.--
     Employer contributions to a cafeteria plan, a flexible 
     spending or similar arrangement, or a medical savings account 
     which are excluded from gross income under section 106 shall 
     be treated for purposes of subparagraph (A) as paid by the 
     employer.
       ``(C) Aggregation of plans of employer.--A health plan 
     which is not otherwise described in subparagraph (A) shall be 
     treated as described in such subparagraph if such plan would 
     be so described if all health plans of persons treated as a 
     single employer under subsections (b), (c), (m), or (o) of 
     section 414 were treated as one health plan.
       ``(D) Separate application to health insurance and long-
     term care insurance.--Subparagraphs (A) and (C) shall be 
     applied separately with respect to--
       ``(i) plans which include primarily coverage for qualified 
     long-term care services or are qualified long-term care 
     insurance contracts, and
       ``(ii) plans which do not include such coverage and are not 
     such contracts.
       ``(2) Coverage under certain federal programs.--
       ``(A) In general.--Subsection (a) shall not apply to any 
     amount paid for any coverage for an individual for any 
     calendar month if, as of the first day of such month, the 
     individual is covered under any medical care program 
     described in--
       ``(i) title XVIII, XIX, or XXI of the Social Security Act,
       ``(ii) chapter 55 of title 10, United States Code,
       ``(iii) chapter 17 of title 38, United States Code,
       ``(iv) chapter 89 of title 5, United States Code, or
       ``(v) the Indian Health Care Improvement Act.
       ``(B) Exceptions.--
       ``(i) Qualified long-term care.--Subparagraph (A) shall not 
     apply to amounts paid for coverage under a qualified long-
     term care insurance contract.
       ``(ii) Continuation coverage of fehbp.--Subparagraph 
     (A)(iv) shall not apply to coverage which is comparable to 
     continuation coverage under section 4980B.
       ``(d) Long-Term Care Deduction Limited to Qualified Long-
     Term Care Insurance Contracts.--In the case of a qualified 
     long-term care insurance contract, only eligible long-term 
     care premiums (as defined in section 213(d)(10)) may be taken 
     into account under subsection (a).
       ``(e) Special Rules.--
       ``(1) Coordination with deduction for health insurance 
     costs of self-employed individuals.--The amount taken into 
     account by the taxpayer in computing the deduction under 
     section 162(l) shall not be taken into account under this 
     section.
       ``(2) Coordination with medical expense deduction.--The 
     amount taken into account by the taxpayer in computing the 
     deduction under this section shall not be taken into account 
     under section 213.''
       (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
     Other Deductions.--Subsection (a) of section 62 is amended by 
     inserting after paragraph (17) the following new item:
       ``(18) Health and long-term care insurance costs.--The 
     deduction allowed by section 222.''
       (c) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 222. Health and long-term care insurance costs.
``Sec. 223. Cross reference.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 502. LONG-TERM CARE INSURANCE PERMITTED TO BE OFFERED 
                   UNDER CAFETERIA PLANS AND FLEXIBLE SPENDING 
                   ARRANGEMENTS.

       (a) Cafeteria Plans.--Subsection (f) of section 125 
     (defining qualified benefits) is amended by inserting before 
     the period at the end ``unless such product is a qualified 
     long-term care insurance contract (as defined in section 
     7702B)''.
       (b) Flexible Spending Arrangements.--Section 106 (relating 
     to contributions by employer to accident and health plans) is 
     amended by striking subsection (c).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 503. EXPANSION OF AVAILABILITY OF MEDICAL SAVINGS 
                   ACCOUNTS.

       (a) Repeal of Limitations on Number of Medical Savings 
     Accounts.--
       (1) In general.--Subsections (i) and (j) of section 220 are 
     hereby repealed.
       (2) Conforming amendment.--Paragraph (1) of section 220(c) 
     is amended by striking subparagraph (D).
       (b) All Employers May Offer Medical Savings Accounts.--
       (1) In general.--Subclause (I) of section 220(c)(1)(A)(iii) 
     (defining eligible individual) is amended by striking ``and 
     such employer is a small employer''.
       (2) Conforming amendments.--
       (A) Paragraph (1) of section 220(c) is amended by striking 
     subparagraph (C).
       (B) Subsection (c) of section 220 is amended by striking 
     paragraph (4) and by redesignating paragraph (5) as paragraph 
     (4).
       (c) Increase in Amount of Deduction Allowed for 
     Contributions to Medical Savings Accounts.--
       (1) In general.--Paragraph (2) of section 220(b) is amended 
     to read as follows:
       ``(2) Monthly limitation.--The monthly limitation for any 
     month is the amount equal to \1/12\ of the annual deductible 
     (as of the first day of such month) of the individual's 
     coverage under the high deductible health plan.''.
       (2) Conforming amendment.--Clause (ii) of section 
     220(d)(1)(A) is amended by striking ``75 percent of''.
       (d) Both Employers and Employees May Contribute to Medical 
     Savings Accounts.--Paragraph (5) of section 220(b) is amended 
     to read as follows:
       ``(5) Coordination with exclusion for employer 
     contributions.--The limitation which would (but for this 
     paragraph) apply under this subsection to the taxpayer for 
     any taxable year shall be reduced (but not below zero) by the 
     amount which would (but for section 106(b)) be includible in 
     the taxpayer's gross income for such taxable year.''.
       (e) Reduction of Permitted Deductibles Under High 
     Deductible Health Plans.--
       (1) In general.--Subparagraph (A) of section 220(c)(2) 
     (defining high deductible health plan) is amended--
       (A) by striking ``$1,500'' in clause (i) and inserting 
     ``$1,000'', and
       (B) by striking ``$3,000'' in clause (ii) and inserting 
     ``$2,000''.
       (2) Conforming amendment.--Subsection (g) of section 220 is 
     amended to read as follows:
       ``(g) Cost-of-Living Adjustment.--
       ``(1) In general.--In the case of any taxable year 
     beginning in a calendar year after 1998, each dollar amount 
     in subsection (c)(2) 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 the calendar year in which such taxable 
     year begins by substituting `calendar year 1997' for 
     `calendar year 1992' in subparagraph (B) thereof.
       ``(2) Special rules.--In the case of the $1,000 amount in 
     subsection (c)(2)(A)(i) and the $2,000 amount in subsection 
     (c)(2)(A)(ii), paragraph (1)(B) shall be applied by 
     substituting `calendar year 1999' for `calendar year 1997'.
       ``(3) Rounding.--If any increase under paragraph (1) or (2) 
     is not a multiple of $50, such increase shall be rounded to 
     the nearest multiple of $50.
       (f) Medical Savings Accounts May Be Offered Under Cafeteria 
     Plans.--Subsection

[[Page 17107]]

     (f) of section 125 is amended by striking ``106(b),''.
       (g) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 504. ADDITIONAL PERSONAL EXEMPTION FOR TAXPAYER CARING 
                   FOR ELDERLY FAMILY MEMBER IN TAXPAYER'S HOME.

       (a) In General.--Section 151 (relating to allowance of 
     deductions for personal exemptions) is amended by adding at 
     the end redesignating subsection (e) as subsection (f) and by 
     inserting after subsection (d) the following new subsection:
       ``(e) Additional Exemption for Certain Elderly Family 
     Members Residing With Taxpayer.--
       ``(1) In general.--An exemption of the exemption amount for 
     each qualified family member of the taxpayer.
       ``(2) Qualified family member.--For purposes of this 
     subsection, the term `qualified family member' means, with 
     respect to any taxable year, any individual--
       ``(A) who is an ancestor of the taxpayer or of the 
     taxpayer's spouse or who is the spouse of any such ancestor,
       ``(B) who is a member for the entire taxable year of a 
     household maintained by the taxpayer, and
       ``(C) who has been certified, before the due date for 
     filing the return of tax for the taxable year (without 
     extensions), by a physician (as defined in section 1861(r)(1) 
     of the Social Security Act) as being an individual with long-
     term care needs described in paragraph (3) for a period--
       ``(i) which is at least 180 consecutive days, and
       ``(ii) a portion of which occurs within the taxable year.

     Such term shall not include any individual otherwise meeting 
     the requirements of the preceding sentence unless within the 
     39\1/2\ month period ending on such due date (or such other 
     period as the Secretary prescribes) a physician (as so 
     defined) has certified that such individual meets such 
     requirements.
       ``(3) Individuals with long-term care needs.--An individual 
     is described in this paragraph if the individual--
       ``(A) is unable to perform (without substantial assistance 
     from another individual) at least 2 activities of daily 
     living (as defined in section 7702B(c)(2)(B)) due to a loss 
     of functional capacity, or
       ``(B) requires substantial supervision to protect such 
     individual from threats to health and safety due to severe 
     cognitive impairment and is unable to perform, without 
     reminding or cuing assistance, at least 1 activity of at 
     least 1 activity of daily living (as so defined) or to the 
     extent provided in regulations prescribed by the Secretary 
     (in consultation with the Secretary of Health and Human 
     Services), is unable to engage in age appropriate activities.
       ``(4) Special rules.--Rules similar to the rules of 
     paragraphs (1), (2), (3), (4), and (5) of section 21(e) shall 
     apply for purposes of this subsection.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 505. EXPANDED HUMAN CLINICAL TRIALS QUALIFYING FOR 
                   ORPHAN DRUG CREDIT.

       (a) In General.--Subclause (I) of section 45C(b)(2)(A)(ii) 
     is amended to read as follows:

       ``(I) after the date that the application is filed for 
     designation under such section 526, and''.

       (b) Conforming Amendment.--Clause (i) of section 
     45C(b)(2)(A) is amended by inserting ``which is'' before 
     ``being'' and by inserting before the comma at the end ``and 
     which is designated under section 526 of such Act''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after December 31, 
     1999.

     SEC. 506. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS 
                   PNEUMONIAE TO LIST OF TAXABLE VACCINES.

       (a) In General.--Section 4132(a)(1) (defining taxable 
     vaccine) is amended by adding at the end the following new 
     subparagraph:
       ``(L) Any conjugate vaccine against streptococcus 
     pneumoniae.''
       (b) Effective Date.--
       (1) Sales.--The amendment made by this section shall apply 
     to vaccine sales beginning on the day after the date on which 
     the Centers for Disease Control makes a final recommendation 
     for routine administration to children of any conjugate 
     vaccine against streptococcus pneumoniae.
       (2) Deliveries.--For purposes of paragraph (1), in the case 
     of sales on or before the date described in such paragraph 
     for which delivery is made after such date, the delivery date 
     shall be considered the sale date.
       (c) Report.--Not later than 1 year after the date of the 
     enactment of this Act, the Comptroller General of the United 
     States shall prepare and submit a report to the Committee on 
     Ways and Means of the House of Representatives and the 
     Committee on Finance of the Senate on the operation of the 
     Vaccine Injury Compensation Trust Fund and on the adequacy of 
     such Fund to meet future claims made under the Vaccine Injury 
     Compensation Program.

                      TITLE VI--ESTATE TAX RELIEF

  Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; 
                  Repeal of Step Up in Basis At Death

     SEC. 601. REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING 
                   TAXES.

       (a) In General.--Subtitle B is hereby repealed.
       (b) Effective Date.--The repeal made by subsection (a) 
     shall apply to the estates of decedents dying, and gifts and 
     generation-skipping transfers made, after December 31, 2008.

     SEC. 602. TERMINATION OF STEP UP IN BASIS AT DEATH.

       (a) Termination of Application of Section 1014.--Section 
     1014 (relating to basis of property acquired from a decedent) 
     is amended by adding at the end the following:
       ``(f) Termination.--In the case of a decedent dying after 
     December 31, 2008, this section shall not apply to property 
     for which basis is provided by section 1022.''
       (b) Conforming Amendment.--Subsection (a) of section 1016 
     (relating to adjustments to basis) 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:
       ``(28) to the extent provided in section 1022 (relating to 
     basis for certain property acquired from a decedent dying 
     after December 31, 2008).''

     SEC. 603. CARRYOVER BASIS AT DEATH.

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

     ``SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED 
                   FROM A DECEDENT DYING AFTER DECEMBER 31, 2008.

       ``(a) Carryover Basis.--Except as otherwise provided in 
     this section, the basis of carryover basis property in the 
     hands of a person acquiring such property from a decedent 
     shall be determined under section 1015.
       ``(b) Carryover Basis Property Defined.--
       ``(1) In general.--For purposes of this section, the term 
     `carryover basis property' means any property--
       ``(A) which is acquired from or passed from a decedent who 
     died after December 31, 2008, and
       ``(B) which is not excluded pursuant to paragraph (2).
     The property taken into account under subparagraph (A) shall 
     be determined under section 1014(b) without regard to 
     subparagraph (A) of the last sentence of paragraph (9) 
     thereof.
       ``(2) Certain property not carryover basis property.--The 
     term `carryover basis property' does not include--
       ``(A) any item of gross income in respect of a decedent 
     described in section 691,
       ``(B) property which was acquired from the decedent by the 
     surviving spouse of the decedent, the value of which would 
     have been deductible from the value of the taxable estate of 
     the decedent under section 2056, as in effect on the day 
     before the date of enactment of the Financial Freedom Act of 
     1999, and
       ``(C) any includible property of the decedent if the 
     aggregate adjusted fair market value of such property does 
     not exceed $2,000,000.

     For purposes of this paragraph and paragraph (3), the term 
     `adjusted fair market value' means, with respect to any 
     property, fair market value reduced by any indebtedness 
     secured by such property.
       ``(3) Phasein of carryover basis if includible property 
     exceeds $1,300,000.--
       ``(A) In general.--If the adjusted fair market value of the 
     includible property of the decedent exceeds $1,300,000, but 
     does not exceed $2,000,000, the amount of the increase in the 
     basis of such property which would (but for this paragraph) 
     result under section 1014 shall be reduced by the amount 
     which bears the same ratio to such increase as such excess 
     bears to $700,000.
       ``(B) Allocation of reduction.--The reduction under 
     subparagraph (A) shall be allocated among only the includible 
     property having net appreciation and shall be allocated in 
     proportion to the respective amounts of such net 
     appreciation. For purposes of the preceding sentence, the 
     term `net appreciation' means the excess of the adjusted fair 
     market value over the decedent's adjusted basis immediately 
     before such decedent's death.
       ``(4) Includible property.--
       ``(A) In general.--For purposes of this subsection, the 
     term `includible property' means property which would be 
     included in the gross estate of the decedent under any of the 
     following provisions as in effect on the day before the date 
     of the enactment of the Financial Freedom Act of 1999:
       ``(i) Section 2033.
       ``(ii) Section 2038.
       ``(iii) Section 2040.
       ``(iv) Section 2041.
       ``(v) Section 2042(a)(1).
       ``(B) Exclusion of property acquired by spouse.--Such term 
     shall not include property described in paragraph (2)(B).
       ``(c) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this section.''
       (b) Miscellaneous Amendments Related To Carryover Basis.--
       (1) Capital gain treatment for inherited art work or 
     similar property.--

[[Page 17108]]

       (A) In general.--Subparagraph (C) of section 1221(3) 
     (defining capital asset) is amended by inserting ``(other 
     than by reason of section 1022)'' after ``is determined''.
       (B) Coordination with section 170.--Paragraph (1) of 
     section 170(e) (relating to certain contributions of ordinary 
     income and capital gain property) is amended by adding at the 
     end the following: ``For purposes of this paragraph, the 
     determination of whether property is a capital asset shall be 
     made without regard to the exception contained in section 
     1221(3)(C) for basis determined under section 1022.''
       (2) Definition of Executor.--Section 7701(a) (relating to 
     definitions) is amended by adding at the end the following:
       ``(47) Executor.--The term `executor' means the executor or 
     administrator of the decedent, or, if there is no executor or 
     administrator appointed, qualified, and acting within the 
     United States, then any person in actual or constructive 
     possession of any property of the decedent.''
       (3) Clerical amendment.--The table of sections for part II 
     of subchapter O of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 1022. Carryover basis for certain property acquired from a 
              decedent dying after December 31, 2008.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     2008.

  Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal

     SEC. 611. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

       (a) Maximum Rate of Tax Reduced to 50 Percent.--The table 
     contained in section 2001(c)(1) is amended by striking the 2 
     highest brackets and inserting the following:

$1,025,800, plus 50% of the excess over $2,500,000.''..................
       (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) 
     of section 2001 is amended by striking paragraph (2).
       (c) Additional Reductions of Rates of Tax.--Subsection (c) 
     of section 2001, as amended by subsection (b), is amended by 
     adding at the end the following new paragraph:
       ``(2) Phasedown of tax.--In the case of estates of 
     decedents dying, and gifts made, during any calendar year 
     after 2001 and before 2009--
       ``(A) In general.--Except as provided in subparagraph (C), 
     the tentative tax under this subsection shall be determined 
     by using a table prescribed by the Secretary (in lieu of 
     using the table contained in paragraph (1)) which is the same 
     as such table; except that--
       ``(i) each of the rates of tax shall be reduced by the 
     number of percentage points determined under subparagraph 
     (B), and
       ``(ii) the amounts setting forth the tax shall be adjusted 
     to the extent necessary to reflect the adjustments under 
     clause (i).
       ``(B) Percentage points of reduction.--

                                                        The number of  
    ``For calendar year:                          percentage points is:
      2002..........................................................1  
      2003..........................................................2  
      2004..........................................................3  
      2005..........................................................5  
      2006..........................................................7  
      2007..........................................................9  
      2008........................................................11.  
       ``(C) Coordination with income tax rates.--The reductions 
     under subparagraph (A)--
       ``(i) shall not reduce any rate under paragraph (1) below 
     the lowest rate in section 1(c), and
       ``(ii) shall not reduce the highest rate under paragraph 
     (1) below the highest rate in section 1(c).
       ``(D) Coordination with credit for state death taxes.--
     Rules similar to the rules of subparagraph (A) shall apply to 
     the table contained in section 2011(b) except that the 
     Secretary shall prescribe percentage point reductions which 
     maintain the proportionate relationship (as in effect before 
     any reduction under this paragraph) between the credit under 
     section 2011 and the tax rates under subsection (c).''
       (d) Effective Dates.--
       (1) Subsections (a) and (b).--The amendments made by 
     subsections (a) and (b) shall apply to estates of decedents 
     dying, and gifts made, after December 31, 2000.
       (2) Subsection (c).--The amendment made by subsection (c) 
     shall apply to estates of decedents dying, and gifts made, 
     after December 31, 2001.

   Subtitle C--Unified Credit Replaced With Unified Exemption Amount

     SEC. 621. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES 
                   REPLACED WITH UNIFIED EXEMPTION AMOUNT.

       (a) In General.--
       (1) Estate tax.--Part IV of subchapter A of chapter 11 is 
     amended by inserting after section 2051 the following new 
     section:

     ``SEC. 2052. EXEMPTION.

       ``(a) In general.--For purposes of the tax imposed by 
     section 2001, the value of the taxable estate shall be 
     determined by deducting from the value of the gross estate an 
     amount equal to the excess (if any) of--
       ``(1) the exemption amount for the calendar year in which 
     the decedent died, over
       ``(2) the sum of--
       ``(A) the aggregate amount allowed as an exemption under 
     section 2521 with respect to gifts made by the decedent after 
     December 31, 2000, and
       ``(B) the aggregate amount of gifts made by the decedent 
     for which credit was allowed by section 2505 (as in effect on 
     the day before the date of the enactment of the Financial 
     Freedom Act of 1999).

     Gifts which are includible in the gross estate of the 
     decedent shall not be taken into account in determining the 
     amounts under paragraph (2).
       ``(b) Exemption Amount.--For purposes of subsection (a), 
     the term `exemption amount' means the amount determined in 
     accordance with the following table:

                                                       ``IThe exemption
                                                         caleamount is:
      2001....................................................$675,000 
      2002 and 2003...........................................$700,000 
      2004....................................................$850,000 
      2005....................................................$950,000 
      2006 or thereafter..................................$1,000,000.''
       (2) Gift tax.--Subchapter C of chapter 12 (relating to 
     deductions) is amended by inserting before section 2522 the 
     following new section:

     ``SEC. 2521. EXEMPTION.

       ``(a) In General.--In computing taxable gifts for any 
     calendar year, there shall be allowed as a deduction in the 
     case of a citizen or resident of the United States an amount 
     equal to the excess of--
       ``(1) the exemption amount determined under section 2052 
     for such calendar year, over
       ``(2) the sum of--
       ``(A) the aggregate amount allowed as an exemption under 
     this section for all preceding calendar years after 2000, and
       ``(B) the aggregate amount of gifts for which credit was 
     allowed by section 2505 (as in effect on the day before the 
     date of the enactment of the Financial Freedom Act of 
     1999).''
       (b) Repeal of Unified Credits.--
       (1) Section 2010 (relating to unified credit against estate 
     tax) is hereby repealed.
       (2) Section 2505 (relating to unified credit against gift 
     tax) is hereby repealed.
       (c) Conforming Amendments.--
       (1)(A) Subparagraph (B) of section 2001(b)(1) is amended by 
     inserting before the comma ``reduced by the amount of 
     described in section 2052(a)(2)''.
       (B) Subsection (b) of section 2001 is amended by adding at 
     the end the following new sentence: ``For purposes of 
     paragraph (2), the amount of the tax payable under chapter 12 
     shall be determined without regard to the credit provided by 
     section 2505 (as in effect on the day before the date of the 
     enactment of the Financial Freedom Act of 1999).''
       (2) Subsection (f) of section 2011 is amended by striking 
     ``, reduced by the amount of the unified credit provided by 
     section 2010''.
       (3) Subsection (a) of section 2012 is amended by striking 
     ``and the unified credit provided by section 2010''.
       (4) Subsection (b) of section 2013 is amended by inserting 
     before the period at the end of the first sentence ``and 
     increased by the exemption allowed under section 2052 or 
     2106(a)(4) (or the corresponding provisions of prior law) in 
     determining the taxable estate of the transferor for purposes 
     of the estate tax''.
       (5) Subparagraph (A) of section 2013(c)(1) is amended by 
     striking ``2010,''.
       (6) Paragraph (2) of section 2014(b) is amended by striking 
     ``2010,''.
       (7) Clause (ii) of section 2056A(b)(12)(C) is amended to 
     read as follows:
       ``(ii) to treat any reduction in the tax imposed by 
     paragraph (1)(A) by reason of the credit allowable under 
     section 2010 (as in effect on the day before the date of the 
     enactment of the Financial Freedom Act of 1999) or the 
     exemption allowable under section 2052 with respect to the 
     decedent as such a credit or exemption (as the case may be) 
     allowable to such surviving spouse for purposes of 
     determining the amount of the exemption allowable under 
     section 2521 with respect to taxable gifts made by the 
     surviving spouse during the year in which the spouse becomes 
     a citizen or any subsequent year,''.
       (8) Section 2102 is amended by striking subsection (c).
       (9) Subsection (a) of section 2106 is amended by adding at 
     the end the following new paragraph:
       ``(4) Exemption.--
       ``(A) In general.--An exemption of $60,000.
       ``(B) Residents of possessions of the United States.--In 
     the case of a decedent who is considered to be a nonresident 
     not a citizen of the United States under section 2209, the 
     exemption under this paragraph shall be the greater of--
       ``(i) $60,000, or
       ``(ii) that proportion of $175,000 which the value of that 
     part of the decedent's gross estate which at the time of his 
     death is situated in the United States bears to the value of 
     his entire gross estate wherever situated.
       ``(C) Special rules.--
       ``(i) Coordination with treaties.--To the extent required 
     under any treaty obligation of the United States, the 
     exemption allowed under this paragraph shall be equal to the 
     amount which bears the same ratio to the exemption amount 
     under section 2052 (for the calendar year in which the 
     decedent died) as the value of the part of the decedent's 
     gross estate which at the time of his

[[Page 17109]]

     death is situated in the United States bears to the value of 
     his entire gross estate wherever situated. For purposes of 
     the preceding sentence, property shall not be treated as 
     situated in the United States if such property is exempt from 
     the tax imposed by this subchapter under any treaty 
     obligation of the United States.
       ``(ii) Coordination with gift tax exemption and unified 
     credit.--If an exemption has been allowed under section 2521 
     (or a credit has been allowed under section 2505 as in effect 
     on the day before the date of the enactment of the Financial 
     Freedom Act of 1999) with respect to any gift made by the 
     decedent, each dollar amount contained in subparagraph (A) or 
     (B) or the exemption amount applicable under clause (i) of 
     this subparagraph (whichever applies) shall be reduced by the 
     exemption so allowed under 2521 (or, in the case of such a 
     credit, by the amount of the gift for which the credit was so 
     allowed).''
       (10) Subsection (c) of section 2107 is amended--
       (A) by striking paragraph (1) and by redesignating 
     paragraphs (2) and (3) as paragraphs (1) and (2), 
     respectively, and
       (B) by striking the second sentence of paragraph (2) (as so 
     redesignated).
       (11) Section 2206 is amended by striking ``the taxable 
     estate'' in the first sentence and inserting ``the sum of the 
     taxable estate and the amount of the exemption allowed under 
     section 2052 or 2106(a)(4) in computing the taxable estate''.
       (12) Section 2207 is amended by striking ``the taxable 
     estate'' in the first sentence and inserting ``the sum of the 
     taxable estate and the amount of the exemption allowed under 
     section 2052 or 2106(a)(4) in computing the taxable estate''.
       (13) Subparagraph (B) of section 2207B(a)(1) is amended to 
     read as follows:
       ``(B) the sum of the taxable estate and the amount of the 
     exemption allowed under section 2052 or 2106(a)(4) in 
     computing the taxable estate.''
       (14) Subsection (a) of section 2503 is amended by striking 
     ``section 2522'' and inserting ``section 2521''.
       (15) Paragraph (1) of section 6018(a) is amended by 
     striking ``$600,000'' and inserting ``the exemption amount 
     under section 2052 for the calendar year which includes the 
     date of death''.
       (16) Subparagraph (A) of section 6601(j)(2) is amended to 
     read as follows:
       ``(A) the amount of the tax which would be imposed by 
     chapter 11 on an amount of taxable estate equal to the excess 
     of $1,000,000 over the exemption amount allowable under 
     section 2052, or''.
       (17) The table of sections for part II of subchapter A of 
     chapter 11 is amended by striking the item relating to 
     section 2010.
       (18) The table of sections for subchapter A of chapter 12 
     is amended by striking the item relating to section 2505.
       (d) Effective Date.--The amendments made by this section--
       (1) insofar as they relate to the tax imposed by chapter 11 
     of the Internal Revenue Code of 1986, shall apply to estates 
     of decedents dying after December 31, 2000, and
       (2) insofar as they relate to the tax imposed by chapter 12 
     of such Code, shall apply to gifts made after December 31, 
     2000.

     Subtitle D--Modifications of Generation-Skipping Transfer Tax

     SEC. 631. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME 
                   TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS.

       (a) In General.--Section 2632 (relating to special rules 
     for allocation of GST exemption) is amended by redesignating 
     subsection (c) as subsection (e) and by inserting after 
     subsection (b) the following new subsections:
       ``(c) Deemed Allocation to Certain Lifetime Transfers to 
     GST Trusts.--
       ``(1) In general.--If any individual makes an indirect skip 
     during such individual's lifetime, any unused portion of such 
     individual's GST exemption shall be allocated to the property 
     transferred to the extent necessary to make the inclusion 
     ratio for such property zero. If the amount of the indirect 
     skip exceeds such unused portion, the entire unused portion 
     shall be allocated to the property transferred.
       ``(2) Unused portion.--For purposes of paragraph (1), the 
     unused portion of an individual's GST exemption is that 
     portion of such exemption which has not previously been--
       ``(A) allocated by such individual,
       ``(B) treated as allocated under subsection (b) with 
     respect to a direct skip occurring during or before the 
     calendar year in which the indirect skip is made, or
       ``(C) treated as allocated under paragraph (1) with respect 
     to a prior indirect skip.
       ``(3) Definitions.--
       ``(A) Indirect skip.--For purposes of this subsection, the 
     term `indirect skip' means any transfer of property (other 
     than a direct skip) subject to the tax imposed by chapter 12 
     made to a GST trust.
       ``(B) GST trust.--The term `GST trust' means a trust that 
     could have a generation-skipping transfer with respect to the 
     transferor unless--
       ``(i) the trust instrument provides that more than 25 
     percent of the trust corpus must be distributed to or may be 
     withdrawn by 1 or more individuals who are non-skip persons--

       ``(I) before the date that the individual attains age 46,
       ``(II) on or before 1 or more dates specified in the trust 
     instrument that will occur before the date that such 
     individual attains age 46, or
       ``(III) upon the occurrence of an event that, in accordance 
     with regulations prescribed by the Secretary, may reasonably 
     be expected to occur before the date that such individual 
     attains age 46;

       ``(ii) the trust instrument provides that more than 25 
     percent of the trust corpus must be distributed to or may be 
     withdrawn by 1 or more individuals who are non-skip persons 
     and who are living on the date of death of another person 
     identified in the instrument (by name or by class) who is 
     more than 10 years older than such individuals;
       ``(iii) the trust instrument provides that, if 1 or more 
     individuals who are non-skip persons die on or before a date 
     or event described in clause (i) or (ii), more than 25 
     percent of the trust corpus either must be distributed to the 
     estate or estates of 1 or more of such individuals or is 
     subject to a general power of appointment exercisable by 1 or 
     more of such individuals;
       ``(iv) the trust is a trust any portion of which would be 
     included in the gross estate of a non-skip person (other than 
     the transferor) if such person died immediately after the 
     transfer;
       ``(v) the trust is a charitable lead annuity trust (within 
     the meaning of section 2642(e)(3)(A)) or a charitable 
     remainder annuity trust or a charitable remainder unitrust 
     (within the meaning of section 664(d)); or
       ``(vi) the trust is a trust with respect to which a 
     deduction was allowed under section 2522 for the amount of an 
     interest in the form of the right to receive annual payments 
     of a fixed percentage of the net fair market value of the 
     trust property (determined yearly) and which is required to 
     pay principal to a non-skip person if such person is alive 
     when the yearly payments for which the deduction was allowed 
     terminate.

     For purposes of this subparagraph, the value of transferred 
     property shall not be considered to be includible in the 
     gross estate of a non-skip person or subject to a right of 
     withdrawal by reason of such person holding a right to 
     withdraw so much of such property as does not exceed the 
     amount referred to in section 2503(b) with respect to any 
     transferor, and it shall be assumed that powers of 
     appointment held by non-skip persons will not be exercised.
       ``(4) Automatic allocations to certain gst trusts.--For 
     purposes of this subsection, an indirect skip to which 
     section 2642(f) applies shall be deemed to have been made 
     only at the close of the estate tax inclusion period. The 
     fair market value of such transfer shall be the fair market 
     value of the trust property at the close of the estate tax 
     inclusion period.
       ``(5) Applicability and effect.--
       ``(A) In general.--An individual--
       ``(i) may elect to have this subsection not apply to--

       ``(I) an indirect skip, or
       ``(II) any or all transfers made by such individual to a 
     particular trust, and

       ``(ii) may elect to treat any trust as a GST trust for 
     purposes of this subsection with respect to any or all 
     transfers made by such individual to such trust.
       ``(B) Elections.--
       ``(i) Elections with respect to indirect skips.--An 
     election under subparagraph (A)(i)(I) shall be deemed to be 
     timely if filed on a timely filed gift tax return for the 
     calendar year in which the transfer was made or deemed to 
     have been made pursuant to paragraph (4) or on such later 
     date or dates as may be prescribed by the Secretary.
       ``(ii) Other elections.--An election under clause (i)(II) 
     or (ii) of subparagraph (A) may be made on a timely filed 
     gift tax return for the calendar year for which the election 
     is to become effective.
       ``(d) Retroactive Allocations.--
       ``(1) In general.--If--
       ``(A) a non-skip person has an interest or a future 
     interest in a trust to which any transfer has been made,
       ``(B) such person--
       ``(i) is a lineal descendant of a grandparent of the 
     transferor or of a grandparent of the transferor's spouse or 
     former spouse, and
       ``(ii) is assigned to a generation below the generation 
     assignment of the transferor, and
       ``(C) such person predeceases the transferor,

     then the transferor may make an allocation of any of such 
     transferor's unused GST exemption to any previous transfer or 
     transfers to the trust on a chronological basis.
       ``(2) Special rules.--If the allocation under paragraph (1) 
     by the transferor is made on a gift tax return filed on or 
     before the date prescribed by section 6075(b) for gifts made 
     within the calendar year within which the non-skip person's 
     death occurred--
       ``(A) the value of such transfer or transfers for purposes 
     of section 2642(a) shall be determined as if such allocation 
     had been made on

[[Page 17110]]

     a timely filed gift tax return for each calendar year within 
     which each transfer was made,
       ``(B) such allocation shall be effective immediately before 
     such death, and
       ``(C) the amount of the transferor's unused GST exemption 
     available to be allocated shall be determined immediately 
     before such death.
       ``(3) Future interest.--For purposes of this subsection, a 
     person has a future interest in a trust if the trust may 
     permit income or corpus to be paid to such person on a date 
     or dates in the future.''.
       (b) Conforming Amendment.--Paragraph (2) of section 2632(b) 
     is amended by striking ``with respect to a direct skip'' and 
     inserting ``or subsection (c)(1)''.
       (c) Effective Dates.--
       (1) Deemed allocation.--Section 2632(c) of the Internal 
     Revenue Code of 1986 (as added by subsection (a)), and the 
     amendment made by subsection (b), shall apply to transfers 
     subject to chapter 11 or 12 made after December 31, 1999, and 
     to estate tax inclusion periods ending after December 31, 
     1999.
       (2) Retroactive allocations.--Section 2632(d) of the 
     Internal Revenue Code of 1986 (as added by subsection (a)) 
     shall apply to deaths of non-skip persons occurring after the 
     date of the enactment of this Act.

     SEC. 632. SEVERING OF TRUSTS.

       (a) In General.--Subsection (a) of section 2642 (relating 
     to inclusion ratio) is amended by adding at the end the 
     following new paragraph:
       ``(3) Severing of trusts.--
       ``(A) In general.--If a trust is severed in a qualified 
     severance, the trusts resulting from such severance shall be 
     treated as separate trusts thereafter for purposes of this 
     chapter.
       ``(B) Qualified severance.--For purposes of subparagraph 
     (A)--
       ``(i) In general.--The term `qualified severance' means the 
     division of a single trust and the creation (by any means 
     available under the governing instrument or under local law) 
     of 2 or more trusts if--

       ``(I) the single trust was divided on a fractional basis, 
     and
       ``(II) the terms of the new trusts, in the aggregate, 
     provide for the same succession of interests of beneficiaries 
     as are provided in the original trust.

       ``(ii) Trusts with inclusion ratio greater than zero.--If a 
     trust has an inclusion ratio of greater than zero and less 
     than 1, a severance is a qualified severance only if the 
     single trust is divided into 2 trusts, one of which receives 
     a fractional share of the total value of all trust assets 
     equal to the applicable fraction of the single trust 
     immediately before the severance. In such case, the trust 
     receiving such fractional share shall have an inclusion ratio 
     of zero and the other trust shall have an inclusion ratio of 
     1.
       ``(iii) Regulations.--The term `qualified severance' 
     includes any other severance permitted under regulations 
     prescribed by the Secretary.
       ``(C) Timing and manner of severances.--A severance 
     pursuant to this paragraph may be made at any time. The 
     Secretary shall prescribe by forms or regulations the manner 
     in which the qualified severance shall be reported to the 
     Secretary.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to severances after the date of the enactment of 
     this Act.

     SEC. 633. MODIFICATION OF CERTAIN VALUATION RULES.

       (a) Gifts for Which Gift Tax Return Filed or Deemed 
     Allocation Made.--Paragraph (1) of section 2642(b) (relating 
     to valuation rules, etc.) is amended to read as follows:
       ``(1) Gifts for which gift tax return filed or deemed 
     allocation made.--If the allocation of the GST exemption to 
     any transfers of property is made on a gift tax return filed 
     on or before the date prescribed by section 6075(b) for such 
     transfer or is deemed to be made under section 2632 (b)(1) or 
     (c)(1)--
       ``(A) the value of such property for purposes of subsection 
     (a) shall be its value as finally determined for purposes of 
     chapter 12 (within the meaning of section 2001(f)(2)), or, in 
     the case of an allocation deemed to have been made at the 
     close of an estate tax inclusion period, its value at the 
     time of the close of the estate tax inclusion period, and
       ``(B) such allocation shall be effective on and after the 
     date of such transfer, or, in the case of an allocation 
     deemed to have been made at the close of an estate tax 
     inclusion period, on and after the close of such estate tax 
     inclusion period.''.
       (b) Transfers at Death.--Subparagraph (A) of section 
     2642(b)(2) is amended to read as follows:
       ``(A) Transfers at death.--If property is transferred as a 
     result of the death of the transferor, the value of such 
     property for purposes of subsection (a) shall be its value as 
     finally determined for purposes of chapter 11; except that, 
     if the requirements prescribed by the Secretary respecting 
     allocation of post-death changes in value are not met, the 
     value of such property shall be determined as of the time of 
     the distribution concerned.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the amendments made by 
     section 1431 of the Tax Reform Act of 1986.

     SEC. 634. RELIEF PROVISIONS.

       (a) In General.--Section 2642 is amended by adding at the 
     end the following new subsection:
       ``(g) Relief Provisions.--
       ``(1) Relief for late elections.--
       ``(A) In general.--The Secretary shall by regulation 
     prescribe such circumstances and procedures under which 
     extensions of time will be granted to make--
       ``(i) an allocation of GST exemption described in paragraph 
     (1) or (2) of subsection (b), and
       ``(ii) an election under subsection (b)(3) or (c)(5) of 
     section 2632.
     Such regulations shall include procedures for requesting 
     comparable relief with respect to transfers made before the 
     date of enactment of this paragraph.
       ``(B) Basis for determinations.--In determining whether to 
     grant relief under this paragraph, the Secretary shall take 
     into account all relevant circumstances, including evidence 
     of intent contained in the trust instrument or instrument of 
     transfer and such other factors as the Secretary deems 
     relevant. For purposes of determining whether to grant relief 
     under this paragraph, the time for making the allocation (or 
     election) shall be treated as if not expressly prescribed by 
     statute.
       ``(2) Substantial compliance.--An allocation of GST 
     exemption under section 2632 that demonstrates an intent to 
     have the lowest possible inclusion ratio with respect to a 
     transfer or a trust shall be deemed to be an allocation of so 
     much of the transferor's unused GST exemption as produces the 
     lowest possible inclusion ratio. In determining whether there 
     has been substantial compliance, all relevant circumstances 
     shall be taken into account, including evidence of intent 
     contained in the trust instrument or instrument of transfer 
     and such other factors as the Secretary deems relevant.''.
       (b) Effective Dates.--
       (1) Relief for late elections.--Section 2642(g)(1) of the 
     Internal Revenue Code of 1986 (as added by subsection (a)) 
     shall apply to requests pending on, or filed after, the date 
     of the enactment of this Act.
       (2) Substantial compliance.--Section 2642(g)(2) of such 
     Code (as so added) shall take effect on the date of the 
     enactment of this Act and shall apply to allocations made 
     prior to such date for purposes of determining the tax 
     consequences of generation-skipping transfers with respect to 
     which the period of time for filing claims for refund has not 
     expired. No negative implication is intended with respect to 
     the availability of relief for late elections or the 
     application of a rule of substantial compliance prior to the 
     enactment of this amendment.

    TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

     SEC. 701. SHORT TITLE.

       This subtitle may be cited as the ``American Community 
     Renewal Act of 1999''.

     SEC. 702. DESIGNATION OF AND TAX INCENTIVES FOR RENEWAL 
                   COMMUNITIES.

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

                  ``Subchapter X--Renewal Communities

``Part I.   Designation.
``Part II.  Renewal community capital gain; renewal community business.
``Part III. Family development accounts.
``Part IV.  Additional incentives.

                         ``PART I--DESIGNATION

``Sec. 1400E. Designation of renewal communities.

     ``SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.

       ``(a) Designation.--
       ``(1) Definitions.--For purposes of this title, the term 
     `renewal community' 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 community (hereinafter in this 
     section referred to as a `nominated area'); and
       ``(B) which the Secretary of Housing and Urban Development 
     designates as a renewal community, after consultation with--
       ``(i) the Secretaries of Agriculture, Commerce, Labor, and 
     the Treasury; the Director of the Office of Management and 
     Budget; and the Administrator of the Small Business 
     Administration; and
       ``(ii) in the case of an area on an Indian reservation, the 
     Secretary of the Interior.
       ``(2) Number of designations.--
       ``(A) In general.--The Secretary of Housing and Urban 
     Development may designate not more than 20 nominated areas as 
     renewal communities.
       ``(B) Minimum designation in rural areas.--Of the areas 
     designated under paragraph (1), at least 4 must be areas--
       ``(i) which are within a local government jurisdiction or 
     jurisdictions with a population of less than 50,000,
       ``(ii) which are outside of a metropolitan statistical area 
     (within the meaning of section 143(k)(2)(B)), or
       ``(iii) which are determined by the Secretary of Housing 
     and Urban Development, after consultation with the Secretary 
     of Commerce, to be rural areas.

[[Page 17111]]

       ``(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 
     communities 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 (c)(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 
     Secretary of Housing and Urban Development determines that 
     the course of action described in subsection (d)(2) with 
     respect to such area is inadequate.
       ``(C) Priority for empowerment zones and enterprise 
     communities with respect to first half of designations.--With 
     respect to the first 10 designations made under this 
     section--
       ``(i) all shall be chosen from nominated areas which are 
     empowerment zones or enterprise communities (and are 
     otherwise eligible for designation under this section); and
       ``(ii) 2 shall be areas described in paragraph (2)(B).
       ``(4) Limitation on designations.--
       ``(A) Publication of regulations.--The Secretary of Housing 
     and Urban Development shall prescribe by regulation no later 
     than 4 months after the date of the enactment of this 
     section, after consultation with the officials described in 
     paragraph (1)(B)--
       ``(i) the procedures for nominating an area under paragraph 
     (1)(A);
       ``(ii) the parameters relating to the size and population 
     characteristics of a renewal community; and
       ``(iii) the manner in which nominated areas will be 
     evaluated based on the criteria specified in subsection (d).
       ``(B) Time limitations.--The Secretary of Housing and Urban 
     Development may designate nominated areas as renewal 
     communities only during the 24-month period beginning on the 
     first day of the first month following the month in which the 
     regulations described in subparagraph (A) are prescribed.
       ``(C) Procedural rules.--The Secretary of Housing and Urban 
     Development shall not make any designation of a nominated 
     area as a renewal community 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 
     community;
       ``(II) to make the State and local commitments described in 
     subsection (d); and
       ``(III) to provide assurances satisfactory to the Secretary 
     of Housing and Urban Development 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 Secretary of Housing and Urban 
     Development shall by regulation prescribe; and
       ``(iii) the Secretary of Housing and Urban Development 
     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.
       ``(b) Period for Which Designation Is in Effect.--
       ``(1) In general.--Any designation of an area as a renewal 
     community shall remain in effect during the period beginning 
     on the date of the designation and ending on the earliest 
     of--
       ``(A) December 31, 2007,
       ``(B) the termination date designated by the State and 
     local governments in their nomination, or
       ``(C) the date the Secretary of Housing and Urban 
     Development revokes such designation.
       ``(2) Revocation of designation.--The Secretary of Housing 
     and Urban Development 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 (d).
       ``(c) Area and Eligibility Requirements.--
       ``(1) In general.--The Secretary of Housing and Urban 
     Development may designate a nominated area as a renewal 
     community under subsection (a) 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 at least--

       ``(I) 4,000 if any portion of such area (other than a rural 
     area described in subsection (a)(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 (and the Secretary 
     of Housing and Urban Development, after such review of 
     supporting data as he 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 high incidence of crime.--The 
     Secretary of Housing and Urban Development shall take into 
     account, in selecting nominated areas for designation as 
     renewal communities under this section, the extent to which 
     such areas have a high incidence of crime.
       ``(5) Consideration of communities identified in gao 
     study.--The Secretary of Housing and Urban Development shall 
     take into account, in selecting nominated areas for 
     designation as renewal communities under this section, if the 
     area has census tracts identified in the May 12, 1998, report 
     of the Government Accounting Office regarding the 
     identification of economically distressed areas.
       ``(d) Required State and Local Commitments.--
       ``(1) In general.--The Secretary of Housing and Urban 
     Development may designate any nominated area as a renewal 
     community under subsection (a) only if--
       ``(A) 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 community, 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; 
     and
       ``(B) the economic growth promotion requirements of 
     paragraph (3) are met.
       ``(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 five of the following:
       ``(i) A reduction of tax rates or fees applying within the 
     renewal community.
       ``(ii) An increase in the level of efficiency of local 
     services within the renewal community.
       ``(iii) Crime reduction strategies, such as crime 
     prevention (including the provision of such services by 
     nongovernmental entities).
       ``(iv) Actions to reduce, remove, simplify, or streamline 
     governmental requirements applying within the renewal 
     community.
       ``(v) Involvement in the program by private entities, 
     organizations, neighborhood organizations, and community 
     groups, particularly those in the renewal community, 
     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 community.
       ``(vi) State or local income tax benefits for fees paid for 
     services performed by a nongovernmental entity which were 
     formerly performed by a governmental entity.
       ``(vii) 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 community 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 Secretary of Housing and Urban 
     Development 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.

[[Page 17112]]

       ``(3) Economic growth promotion requirements.--The economic 
     growth promotion requirements of this paragraph are met with 
     respect to a nominated area if the local government and the 
     State in which such area is located certify in writing that 
     such government and State, respectively, have repealed or 
     otherwise will not enforce within the area, if such area is 
     designated as a renewal community--
       ``(A) licensing requirements for occupations that do not 
     ordinarily require a professional degree;
       ``(B) zoning restrictions on home-based businesses which do 
     not create a public nuisance;
       ``(C) permit requirements for street vendors who do not 
     create a public nuisance;
       ``(D) zoning or other restrictions that impede the 
     formation of schools or child care centers; and
       ``(E) franchises or other restrictions on competition for 
     businesses providing public services, including but not 
     limited to taxicabs, jitneys, cable television, or trash 
     hauling,

     except to the extent that such regulation of businesses and 
     occupations is necessary for and well-tailored to the 
     protection of health and safety.
       ``(e) Coordination With Treatment of Empowerment Zones and 
     Enterprise Communities.--For purposes of this title, if there 
     are in effect with respect to the same area both--
       ``(1) a designation as a renewal community; and
       ``(2) a designation as an empowerment zone or enterprise 
     community,
     both of such designations shall be given full effect with 
     respect to such area.
       ``(f) Definitions and Special Rules.--For purposes of this 
     subchapter--
       ``(1) Governments.--If more than one government seeks to 
     nominate an area as a renewal community, any reference to, or 
     requirement of, this section shall apply to all such 
     governments.
       ``(2) State.--The term `State' includes Puerto Rico, the 
     Virgin Islands of the United States, Guam, American Samoa, 
     the Northern Mariana Islands, and any other possession of the 
     United States.
       ``(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;
       ``(B) any combination of political subdivisions described 
     in subparagraph (A) recognized by the Secretary of Housing 
     and Urban Development; and
       ``(C) the District of Columbia.
       ``(4) Application of rules relating to census tracts and 
     census data.--The rules of sections 1392(b)(4) and 1393(a)(9) 
     shall apply.

 ``PART II--RENEWAL COMMUNITY CAPITAL GAIN; RENEWAL COMMUNITY BUSINESS

``Sec. 1400F. Renewal community capital gain.
``Sec. 1400G. Renewal community business defined.

     ``SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

       ``(a) General Rule.--Gross income does not include any 
     qualified capital gain recognized on the sale or exchange of 
     a qualified community asset held for more than 5 years.
       ``(b) Qualified Community Asset.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified community asset' 
     means--
       ``(A) any qualified community stock;
       ``(B) any qualified community partnership interest; and
       ``(C) any qualified community business property.
       ``(2) Qualified community stock.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `qualified community stock' means any stock in a 
     domestic corporation if--
       ``(i) such stock is acquired by the taxpayer after December 
     31, 2000, and before January 1, 2008, 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 a renewal community business (or, in the case 
     of a new corporation, such corporation was being organized 
     for purposes of being a renewal community business); and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such stock, such corporation qualified as a 
     renewal community business.
       ``(B) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this paragraph.
       ``(3) Qualified community partnership interest.--The term 
     `qualified community partnership interest' means any capital 
     or profits interest in a domestic partnership if--
       ``(A) such interest is acquired by the taxpayer after 
     December 31, 2000, and before January 1, 2008;
       ``(B) as of the time such interest was acquired, such 
     partnership was a renewal community business (or, in the case 
     of a new partnership, such partnership was being organized 
     for purposes of being a renewal community business); and
       ``(C) during substantially all of the taxpayer's holding 
     period for such interest, such partnership qualified as a 
     renewal community business.

     A rule similar to the rule of paragraph (2)(B) shall apply 
     for purposes of this paragraph.
       ``(4) Qualified community business property.--
       ``(A) In general.--The term `qualified community business 
     property' means tangible property if--
       ``(i) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)) after December 31, 
     2000, and before January 1, 2008;
       ``(ii) the original use of such property in the renewal 
     community commences with the taxpayer; and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such property, substantially all of the use of 
     such property was in a renewal community 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 (within the 
     meaning of section 1400B(b)(4)(B)(ii)) by the taxpayer before 
     January 1, 2008; and
       ``(ii) any land on which such property is located.
       ``(c) Certain Rules To Apply.--Rules similar to the rules 
     of paragraphs (5), (6), and (7) of subsection (b), and 
     subsections (e), (f), and (g), of section 1400B shall apply 
     for purposes of this section.

     ``SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.

       ``For purposes of this part, the term `renewal community 
     business' means any entity or proprietorship which would be a 
     qualified business entity or qualified proprietorship under 
     section 1397B if--
       ``(1) references to renewal communities were substituted 
     for references to empowerment zones in such section; and
       ``(2) `80 percent' were substituted for `50 percent' in 
     subsections (b)(2) and (c)(1) of such section.

                ``PART III--FAMILY DEVELOPMENT ACCOUNTS

``Sec. 1400H. Family development accounts for renewal community EITC 
              recipients.
``Sec. 1400I. Demonstration program to provide matching contributions 
              to family development accounts in certain renewal 
              communities.
``Sec. 1400J. Designation of earned income tax credit payments for 
              deposit to family development account.

     ``SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RENEWAL 
                   COMMUNITY EITC RECIPIENTS.

       ``(a) Allowance of Deduction.--
       ``(1) In general.--There shall be allowed as a deduction--
       ``(A) in the case of a qualified individual, the amount 
     paid in cash for the taxable year by such individual to any 
     family development account for such individual's benefit; and
       ``(B) in the case of any person other than a qualified 
     individual, the amount paid in cash for the taxable year by 
     such person to any family development account for the benefit 
     of a qualified individual but only if the amount so paid is 
     designated for purposes of this section by such individual.

     No deduction shall be allowed under this paragraph for any 
     amount deposited in a family development account under 
     section 1400I (relating to demonstration program to provide 
     matching amounts in renewal communities).
       ``(2) Limitation.--
       ``(A) In general.--The amount allowable as a deduction to 
     any individual for any taxable year by reason of paragraph 
     (1)(A) shall not exceed the lesser of--
       ``(i) $2,000, or
       ``(ii) an amount equal to the compensation includible in 
     the individual's gross income for such taxable year.
       ``(B) Persons donating to family development accounts of 
     others.--The amount which may be designated under paragraph 
     (1)(B) by any qualified individual for any taxable year of 
     such individual shall not exceed $1,000.
       ``(3) Special rules for certain married individuals.--Rules 
     similar to rules of section 219(c) shall apply to the 
     limitation in paragraph (2)(A).
       ``(4) Coordination with iras.--No deduction shall be 
     allowed under this section for any taxable year to any person 
     by reason of a payment to an account for the benefit of a 
     qualified individual if any amount is paid for such taxable 
     year into an individual retirement account (including a Roth 
     IRA) for the benefit of such individual.
       ``(5) Rollovers.--No deduction shall be allowed under this 
     section with respect to any rollover contribution.
       ``(b) Tax Treatment of Distributions.--
       ``(1) Inclusion of amounts in gross income.--Except as 
     otherwise provided in this subsection, any amount paid or 
     distributed out of a family development account shall be 
     included in gross income by the payee or distributee, as the 
     case may be.
       ``(2) Exclusion of qualified family development 
     distributions.--Paragraph (1) shall

[[Page 17113]]

     not apply to any qualified family development distribution.
       ``(c) Qualified Family Development Distribution.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified family development 
     distribution' means any amount paid or distributed out of a 
     family development account which would otherwise be 
     includible in gross income, to the extent that such payment 
     or distribution is used exclusively to pay qualified family 
     development expenses for the holder of the account or the 
     spouse or dependent (as defined in section 152) of such 
     holder.
       ``(2) Qualified family development expenses.--The term 
     `qualified family development expenses' means any of the 
     following:
       ``(A) Qualified higher education expenses.
       ``(B) Qualified first-time homebuyer costs.
       ``(C) Qualified business capitalization costs.
       ``(D) Qualified medical expenses.
       ``(E) Qualified rollovers.
       ``(3) Qualified higher education expenses.--
       ``(A) In general.--The term `qualified higher education 
     expenses' has the meaning given such term by section 
     72(t)(7), determined by treating postsecondary vocational 
     educational schools as eligible educational institutions.
       ``(B) 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 section.
       ``(C) 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).
       ``(4) Qualified first-time homebuyer costs.--The term 
     `qualified first-time homebuyer costs' means qualified 
     acquisition costs (as defined in section 72(t)(8) without 
     regard to subparagraph (B) thereof) with respect to a 
     principal residence (within the meaning of section 121) for a 
     qualified first-time homebuyer (as defined in section 
     72(t)(8)).
       ``(5) Qualified business capitalization costs.--
       ``(A) In general.--The term `qualified business 
     capitalization costs' means qualified expenditures for the 
     capitalization of a qualified business pursuant to a 
     qualified plan.
       ``(B) Qualified expenditures.--The term `qualified 
     expenditures' means expenditures included in a qualified 
     plan, including capital, plant, equipment, working capital, 
     and inventory expenses.
       ``(C) Qualified business.--The term `qualified business' 
     means any trade or business other than any trade or 
     business--
       ``(i) which consists of the operation of any facility 
     described in section 144(c)(6)(B), or
       ``(ii) which contravenes any law.
       ``(D) Qualified plan.--The term `qualified plan' means a 
     business plan which meets such requirements as the Secretary 
     may specify.
       ``(6) Qualified medical expenses.--The term `qualified 
     medical expenses' means any amount paid during the taxable 
     year, not compensated for by insurance or otherwise, for 
     medical care (as defined in section 213(d)) of the taxpayer, 
     his spouse, or his dependent (as defined in section 152).
       ``(7) Qualified rollovers.--The term `qualified rollover' 
     means any amount paid from a family development account of a 
     taxpayer into another such account established for the 
     benefit of--
       ``(A) such taxpayer, or
       ``(B) any qualified individual who is--
       ``(i) the spouse of such taxpayer, or
       ``(ii) any dependent (as defined in section 152) of the 
     taxpayer.

     Rules similar to the rules of section 408(d)(3) shall apply 
     for purposes of this paragraph.
       ``(d) Tax Treatment of Accounts.--
       ``(1) In general.--Any family development account is exempt 
     from taxation under this subtitle unless such account has 
     ceased to be a family development account by reason of 
     paragraph (2). Notwithstanding the preceding sentence, any 
     such account is subject to the taxes imposed by section 511 
     (relating to imposition of tax on unrelated business income 
     of charitable, etc., organizations). Notwithstanding any 
     other provision of this title (including chapters 11 and 12), 
     the basis of any person in such an account is zero.
       ``(2) Loss of exemption in case of prohibited 
     transactions.--For purposes of this section, rules similar to 
     the rules of section 408(e) shall apply.
       ``(3) Other rules to apply.--Rules similar to the rules of 
     paragraphs (4), (5), and (6) of section 408(d) shall apply 
     for purposes of this section.
       ``(e) Family Development Account.--For purposes of this 
     title, the term `family development account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of a qualified individual or his beneficiaries, but 
     only if the written governing instrument creating the trust 
     meets the following requirements:
       ``(1) Except in the case of a qualified rollover (as 
     defined in subsection (c)(7))--
       ``(A) no contribution will be accepted unless it is in 
     cash; and
       ``(B) contributions will not be accepted for the taxable 
     year in excess of $3,000 (determined without regard to any 
     contribution made under section 1400I (relating to 
     demonstration program to provide matching amounts in renewal 
     communities)).
       ``(2) The requirements of paragraphs (2) through (6) of 
     section 408(a) are met.
       ``(f) Qualified Individual.--For purposes of this section, 
     the term `qualified individual' means, for any taxable year, 
     an individual--
       ``(1) who is a bona fide resident of a renewal community 
     throughout the taxable year; and
       ``(2) to whom a credit was allowed under section 32 for the 
     preceding taxable year.
       ``(g) Other Definitions and Special Rules.--
       ``(1) Compensation.--The term `compensation' has the 
     meaning given such term by section 219(f)(1).
       ``(2) Married individuals.--The maximum deduction under 
     subsection (a) shall be computed separately for each 
     individual, and this section shall be applied without regard 
     to any community property laws.
       ``(3) Time when contributions deemed made.--For purposes of 
     this section, a taxpayer shall be deemed to have made a 
     contribution to a family development account on the last day 
     of the preceding taxable year if the contribution is made on 
     account of such taxable year and is made not later than the 
     time prescribed by law for filing the return for such taxable 
     year (not including extensions thereof).
       ``(4) Employer payments; custodial accounts.--Rules similar 
     to the rules of sections 219(f)(5) and 408(h) shall apply for 
     purposes of this section.
       ``(5) Reports.--The trustee of a family development account 
     shall make such reports regarding such account to the 
     Secretary and to the individual for whom the account is 
     maintained with respect to contributions (and the years to 
     which they relate), distributions, and such other matters as 
     the Secretary may require under regulations. The reports 
     required by this paragraph--
       ``(A) shall be filed at such time and in such manner as the 
     Secretary prescribes in such regulations; and
       ``(B) shall be furnished to individuals--
       ``(i) not later than January 31 of the calendar year 
     following the calendar year to which such reports relate; and
       ``(ii) in such manner as the Secretary prescribes in such 
     regulations.
       ``(6) Investment in collectibles treated as 
     distributions.--Rules similar to the rules of section 408(m) 
     shall apply for purposes of this section.
       ``(h) Penalty for Distributions Not Used for Qualified 
     Family Development Expenses.--
       ``(1) In general.--If any amount is distributed from a 
     family development account and is not used exclusively to pay 
     qualified family development expenses for the holder of the 
     account or the spouse or dependent (as defined in section 
     152) of such holder, the tax imposed by this chapter for the 
     taxable year of such distribution shall be increased by the 
     sum of--
       ``(A) 100 percent of the portion of such amount which is 
     includible in gross income and is attributable to amounts 
     contributed under section 1400I (relating to demonstration 
     program to provide matching amounts in renewal communities); 
     and
       ``(B) 10 percent of the portion of such amount which is 
     includible in gross income and is not described in 
     subparagraph (A).

     For purposes of this subsection, distributions which are 
     includable in gross income shall be treated as attributable 
     to amounts contributed under section 1400I to the extent 
     thereof. For purposes of the preceding sentence, all family 
     development accounts of an individual shall be treated as one 
     account.
       ``(2) Exception for certain distributions.--Paragraph (1) 
     shall not apply to distributions which are--
       ``(A) made on or after the date on which the account holder 
     attains age 59\1/2\,
       ``(B) made to a beneficiary (or the estate of the account 
     holder) on or after the death of the account holder, or
       ``(C) attributable to the account holder's being disabled 
     within the meaning of section 72(m)(7).
       ``(i) Application of Section.--This section shall apply to 
     amounts paid to a family development account for any taxable 
     year beginning after December 31, 2000, and before January 1, 
     2008.

     ``SEC. 1400I. DEMONSTRATION PROGRAM TO PROVIDE MATCHING 
                   CONTRIBUTIONS TO FAMILY DEVELOPMENT ACCOUNTS IN 
                   CERTAIN RENEWAL COMMUNITIES.

       ``(a) Designation.--
       ``(1) Definitions.--For purposes of this section, the term 
     `FDA matching demonstration area' means any renewal 
     community--
       ``(A) which is nominated under this section by each of the 
     local governments and States which nominated such community 
     for designation as a renewal community under section 
     1400E(a)(1)(A); and
       ``(B) which the Secretary of Housing and Urban Development 
     designates as an FDA

[[Page 17114]]

     matching demonstration area after consultation with--
       ``(i) the Secretaries of Agriculture, Commerce, Labor, and 
     the Treasury, the Director of the Office of Management and 
     Budget, and the Administrator of the Small Business 
     Administration; and
       ``(ii) in the case of a community on an Indian reservation, 
     the Secretary of the Interior.
       ``(2) Number of designations.--
       ``(A) In general.--The Secretary of Housing and Urban 
     Development may designate not more than 5 renewal communities 
     as FDA matching demonstration areas.
       ``(B) Minimum designation in rural areas.--Of the areas 
     designated under subparagraph (A), at least 2 must be areas 
     described in section 1400E(a)(2)(B).
       ``(3) Limitations on designations.--
       ``(A) Publication of regulations.--The Secretary of Housing 
     and Urban Development shall prescribe by regulation no later 
     than 4 months after the date of the enactment of this 
     section, after consultation with the officials described in 
     paragraph (1)(B)--
       ``(i) the procedures for nominating a renewal community 
     under paragraph (1)(A) (including procedures for coordinating 
     such nomination with the nomination of an area for 
     designation as a renewal community under section 1400E); and
       ``(ii) the manner in which nominated renewal communities 
     will be evaluated for purposes of this section.
       ``(B) Time limitations.--The Secretary of Housing and Urban 
     Development may designate renewal communities as FDA matching 
     demonstration areas only during the 24-month period beginning 
     on the first day of the first month following the month in 
     which the regulations described in subparagraph (A) are 
     prescribed.
       ``(4) Designation based on degree of poverty, etc.--The 
     rules of section 1400E(a)(3) shall apply for purposes of 
     designations of FDA matching demonstration areas under this 
     section.
       ``(b) Period for Which Designation Is in Effect.--Any 
     designation of a renewal community as an FDA matching 
     demonstration area shall remain in effect during the period 
     beginning on the date of such designation and ending on the 
     date on which such area ceases to be a renewal community.
       ``(c) Matching Contributions to Family Development 
     Accounts.--
       ``(1) In general.--Not less than once each taxable year, 
     the Secretary shall deposit (to the extent provided in 
     appropriation Acts) into a family development account of each 
     qualified individual (as defined in section 1400H(f))--
       ``(A) who is a resident throughout the taxable year of an 
     FDA matching demonstration area; and
       ``(B) who requests (in such form and manner as the 
     Secretary prescribes) such deposit for the taxable year,

     an amount equal to the sum of the amounts deposited into all 
     of the family development accounts of such individual during 
     such taxable year (determined without regard to any amount 
     contributed under this section).
       ``(2) Limitations.--
       ``(A) Annual limit.--The Secretary shall not deposit more 
     than $1000 under paragraph (1) with respect to any individual 
     for any taxable year.
       ``(B) Aggregate limit.--The Secretary shall not deposit 
     more than $2000 under paragraph (1) with respect to any 
     individual for all taxable years.
       ``(3) Exclusion from income.--Except as provided in section 
     1400H, gross income shall not include any amount deposited 
     into a family development account under paragraph (1).
       ``(d) Notice of Program.--The Secretary shall provide 
     appropriate notice to residents of FDA matching demonstration 
     areas of the availability of the benefits under this section.
       ``(e) Termination.--No amount may be deposited under this 
     section for any taxable year beginning after December 31, 
     2007.

     ``SEC. 1400J. DESIGNATION OF EARNED INCOME TAX CREDIT 
                   PAYMENTS FOR DEPOSIT TO FAMILY DEVELOPMENT 
                   ACCOUNT.

       ``(a) In General.--With respect to the return of any 
     qualified individual (as defined in section 1400H(f)) 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 earned income tax credit shall 
     be deposited by the Secretary into a family development 
     account of such individual. The Secretary shall so deposit 
     such portion designated under this subsection.
       ``(b) Manner and Time of Designation.--A designation under 
     subsection (a) may be made with respect to any taxable year--
       ``(1) at the time of filing the return of the tax imposed 
     by this chapter for such taxable year, or
       ``(2) 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.
       ``(c) Portion Attributable to Earned Income Tax Credit.--
     For purposes of subsection (a), an overpayment for any 
     taxable year shall be treated as attributable to the earned 
     income tax credit to the extent that such overpayment does 
     not exceed the credit allowed to the taxpayer under section 
     32 for such taxable year.
       ``(d) Overpayments Treated as Refunded.--For purposes of 
     this title, any portion of an overpayment of tax designated 
     under subsection (a) 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.
       ``(e) Termination.--This section shall not apply to any 
     taxable year beginning after December 31, 2007.

                    ``PART IV--ADDITIONAL INCENTIVES

``Sec. 1400K. Commercial revitalization deduction.
``Sec. 1400L. Increase in expensing under section 179.

     ``SEC. 1400K. COMMERCIAL REVITALIZATION DEDUCTION.

       ``(a) General Rule.--At the election of the taxpayer, 
     either--
       ``(1) one-half of any qualified revitalization expenditures 
     chargeable to capital account with respect to any qualified 
     revitalization building shall be allowable as a deduction for 
     the taxable year in which the building is placed in service, 
     or
       ``(2) a deduction for all such expenditures shall be 
     allowable ratably over the 120-month period beginning with 
     the month in which the building is placed in service.

     The deduction provided by this section with respect to such 
     expenditure shall be in lieu of any depreciation deduction 
     otherwise allowable on account of such expenditure.
       ``(b) Qualified Revitalization Buildings and 
     Expenditures.--For purposes of this section--
       ``(1) Qualified revitalization building.--The term 
     `qualified revitalization building' means any building (and 
     its structural components) if--
       ``(A) such building is located in a renewal community and 
     is placed in service after December 31, 2000;
       ``(B) a commercial revitalization deduction amount is 
     allocated to the building under subsection (d); and
       ``(C) depreciation (or amortization in lieu of 
     depreciation) is allowable with respect to the building 
     (without regard to this section).
       ``(2) Qualified revitalization expenditure.--
       ``(A) In general.--The term `qualified revitalization 
     expenditure' means any amount properly chargeable to capital 
     account--
       ``(i) for property for which depreciation is allowable 
     under section 168 (without regard to this section) and which 
     is--

       ``(I) nonresidential real property; or
       ``(II) an addition or improvement to property described in 
     subclause (I);

       ``(ii) in connection with the construction of any qualified 
     revitalization building which was not previously placed in 
     service or in connection with the substantial rehabilitation 
     (within the meaning of section 47(c)(1)(C)) of a building 
     which was placed in service before the beginning of such 
     rehabilitation; and
       ``(iii) for land (including land which is functionally 
     related to such property and subordinate thereto).
       ``(B) Dollar limitation.--The aggregate amount which may be 
     treated as qualified revitalization expenditures with respect 
     to any qualified revitalization building for any taxable year 
     shall not exceed the excess of--
       ``(i) $10,000,000, reduced by
       ``(ii) any such expenditures with respect to the building 
     taken into account by the taxpayer or any predecessor in 
     determining the amount of the deduction under this section 
     for all preceding taxable years.
       ``(C) Certain expenditures not included.--The term 
     `qualified revitalization expenditure' does not include--
       ``(i) Acquisition costs.--The costs of acquiring any 
     building or interest therein and any land in connection with 
     such building to the extent that such costs exceed 30 percent 
     of the qualified revitalization expenditures determined 
     without regard to this clause.
       ``(ii) Credits.--Any expenditure which the taxpayer may 
     take into account in computing any credit allowable under 
     this title unless the taxpayer elects to take the expenditure 
     into account only for purposes of this section.
       ``(c) When Expenditures Taken Into Account.--Qualified 
     revitalization expenditures with respect to any qualified 
     revitalization building shall be taken into account for the 
     taxable year in which the qualified revitalization building 
     is placed in service. For purposes of the preceding sentence, 
     a substantial rehabilitation of a building shall be treated 
     as a separate building.
       ``(d) Limitation on Aggregate Deductions Allowable With 
     Respect to Buildings Located in a State.--
       ``(1) In general.--The amount of the deduction determined 
     under this section for any taxable year with respect to any 
     building shall not exceed the commercial revitalization 
     deduction amount (in the case of an amount determined under 
     subsection (a)(2), the present value of such amount as 
     determined under the rules of section 42(b)(2)(C)

[[Page 17115]]

     by substituting `100 percent' for `72 percent' in clause (ii) 
     thereof) allocated to such building under this subsection by 
     the commercial revitalization agency. Such allocation shall 
     be made at the same time and in the same manner as under 
     paragraphs (1) and (7) of section 42(h).
       ``(2) Commercial revitalization deduction amount for 
     agencies.--
       ``(A) In general.--The aggregate commercial revitalization 
     deduction amount which a commercial revitalization agency may 
     allocate for any calendar year is the amount of the State 
     commercial revitalization deduction ceiling determined under 
     this paragraph for such calendar year for such agency.
       ``(B) State commercial revitalization deduction ceiling.--
     The State commercial revitalization deduction ceiling 
     applicable to any State--
       ``(i) for each calendar year after 2000 and before 2008 is 
     $6,000,000 for each renewal community in the State; and
       ``(ii) zero for each calendar year thereafter.
       ``(C) Commercial revitalization agency.--For purposes of 
     this section, the term `commercial revitalization agency' 
     means any agency authorized by a State to carry out this 
     section.
       ``(e) Responsibilities of Commercial Revitalization 
     Agencies.--
       ``(1) Plans for allocation.--Notwithstanding any other 
     provision of this section, the commercial revitalization 
     deduction amount with respect to any building shall be zero 
     unless--
       ``(A) such amount was allocated pursuant to a qualified 
     allocation plan of the commercial revitalization agency which 
     is approved (in accordance with rules similar to the rules of 
     section 147(f)(2) (other than subparagraph (B)(ii) thereof)) 
     by the governmental unit of which such agency is a part; and
       ``(B) such agency notifies the chief executive officer (or 
     its equivalent) of the local jurisdiction within which the 
     building is located of such allocation and provides such 
     individual a reasonable opportunity to comment on the 
     allocation.
       ``(2) Qualified allocation plan.--For purposes of this 
     subsection, the term `qualified allocation plan' means any 
     plan--
       ``(A) which sets forth selection criteria to be used to 
     determine priorities of the commercial revitalization agency 
     which are appropriate to local conditions;
       ``(B) which considers--
       ``(i) the degree to which a project contributes to the 
     implementation of a strategic plan that is devised for a 
     renewal community through a citizen participation process;
       ``(ii) the amount of any increase in permanent, full-time 
     employment by reason of any project; and
       ``(iii) the active involvement of residents and nonprofit 
     groups within the renewal community; and
       ``(C) which provides a procedure that the agency (or its 
     agent) will follow in monitoring compliance with this 
     section.
       ``(f) Regulations.--For purposes of this section, the 
     Secretary shall, by regulations, provide for the application 
     of rules similar to the rules of section 49 and subsections 
     (a) and (b) of section 50.
       ``(g) Termination.--This section shall not apply to any 
     building placed in service after December 31, 2007.

     ``SEC. 1400L. INCREASE IN EXPENSING UNDER SECTION 179.

       ``(a) General Rule.--In the case of a renewal community 
     business (as defined in section 1400G), for purposes of 
     section 179--
       ``(1) the limitation under section 179(b)(1) shall be 
     increased by the lesser of--
       ``(A) $35,000; or
       ``(B) the cost of section 179 property which is qualified 
     renewal property placed in service during the taxable year; 
     and
       ``(2) the amount taken into account under section 179(b)(2) 
     with respect to any section 179 property which is qualified 
     renewal property shall be 50 percent of the cost thereof.
       ``(b) Recapture.--Rules similar to the rules under section 
     179(d)(10) shall apply with respect to any qualified renewal 
     property which ceases to be used in a renewal community by a 
     renewal community business.
       ``(c) Qualified Renewal Property.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified renewal property' 
     means any property to which section 168 applies (or would 
     apply but for section 179) if--
       ``(A) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)) after December 31, 
     2000, and before January 1, 2008; and
       ``(B) such property would be qualified zone property (as 
     defined in section 1397C) if references to renewal 
     communities were substituted for references to empowerment 
     zones in section 1397C.
       ``(2) Certain rules to apply.--The rules of subsections 
     (a)(2) and (b) of section 1397C shall apply for purposes of 
     this section.''.

     SEC. 703. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION 
                   COSTS TO RENEWAL COMMUNITIES.

       (a) Extension.--Paragraph (2) of section 198(c) (defining 
     targeted area) is amended by redesignating subparagraph (C) 
     as subparagraph (D) and by inserting after subparagraph (B) 
     the following new subparagraph:
       ``(C) Renewal communities included.--Except as provided in 
     subparagraph (B), such term shall include a renewal community 
     (as defined in section 1400E) with respect to expenditures 
     paid or incurred after December 31, 2000.''.
       (b) Extension of Termination Date for Renewal 
     Communities.--Subsection (h) of section 198 is amended by 
     inserting before the period ``(December 31, 2007, in the case 
     of a renewal community, as defined in section 1400E).''.

     SEC. 704. EXTENSION OF WORK OPPORTUNITY TAX CREDIT FOR 
                   RENEWAL COMMUNITIES

       (a) Extension.--Subsection (c) of section 51 (relating to 
     termination) is amended by adding at the end the following 
     new paragraph:
       ``(5) Extension of credit for renewal communities.--
       ``(A) In general.--In the case of an individual who begins 
     work for the employer after the date contained in paragraph 
     (4)(B), for purposes of section 38--
       ``(i) in lieu of applying subsection (a), the amount of the 
     work opportunity credit determined under this section for the 
     taxable year shall be equal to--

       ``(I) 15 percent of the qualified first-year wages for such 
     year; and
       ``(II) 30 percent of the qualified second-year wages for 
     such year;

       ``(ii) subsection (b)(3) shall be applied by substituting 
     `$10,000' for `$6,000';
       ``(iii) paragraph (4)(B) shall be applied by substituting 
     for the date contained therein the last day for which the 
     designation under section 1400E of the renewal community 
     referred to in subparagraph (B)(i) is in effect; and
       ``(iv) rules similar to the rules of section 51A(b)(5)(C) 
     shall apply.
       ``(B) Qualified first- and second-year wages.--For purposes 
     of subparagraph (A)--
       ``(i) In general.--The term `qualified wages' means, with 
     respect to each 1-year period referred to in clause (ii) or 
     (iii), as the case may be, the wages paid or incurred by the 
     employer during the taxable year to any individual but only 
     if--

       ``(I) the employer is engaged in a trade or business in a 
     renewal community throughout such 1-year period;
       ``(II) the principal place of abode of such individual is 
     in such renewal community throughout such 1-year period; and
       ``(III) substantially all of the services which such 
     individual performs for the employer during such 1-year 
     period are performed in such renewal community.

       ``(ii) Qualified first-year wages.--The term `qualified 
     first-year wages' means, with respect to any individual, 
     qualified wages attributable to service rendered during the 
     1-year period beginning with the day the individual begins 
     work for the employer.
       ``(iii) Qualified second-year wages.--The term `qualified 
     second-year wages' means, with respect to any individual, 
     qualified wages attributable to service rendered during the 
     1-year period beginning on the day after the last day of the 
     1-year period with respect to such individual determined 
     under clause (ii).''.
       (b) Congruent Treatment of Renewal Communities and 
     Enterprise Zones for Purposes of Youth Residence 
     Requirements.--
       (1) High-risk youth.--Subparagraphs (A)(ii) and (B) of 
     section 51(d)(5) are each amended by striking ``empowerment 
     zone or enterprise community'' and inserting ``empowerment 
     zone, enterprise community, or renewal community''.
       (2) Qualified summer youth employee.--Clause (iv) of 
     section 51(d)(7)(A) is amended by striking ``empowerment zone 
     or enterprise community'' and inserting ``empowerment zone, 
     enterprise community, or renewal community''.
       (3) Headings.--Paragraphs (5)(B) and (7)(C) of section 
     51(d) are each amended by inserting ``or community'' in the 
     heading after ``zone''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply to individuals who begin work for the employer 
     after December 31, 2000.

     SEC. 705. CONFORMING AND CLERICAL AMENDMENTS.

       (a) Deduction for Contributions to Family Development 
     Accounts Allowable Whether or Not Taxpayer Itemizes.--
     Subsection (a) of section 62 (relating to adjusted gross 
     income defined) is amended by inserting after paragraph (18) 
     the following new paragraph:
       ``(19) Family development accounts.--The deduction allowed 
     by section 1400H(a)(1).''.
       (b) Tax on Excess Contributions.--
       (1) Tax imposed.--Subsection (a) of section 4973 is amended 
     by striking ``or'' at the end of paragraph (3), adding ``or'' 
     at the end of paragraph (4), and inserting after paragraph 
     (4) the following new paragraph:
       ``(5) a family development account (within the meaning of 
     section 1400H(e)),''.
       (2) Excess contributions.--Section 4973 is amended by 
     adding at the end the following new subsection:
       ``(g) Family Development Accounts.--For purposes of this 
     section, in the case of family development accounts, the term 
     `excess contributions' means the sum of--
       ``(1) the excess (if any) of--
       ``(A) the amount contributed for the taxable year to the 
     accounts (other than a qualified rollover, as defined in 
     section 1400H(c)(7), or a contribution under section 1400I), 
     over

[[Page 17116]]

       ``(B) the amount allowable as a deduction under section 
     1400H for such contributions; and
       ``(2) the amount determined under this subsection for the 
     preceding taxable year reduced by the sum of--
       ``(A) the distributions out of the accounts for the taxable 
     year which were included in the gross income of the payee 
     under section 1400H(b)(1);
       ``(B) the distributions out of the accounts for the taxable 
     year to which rules similar to the rules of section 408(d)(5) 
     apply by reason of section 1400H(d)(3); and
       ``(C) the excess (if any) of the maximum amount allowable 
     as a deduction under section 1400H for the taxable year over 
     the amount contributed to the account for the taxable year 
     (other than a contribution under section 1400I).

     For purposes of this subsection, any contribution which is 
     distributed from the family development account in a 
     distribution to which rules similar to the rules of section 
     408(d)(4) apply by reason of section 1400H(d)(3) shall be 
     treated as an amount not contributed.''.
       (c) Tax on Prohibited Transactions.--Section 4975 is 
     amended--
       (1) by adding at the end of subsection (c) the following 
     new paragraph:
       ``(6) Special rule for family development accounts.--An 
     individual for whose benefit a family development account is 
     established and any contributor to such account shall be 
     exempt from the tax imposed by this section with respect to 
     any transaction concerning such account (which would 
     otherwise be taxable under this section) if, with respect to 
     such transaction, the account ceases to be a family 
     development account by reason of the application of section 
     1400H(d)(2) to such account.''; and
       (2) in subsection (e)(1), by striking ``or'' at the end of 
     subparagraph (E), by redesignating subparagraph (F) as 
     subparagraph (G), and by inserting after subparagraph (E) the 
     following new subparagraph:
       ``(F) a family development account described in section 
     1400H(e), or''.
       (d) Information Relating to Certain Trusts and Annuity 
     Plans.--Subsection (c) of section 6047 is amended--
       (1) by inserting ``or section 1400H'' after ``section 
     219''; and
       (2) by inserting ``, of any family development account 
     described in section 1400H(e),'', after ``section 408(a)''.
       (e) Inspection of Applications for Tax Exemption.--Clause 
     (i) of section 6104(a)(1)(B) is amended by inserting ``a 
     family development account described in section 1400H(e),'' 
     after ``section 408(a),''.
       (f) Failure To Provide Reports on Family Development 
     Accounts.--Paragraph (2) of section 6693(a) is amended by 
     striking ``and'' at the end of subparagraph (C), by striking 
     the period and inserting ``, and'' at the end of subparagraph 
     (D), and by adding at the end the following new subparagraph:
       ``(E) section 1400H(g)(6) (relating to family development 
     accounts).''.
       (g) Conforming Amendments Regarding Commercial 
     Revitalization Deduction.--
       (1) Section 172 is amended by redesignating subsection (j) 
     as subsection (k) and by inserting after subsection (i) the 
     following new subsection:
       ``(j) No carryback of section 1400k Deduction Before Date 
     of Enactment.--No portion of the net operating loss for any 
     taxable year which is attributable to any commercial 
     revitalization deduction determined under section 1400K may 
     be carried back to a taxable year ending before the date of 
     the enactment of section 1400K.''.
       (2) Subparagraph (B) of section 48(a)(2) is amended by 
     inserting ``or commercial revitalization'' after 
     ``rehabilitation'' each place it appears in the text and 
     heading.
       (3) Subparagraph (C) of section 469(i)(3) is amended--
       (A) by inserting ``or section 1400K'' after ``section 42''; 
     and
       (B) by inserting ``and commercial revitalization 
     deduction'' after ``credit'' in the heading.
       (h) Clerical Amendments.--The table of subchapters for 
     chapter 1 is amended by adding at the end the following new 
     item:

``Subchapter X. Renewal Communities.''.

     SEC. 706. EVALUATION AND REPORTING REQUIREMENTS.

       Not later than the close of the fourth calendar year after 
     the year in which the Secretary of Housing and Urban 
     Development first designates an area as a renewal community 
     under section 1400E of the Internal Revenue Code of 1986, and 
     at the close of each fourth calendar year thereafter, such 
     Secretary shall prepare and submit to the Congress a report 
     on the effects of such designations in stimulating the 
     creation of new jobs, particularly for disadvantaged workers 
     and long-term unemployed individuals, and promoting the 
     revitalization of economically distressed areas.

                     Subtitle B--Farming Incentive

     SEC. 711. PRODUCTION FLEXIBILITY CONTRACT PAYMENTS.

       Any option to accelerate the receipt of any payment under a 
     production flexibility contract which is payable under the 
     Federal Agriculture Improvement and Reform Act of 1996 (7 
     U.S.C. 7200 et seq.), as in effect on the date of the 
     enactment of this Act, shall be disregarded in determining 
     the taxable year for which such payment is properly 
     includible in gross income for purposes of the Internal 
     Revenue Code of 1986.

                   Subtitle C--Oil and Gas Incentive

     SEC. 721. 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)),

     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, 1998.

                      Subtitle D--Timber Incentive

     SEC. 731. INCREASE IN MAXIMUM PERMITTED AMORTIZATION OF 
                   REFORESTATION EXPENDITURES.

       (a) In General.--Paragraph (1) of section 194(b) (relating 
     to amortization of reforestation expenditures) is amended by 
     striking ``$10,000 ($5,000'' and inserting ``$25,000 
     ($12,500''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to additions to capital account made in taxable 
     years beginning after December 31, 1998.

                  Subtitle E--Steel Industry Incentive

     SEC. 741. MINIMUM TAX RELIEF FOR STEEL INDUSTRY.

       (a) In General.--Subsection (c) of section 53 (as amended 
     by section 302) is amended by adding at the end the following 
     new paragraph:
       ``(4) Steel companies.--In the case of a qualified 
     corporation (as defined in section 212(g)(1) of the Tax 
     Reform Act of 1986), in lieu of applying paragraph (2), the 
     limitation under paragraph (1) for any taxable year beginning 
     after December 31, 1998, shall be increased (subject to the 
     rule of the last sentence of paragraph (2)) by 90 percent of 
     the tentative minimum tax.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

                TITLE VIII--RELIEF FOR SMALL BUSINESSES

     SEC. 801. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS 
                   OF SELF-EMPLOYED INDIVIDUALS.

       (a) In General.--Paragraph (1) of section 162(l) is amended 
     to read as follows:
       ``(1) Allowance of deduction.--In the case of an individual 
     who is an employee within the meaning of section 401(c)(1), 
     there shall be allowed as a deduction under this section an 
     amount equal to 100 percent of the amount paid during the 
     taxable year for insurance which constitutes medical care for 
     the taxpayer, his spouse, and dependents.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

      SEC. 802. INCREASE IN EXPENSE TREATMENT FOR SMALL 
                   BUSINESSES.

       (a) In General.--Paragraph (1) of section 179(b) (relating 
     to dollar limitation) is amended to read as follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed $30,000.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 803. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.

       (a) In General.--Section 3301 (relating to rate of Federal 
     unemployment tax) is amended--

[[Page 17117]]

       (1) by striking ``2007'' and inserting ``2004'', and
       (2) by striking ``2008'' and inserting ``2005''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to calendar years beginning after the date of the 
     enactment of this Act.

     SEC. 804. RESTORATION OF 80 PERCENT DEDUCTION FOR MEAL 
                   EXPENSES.

       (a) In General.--Paragraph (1) of section 274(n) (relating 
     to only 50 percent of meal and entertainment expenses allowed 
     as deduction) is amended by striking ``50 percent'' in the 
     text and inserting ``the allowable percentage''.
       (b) Allowable Percentages.--Subsection (n) of section 274 
     is amended by redesignating paragraphs (2) and (3) as 
     paragraphs (3) and (4), respectively, and by inserting after 
     paragraph (2) the following new paragraph:
       ``(2) Allowable percentage.--For purposes of paragraph (1), 
     the allowable percentage is--
       ``(A) in the case of amounts for items described in 
     paragraph (1)(B), 50 percent, and
       ``(B) in the case of expenses for food or beverages, the 
     percentage determined in accordance with the following table:

``For taxable years beginning in calendar The allowable percentage is--
    2000 through 2003..............................................50  
    2004...........................................................55  
    2005...........................................................60  
    2006...........................................................65  
    2007...........................................................70  
    2008...........................................................75  
    2009 and thereafter.........................................80.''  
       (b) Conforming Amendments.--
       (1) The heading for subsection (n) of section 274 is 
     amended by striking ``50 Percent'' and inserting ``Limited 
     Percentages''.
       (2) Subparagraph (A) of section 274(n)(4), as redesignated 
     by subsection (a), is amended by striking ``50 percent'' and 
     inserting ``the allowable percentage''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

                   TITLE IX--INTERNATIONAL TAX RELIEF

     SEC. 901. INTEREST ALLOCATION RULES.

       (a) Election to Allocate Interest on a Worldwide Basis.--
     Subsection (e) of section 864 (relating to rules for 
     allocating interest, etc.) is amended by redesignating 
     paragraphs (6) and (7) as paragraphs (7) and (8), 
     respectively, and by inserting after paragraph (5) the 
     following new paragraph:
       ``(6) Election to allocate interest on a worldwide basis.--
       ``(A) In general.--Except as provided in this paragraph, 
     this subsection (other than paragraph (7)) shall be applied 
     by treating each worldwide affiliated group for which an 
     election under this paragraph is in effect as an affiliated 
     group.
       ``(B) Worldwide affiliated group.--For purposes of this 
     paragraph, the term `worldwide affiliated group' means the 
     group of corporations which consists of--
       ``(i) all corporations in an affiliated group (as defined 
     in paragraph (5)), and
       ``(ii) all foreign corporations (other than a FSC, as 
     defined in section 922(a)) with respect to which corporations 
     described in clause (i) own stock meeting the ownership 
     requirements of section 957(a) (without regard to stock 
     considered as owned under section 958(b)).
       ``(C) Allocation.--
       ``(i) In general.--For purposes of paragraph (1), only the 
     applicable percentage of the interest expense and assets of a 
     foreign corporation described in subparagraph (B)(ii) shall 
     be taken into account.
       ``(ii) Applicable percentage.--For purposes of this 
     paragraph, the term `applicable percentage' means, with 
     respect to any foreign corporation, the percentage equal to 
     the ratio which the value of the stock in such corporation 
     taken into account under subparagraph (B)(ii) bears to the 
     aggregate value of all stock in such corporation.
       ``(D) Treatment of foreign interest expense.--Interest 
     expense of members of an electing worldwide affiliated group 
     which is allocated to foreign source income under this 
     subsection shall be reduced (but not below zero) by the 
     applicable percentage of the interest expense incurred by any 
     foreign corporation in the electing worldwide affiliated 
     group to the extent such interest would have been allocated 
     and apportioned to foreign source income of such corporation 
     if this subsection were applied to a group consisting of all 
     the foreign corporations in such affiliated group.
       ``(E) Election.--An election under this paragraph with 
     respect to any worldwide affiliated group may be made only by 
     the common parent of the affiliated group referred to in 
     subparagraph (B)(i) and may be made only for the first 
     taxable year beginning after December 31, 2001, in which a 
     worldwide affiliated group exists which includes such 
     affiliated group and at least 1 corporation described in 
     subparagraph (B)(ii). Such an election, once made, shall 
     apply to such parent and all other corporations which are 
     included in such worldwide affiliated group for such taxable 
     year and all subsequent years unless revoked with the consent 
     of the Secretary.''.
       (b) Election to Allocate Interest Within Financial 
     Institution Groups and Subsidiary Groups.--Section 864 is 
     amended by redesignating subsection (f) as subsection (g) and 
     by inserting after subsection (e) the following new 
     subsection:
       ``(f) Election To Apply Subsection (e) on Basis of 
     Financial Institution Group and Subsidiary Groups.--
       ``(1) In general.--Subsection (e) (other than paragraph (7) 
     thereof) shall be applied--
       ``(A) as if the electing financial institution group were a 
     separate affiliated group, and
       ``(B) for purposes of allocating interest expense with 
     respect to qualified indebtedness of members of an electing 
     subsidiary group, as if each electing subsidiary group were a 
     separate affiliated group.

     Subsection (e) shall apply to any such electing group in the 
     same manner as subsection (e) applies to the pre-election 
     affiliated group of which such electing group is a part.
       ``(2) Electing financial institution group.--For purposes 
     of this subsection--
       ``(A) In general.--The term `electing financial institution 
     group' means any group of corporations if--
       ``(i) such group consists only of all of the financial 
     corporations in the pre-election affiliated group, and
       ``(ii) an election under this paragraph is in effect for 
     such group of corporations.
       ``(B) Financial corporation.--The term `financial 
     corporation' means any corporation if at least 80 percent of 
     its gross income is income described in section 
     904(d)(2)(C)(ii) and the regulations thereunder. To the 
     extent provided in regulations prescribed by the Secretary, 
     such term includes a bank holding company (within the meaning 
     of section 2(a) of the Bank Holding Company Act of 1956).
       ``(C) Effect of certain transactions.--Rules similar to the 
     rules of paragraph (3)(D) shall apply to transactions between 
     any member of the electing financial institution group and 
     any member of the pre-election affiliated group (other than a 
     member of the electing financial institution group).
       ``(D) Election.--An election under this paragraph with 
     respect to any financial institution group may be made only 
     by the common parent of the pre-election affiliated group. 
     Such an election, once made, shall apply only to the taxable 
     year for which made.
       ``(3) Electing subsidiary groups.--
       ``(A) In general.--The term `electing subsidiary group' 
     means any group of corporations if--
       ``(i) such group consists only of corporations in the pre-
     election affiliated group,
       ``(ii) such group includes--

       ``(I) a domestic corporation (which is not the common 
     parent of the pre-election affiliated group or a member of an 
     electing financial institution group) which incurs interest 
     expense with respect to qualified indebtedness, and
       ``(II) every other corporation (other than a member of an 
     electing financial institution group) which is in the pre-
     election affiliated group and which would be a member of an 
     affiliated group having such domestic corporation as the 
     common parent, and

       ``(iii) an election under this paragraph is in effect for 
     such group.
       ``(B) Equalization rule.--All interest expense of a pre-
     election affiliated group (other than subgroup interest 
     expense) shall be treated as allocated to foreign source 
     income to the extent such expense does not exceed the excess 
     (if any) of--
       ``(i) the interest expense of the pre-election affiliated 
     group (including subgroup interest expense) which would (but 
     for any election under this paragraph) be allocated to 
     foreign source income, over
       ``(ii) the subgroup interest expense allocated to foreign 
     source income.

     For purposes of the preceding sentence, the subgroup interest 
     expense is the interest expense to which subsection (e) 
     applies separately by reason of paragraph (1)(B).
       ``(C) Qualified indebtedness.--For purposes of this 
     subsection, the term `qualified indebtedness' means any 
     indebtedness of a domestic corporation--
       ``(i) which is held by an unrelated person, and
       ``(ii) which is not guaranteed (or otherwise supported) by 
     any corporation which is a member of the pre-election 
     affiliated group other than a corporation which is a member 
     of the electing subsidiary group.

     For purposes of this subparagraph, the term `unrelated 
     person' means any person not bearing a relationship specified 
     in section 267(b) or 707(b)(1) to the corporation.
       ``(D) Effect of certain transactions on qualified 
     indebtedness.--In the case of a corporation which is a member 
     of an electing subsidiary group, to the extent that such 
     corporation--
       ``(i) distributes dividends or makes other distributions 
     with respect to its stock after the date of the enactment of 
     this paragraph to any member of the pre-election affiliated 
     group (other than to a member of the electing subsidiary 
     group) in excess of the greater of--

       ``(I) its average annual dividend (expressed as a 
     percentage of current earnings and profits) during the 5-
     taxable-year period ending with the taxable year preceding 
     the taxable year, or

[[Page 17118]]

       ``(II) 25 percent of its average annual earnings and 
     profits for such 5 taxable year period, or

       ``(ii) deals with any person in any manner not clearly 
     reflecting the income of the corporation (as determined under 
     principles similar to the principles of section 482),

     an amount of qualified indebtedness equal to the excess 
     distribution or the understatement or overstatement of 
     income, as the case may be, shall be recharacterized (for the 
     taxable year and subsequent taxable years) for purposes of 
     this subsection as indebtedness which is not qualified 
     indebtedness. If a corporation has not been in existence for 
     5 taxable years, this subparagraph shall be applied with 
     respect to the period it was in existence.
       ``(E) Election.--An election under this paragraph with 
     respect to any electing subsidiary group may be made only by 
     the common parent of the pre-election affiliated group. Such 
     an election, once made, shall apply only to the taxable year 
     for which made. No election may be made under this paragraph 
     if the effect of the election would be to have the same 
     member of the pre-election affiliated group included in more 
     than 1 electing subsidiary group.
       ``(4) Pre-election affiliated group.--For purposes of this 
     subsection, the term `pre-election affiliated group' means, 
     with respect to a corporation, the affiliated group or 
     electing worldwide affiliated group of which such corporation 
     would (but for an election under this subsection) be a member 
     for purposes of applying subsection (e).
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this 
     subsection and subsection (e), including regulations--
       ``(A) providing for the direct allocation of interest 
     expense in other circumstances where such allocation would be 
     appropriate to carry out the purposes of this subsection,
       ``(B) preventing assets or interest expense from being 
     taken into account more than once, and
       ``(C) dealing with changes in members of any group (through 
     acquisitions or otherwise) treated under this subsection as 
     an affiliated group for purposes of subsection (e).''
       (c) Insurance Companies Included in Affiliated Groups.--
     Paragraph (5) of section 864(e) is amended to read as 
     follows:
       ``(5) Affiliated group.--The term `affiliated group' has 
     the meaning given such term by section 1504 (determined 
     without regard to paragraphs (2) and (4) of section 
     1504(b)).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 902. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM 
                   NONCONTROLLED SECTION 902 CORPORATIONS.

       (a) In General.--Section 904(d)(4) (relating to application 
     of look-thru rules to dividends from noncontrolled section 
     902 corporations) is amended to read as follows:
       ``(4) Look-thru applies to dividends from noncontrolled 
     section 902 corporations.--
       ``(A) In general.--For purposes of this subsection, any 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer shall be treated as income in a 
     separate category in proportion to the ratio of--
       ``(i) the portion of earnings and profits attributable to 
     income in such category, to
       ``(ii) the total amount of earnings and profits.
       ``(B) Special rules.--For purposes of this paragraph--
       ``(i) In general.--Rules similar to the rules of paragraph 
     (3)(F) shall apply; except that the term `separate category' 
     shall include the category of income described in paragraph 
     (1)(I).
       ``(ii) Earnings and profits.--

       ``(I) In general.--The rules of section 316 shall apply.
       ``(II) Regulations.--The Secretary may prescribe 
     regulations regarding the treatment of distributions out of 
     earnings and profits for periods before the taxpayer's 
     acquisition of the stock to which the distributions relate.

       ``(iii) Dividends not allocable to separate category.--The 
     portion of any dividend from a noncontrolled section 902 
     corporation which is not treated as income in a separate 
     category under subparagraph (A) shall be treated as a 
     dividend to which subparagraph (A) does not apply.
       ``(iv) Look-thru with respect to carryforwards of credit.--
     Rules similar to subparagraph (A) also shall apply to any 
     carryforward under subsection (c) from a taxable year 
     beginning before January 1, 2002, of tax allocable to a 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer.''
       (b) Conforming Amendments.--
       (1) Subparagraph (E) of section 904(d)(1), as in effect 
     both before and after the amendments made by section 1105 of 
     the Taxpayer Relief Act of 1997, is hereby repealed.
       (2) Section 904(d)(2)(C)(iii), as so in effect, is amended 
     by striking subclause (II) and by redesignating subclause 
     (III) as subclause (II).
       (3) The last sentence of section 904(d)(2)(D), as so in 
     effect, is amended to read as follows: ``Such term does not 
     include any financial services income.''
       (4) Section 904(d)(2)(E) is amended by striking clauses 
     (ii) and (iv) and by redesignating clause (iii) as clause 
     (ii).
       (5) Section 904(d)(3)(F) is amended by striking ``(D), or 
     (E)'' and inserting ``or (D)''.
       (6) Section 864(d)(5)(A)(i) is amended by striking 
     ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 903. 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.

     SEC. 904. SUBPART F TREATMENT OF INCOME FROM TRANSMISSION OF 
                   HIGH VOLTAGE ELECTRICITY.

       (a) In General.--Paragraph (2) of section 954(e) (relating 
     to foreign base company services 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 transmission of high voltage electricity.''
       (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.

     SEC. 905. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

       (a) General Rule.--Section 904 is amended by redesignating 
     subsections (g), (h), (i), (j), and (k) as subsections (h), 
     (i), (j), (k), and (l), respectively, and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Recharacterization of Overall Domestic Loss.--
       ``(1) General rule.--For purposes of this subpart and 
     section 936, in the case of any taxpayer who sustains an 
     overall domestic loss for any taxable year beginning after 
     December 31, 2004, that portion of the taxpayer's taxable 
     income from sources within the United States for each 
     succeeding taxable year which is equal to the lesser of--
       ``(A) the amount of such loss (to the extent not used under 
     this paragraph in prior taxable years), or
       ``(B) 50 percent of the taxpayer's taxable income from 
     sources within the United States for such succeeding taxable 
     year,
     shall be treated as income from sources without the United 
     States (and not as income from sources within the United 
     States).
       ``(2) Overall domestic loss defined.--For purposes of this 
     subsection--
       ``(A) In general.--The term `overall domestic loss' means 
     any domestic loss to the extent such loss offsets taxable 
     income from sources without the United States for the taxable 
     year or for any preceding taxable year by reason of a 
     carryback. For purposes of the preceding sentence, the term 
     `domestic loss' means the amount by which the gross income 
     for the taxable year from sources within the United States is 
     exceeded by the sum of the deductions properly apportioned or 
     allocated thereto (determined without regard to any carryback 
     from a subsequent taxable year).
       ``(B) Taxpayer must have elected foreign tax credit for 
     year of loss.--The term `overall domestic loss' shall not 
     include any loss for any taxable year unless the taxpayer 
     chose the benefits of this subpart for such taxable year.
       ``(3) Characterization of subsequent income.--
       ``(A) In general.--Any income from sources within the 
     United States that is treated as income from sources without 
     the United States under paragraph (1) shall be allocated 
     among and increase the income categories in proportion to the 
     loss from sources within the United States previously 
     allocated to those income categories.
       ``(B) Income category.--For purposes of this paragraph, the 
     term `income category' has the meaning given such term by 
     subsection (f)(5)(E)(i).
       ``(4) Coordination with subsection (f).--The Secretary 
     shall prescribe such regulations as may be necessary to 
     coordinate the provisions of this subsection with the 
     provisions of subsection (f).''
       (b) Conforming Amendments.--
       (1) Section 535(d)(2) is amended by striking ``section 
     904(g)(6)'' and inserting ``section 904(h)(6)''.
       (2) Subparagraph (A) of section 936(a)(2) is amended by 
     striking ``section 904(f)'' and inserting ``subsections (f) 
     and (g) of section 904''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to losses for taxable years beginning after 
     December 31, 2004.

[[Page 17119]]



     SEC. 906. TREATMENT OF MILITARY PROPERTY OF FOREIGN SALES 
                   CORPORATIONS.

       (a) In General.--Section 923(a) (defining exempt foreign 
     trade income) is amended by striking paragraph (5) and by 
     redesignating paragraph (6) as paragraph (5).
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 907. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED 
                   INVESTMENT COMPANIES.

       (a) Treatment of Certain Dividends.--
       (1) Nonresident alien individuals.--Section 871 (relating 
     to tax on nonresident alien individuals) is amended by 
     redesignating subsection (k) as subsection (l) and by 
     inserting after subsection (j) the following new subsection:
       ``(k) Exemption for Certain Dividends of Regulated 
     Investment Companies.--
       ``(1) Interest-related dividends.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     no tax shall be imposed under paragraph (1)(A) of subsection 
     (a) on any interest-related dividend received from a 
     regulated investment company.
       ``(B) Exceptions.--Subparagraph (A) shall not apply--
       ``(i) to any interest-related dividend received from a 
     regulated investment company by a person to the extent such 
     dividend is attributable to interest (other than interest 
     described in subparagraph (E) (i) or (iii)) received by such 
     company on indebtedness issued by such person or by any 
     corporation or partnership with respect to which such person 
     is a 10-percent shareholder,
       ``(ii) to any interest-related dividend with respect to 
     stock of a regulated investment company unless the person who 
     would otherwise be required to deduct and withhold tax from 
     such dividend under chapter 3 receives a statement (which 
     meets requirements similar to the requirements of subsection 
     (h)(5)) that the beneficial owner of such stock is not a 
     United States person, and
       ``(iii) to any interest-related dividend paid to any person 
     within a foreign country (or any interest-related dividend 
     payment addressed to, or for the account of, persons within 
     such foreign country) during any period described in 
     subsection (h)(6) with respect to such country.

     Clause (iii) shall not apply to any dividend with respect to 
     any stock the holding period of which begins on or before the 
     date of the publication of the Secretary's determination 
     under subsection (h)(6).
       ``(C) Interest-related dividend.--For purposes of this 
     paragraph, an interest-related dividend is any dividend (or 
     part thereof) which is designated by the regulated investment 
     company as an interest-related dividend in a written notice 
     mailed to its shareholders not later than 60 days after the 
     close of its taxable year. If the aggregate amount so 
     designated with respect to a taxable year of the company 
     (including amounts so designated with respect to dividends 
     paid after the close of the taxable year described in section 
     855) is greater than the qualified net interest income of the 
     company for such taxable year, the portion of each 
     distribution which shall be an interest-related dividend 
     shall be only that portion of the amounts so designated which 
     such qualified net interest income bears to the aggregate 
     amount so designated.
       ``(D) Qualified net interest income.--For purposes of 
     subparagraph (C), the term `qualified net interest income' 
     means the qualified interest income of the regulated 
     investment company reduced by the deductions properly 
     allocable to such income.
       ``(E) Qualified interest income.--For purposes of 
     subparagraph (D), the term `qualified interest income' means 
     the sum of the following amounts derived by the regulated 
     investment company from sources within the United States:
       ``(i) Any amount includible in gross income as original 
     issue discount (within the meaning of section 1273) on an 
     obligation payable 183 days or less from the date of original 
     issue (without regard to the period held by the company).
       ``(ii) Any interest includible in gross income (including 
     amounts recognized as ordinary income in respect of original 
     issue discount or market discount or acquisition discount 
     under part V of subchapter P and such other amounts as 
     regulations may provide) on an obligation which is in 
     registered form; except that this clause shall not apply to--

       ``(I) any interest on an obligation issued by a corporation 
     or partnership if the regulated investment company is a 10-
     percent shareholder in such corporation or partnership, and
       ``(II) any interest which is treated as not being portfolio 
     interest under the rules of subsection (h)(4).

       ``(iii) Any interest referred to in subsection (i)(2)(A) 
     (without regard to the trade or business of the regulated 
     investment company).
       ``(iv) Any interest-related dividend includable in gross 
     income with respect to stock of another regulated investment 
     company.

     Such term includes any interest derived by the regulated 
     investment company from sources outside the United States 
     other than interest that is subject to a tax imposed by a 
     foreign jurisdiction if the amount of such tax is reduced (or 
     eliminated) by a treaty with the United States.
       ``(F) 10-percent shareholder.--For purposes of this 
     paragraph, the term `10-percent shareholder' has the meaning 
     given such term by subsection (h)(3)(B).
       ``(2) Short-term capital gain dividends.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     no tax shall be imposed under paragraph (1)(A) of subsection 
     (a) on any short-term capital gain dividend received from a 
     regulated investment company.
       ``(B) Exception for aliens taxable under subsection 
     (a)(2).--Subparagraph (A) shall not apply in the case of any 
     nonresident alien individual subject to tax under subsection 
     (a)(2).
       ``(C) Short-term capital gain dividend.--For purposes of 
     this paragraph, a short-term capital gain dividend is any 
     dividend (or part thereof) which is designated by the 
     regulated investment company as a short-term capital gain 
     dividend in a written notice mailed to its shareholders not 
     later than 60 days after the close of its taxable year. If 
     the aggregate amount so designated with respect to a taxable 
     year of the company (including amounts so designated with 
     respect to dividends paid after the close of the taxable year 
     described in section 855) is greater than the qualified 
     short-term gain of the company for such taxable year, the 
     portion of each distribution which shall be a short-term 
     capital gain dividend shall be only that portion of the 
     amounts so designated which such qualified short-term gain 
     bears to the aggregate amount so designated.
       ``(D) Qualified short-term gain.--For purposes of 
     subparagraph (C), the term `qualified short-term gain' means 
     the excess of the net short-term capital gain of the 
     regulated investment company for the taxable year over the 
     net long-term capital loss (if any) of such company for such 
     taxable year. For purposes of this subparagraph--
       ``(i) the net short-term capital gain of the regulated 
     investment company shall be computed by treating any short-
     term capital gain dividend includible in gross income with 
     respect to stock of another regulated investment company as a 
     short-term capital gain, and
       ``(ii) the excess of the net short-term capital gain for a 
     taxable year over the net long-term capital loss for a 
     taxable year (to which an election under section 4982(e)(4) 
     does not apply) shall be determined without regard to any net 
     capital loss or net short-term capital loss attributable to 
     transactions after October 31 of such year, and any such net 
     capital loss or net short-term capital loss shall be treated 
     as arising on the 1st day of the next taxable year.

     To the extent provided in regulations, clause (ii) shall 
     apply also for purposes of computing the taxable income of 
     the regulated investment company.''
       (2) Foreign corporations.--Section 881 (relating to tax on 
     income of foreign corporations not connected with United 
     States business) is amended by redesignating subsection (e) 
     as subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Tax Not To Apply to Certain Dividends of Regulated 
     Investment Companies.--
       ``(1) Interest-related dividends.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     no tax shall be imposed under paragraph (1) of subsection (a) 
     on any interest-related dividend (as defined in section 
     871(k)(1)) received from a regulated investment company.
       ``(B) Exception.--Subparagraph (A) shall not apply--
       ``(i) to any dividend referred to in section 871(k)(1)(B), 
     and
       ``(ii) to any interest-related dividend received by a 
     controlled foreign corporation (within the meaning of section 
     957(a)) to the extent such dividend is attributable to 
     interest received by the regulated investment company from a 
     person who is a related person (within the meaning of section 
     864(d)(4)) with respect to such controlled foreign 
     corporation.
       ``(C) Treatment of dividends received by controlled foreign 
     corporations.--The rules of subsection (c)(5)(A) shall apply 
     to any interest-related dividend received by a controlled 
     foreign corporation (within the meaning of section 957(a)) to 
     the extent such dividend is attributable to interest received 
     by the regulated investment company which is described in 
     clause (ii) of section 871(k)(1)(E) (and not described in 
     clause (i) or (iii) of such section).
       ``(2) Short-term capital gain dividends.--No tax shall be 
     imposed under paragraph (1) of subsection (a) on any short-
     term capital gain dividend (as defined in section 871(k)(2)) 
     received from a regulated investment company.''
       (3) Withholding taxes.--
       (A) Section 1441(c) (relating to exceptions) is amended by 
     adding at the end the following new paragraph:
       ``(12) Certain dividends received from regulated investment 
     companies.--
       ``(A) In general.--No tax shall be required to be deducted 
     and withheld under subsection (a) from any amount exempt from 
     the tax imposed by section 871(a)(1)(A) by reason of section 
     871(k).
       ``(B) Special rule.--For purposes of subparagraph (A), 
     clause (i) of section

[[Page 17120]]

     871(k)(1)(B) shall not apply to any dividend unless the 
     regulated investment company knows that such dividend is a 
     dividend referred to in such clause. A similar rule shall 
     apply with respect to the exception contained in section 
     871(k)(2)(B).''
       (B) Section 1442(a) (relating to withholding of tax on 
     foreign corporations) is amended--
       (i) by striking ``and the reference in section 
     1441(c)(10)'' and inserting ``the reference in section 
     1441(c)(10)'', and
       (ii) by inserting before the period at the end the 
     following: ``, and the references in section 1441(c)(12) to 
     sections 871(a) and 871(k) shall be treated as referring to 
     sections 881(a) and 881(e) (except that for purposes of 
     applying subparagraph (A) of section 1441(c)(12), as so 
     modified, clause (ii) of section 881(e)(1)(B) shall not apply 
     to any dividend unless the regulated investment company knows 
     that such dividend is a dividend referred to in such 
     clause)''.
       (b) Estate Tax Treatment of Interest in Certain Regulated 
     Investment Companies.--Section 2105 (relating to property 
     without the United States for estate tax purposes) is amended 
     by adding at the end the following new subsection:
       ``(d) Stock in a RIC.--
       ``(1) In general.--For purposes of this subchapter, stock 
     in a regulated investment company (as defined in section 851) 
     owned by a nonresident not a citizen of the United States 
     shall not be deemed property within the United States in the 
     proportion that, at the end of the quarter of such investment 
     company's taxable year immediately preceding a decedent's 
     date of death (or at such other time as the Secretary may 
     designate in regulations), the assets of the investment 
     company that were qualifying assets with respect to the 
     decedent bore to the total assets of the investment company.
       ``(2) Qualifying assets.--For purposes of this subsection, 
     qualifying assets with respect to a decedent are assets that, 
     if owned directly by the decedent, would have been--
       ``(A) amounts, deposits, or debt obligations described in 
     subsection (b) of this section,
       ``(B) debt obligations described in the last sentence of 
     section 2104(c), or
       ``(C) other property not within the United States.''
       (c) Treatment of Regulated Investment Companies Under 
     Section 897.--
       (1) Paragraph (1) of section 897(h) is amended by striking 
     ``REIT'' each place it appears and inserting ``qualified 
     investment entity''.
       (2) Paragraphs (2) and (3) of section 897(h) are amended to 
     read as follows:
       ``(2) Sale of stock in domestically controlled entity not 
     taxed.--The term `United States real property interest' does 
     not include any interest in a domestically controlled 
     qualified investment entity.
       ``(3) Distributions by domestically controlled qualified 
     investment entities.--In the case of a domestically 
     controlled qualified investment entity, rules similar to the 
     rules of subsection (d) shall apply to the foreign ownership 
     percentage of any gain.''
       (3) Subparagraphs (A) and (B) of section 897(h)(4) are 
     amended to read as follows:
       ``(A) Qualified investment entity.--The term `qualified 
     investment entity' means any real estate investment trust and 
     any regulated investment company.
       ``(B) Domestically controlled.--The term `domestically 
     controlled qualified investment entity' means any qualified 
     investment entity in which at all times during the testing 
     period less than 50 percent in value of the stock was held 
     directly or indirectly by foreign persons.''
       (4) Subparagraphs (C) and (D) of section 897(h)(4) are each 
     amended by striking ``REIT'' and inserting ``qualified 
     investment entity''.
       (5) The subsection heading for subsection (h) of section 
     897 is amended by striking ``REITS'' and inserting ``Certain 
     Investment Entities''.
       (d) Effective Date.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to dividends with respect to taxable years of regulated 
     investment companies beginning after December 31, 2004.
       (2) Estate tax treatment.--The amendment made by subsection 
     (b) shall apply to estates of decedents dying after December 
     31, 2004.
       (3) Certain other provisions.--The amendments made by 
     subsection (c) (other than paragraph (1) thereof) shall take 
     effect on January 1, 2005.

     SEC. 908. REPEAL OF SPECIAL RULES FOR APPLYING FOREIGN TAX 
                   CREDIT IN CASE OF FOREIGN OIL AND GAS INCOME.

       (a) In General.--Section 907 (relating to special rules in 
     case of foreign oil and gas income) is repealed.
       (b) Conforming Amendments.--
       (1) Each of the following provisions are amended by 
     striking ``907,'':
       (A) Section 245(a)(10).
       (B) Section 865(h)(1)(B).
       (C) Section 904(d)(1).
       (D) Section 904(g)(10)(A).
       (2) Section 904(f)(5)(E)(iii) is amended by inserting ``, 
     as in effect before its repeal by the Financial Freedom Act 
     of 1999'' after ``section 907(c)(4)(B)''.
       (3) Section 954(g)(1) is amended by inserting ``, as in 
     effect before its repeal by the Financial Freedom Act of 
     1999'' after ``907(c)''.
       (4) Section 6501(i) is amended--
       (A) by striking ``, or under section 907(f) (relating to 
     carryback and carryover of disallowed oil and gas extraction 
     taxes)'', and
       (B) by striking ``or 907(f)''.
       (5) The table of sections for subpart A of part III of 
     subchapter N of chapter 1 is amended by striking the item 
     relating to section 907.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 909. STUDY OF PROPER TREATMENT OF EUROPEAN UNION UNDER 
                   SAME COUNTRY EXCEPTIONS.

       (a) Study.--The Secretary of the Treasury or the 
     Secretary's delegate shall conduct a study on the feasibility 
     of treating all countries included in the European Union as 1 
     country for purposes of applying the same country exceptions 
     under subpart F of part III of subchapter N of chapter 1 of 
     the Internal Revenue Code of 1986.
       (b) Report.--Not later than 6 months after the date of the 
     enactment of this Act, the Secretary of the Treasury shall 
     report to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate 
     the results of the study conducted under subsection (a), 
     including recommendations (if any) for legislation.

     SEC. 910. APPLICATION OF DENIAL OF FOREIGN TAX CREDIT WITH 
                   RESPECT TO CERTAIN FOREIGN COUNTRIES.

       (a) In General.--Clause (ii) of section 901(j)(2)(B) 
     (relating to denial of foreign tax credit, etc., with respect 
     to certain foreign countries) is amended by inserting before 
     the period ``or, if earlier, ending on the date that the 
     President determines that the application of this subsection 
     to such foreign country is no longer in the national 
     interests of the United States''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 911. ADVANCE PRICING AGREEMENTS TREATED AS CONFIDENTIAL 
                   TAXPAYER INFORMATION.

       (a) In General.--
       (1) Treatment as return information.--Paragraph (2) of 
     section 6103(b) (defining return information) is amended by 
     striking ``and'' at the end of subparagraph (A), by inserting 
     ``and'' at the end of subparagraph (B), and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) any advance pricing agreement entered into by a 
     taxpayer and the Secretary and any background information 
     related to such agreement or any application for an advance 
     pricing agreement,''.
       (2) Exception from public inspection as written 
     determination.--Paragraph (1) of section 6110(b) (defining 
     written determination) is amended by adding at the end the 
     following new sentence: ``Such term shall not include any 
     advance pricing agreement entered into by a taxpayer and the 
     Secretary and any background information related to such 
     agreement or any application for an advance pricing 
     agreement.''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect on the date of the enactment of this Act.
       (b) Annual Report Regarding Advance Pricing Agreements.--
       (1) In general.--Not later than 90 days after the end of 
     each calendar year, the Secretary of the Treasury shall 
     prepare and publish a report regarding advance pricing 
     agreements.
       (2) Contents of report.--The report shall include the 
     following for the calendar year to which such report relates:
       (A) Information about the structure, composition, and 
     operation of the advance pricing agreement program office.
       (B) A copy of each model advance pricing agreement.
       (C) The number of--
       (i) applications filed during such calendar year for 
     advanced pricing agreements;
       (ii) advance pricing agreements executed cumulatively to 
     date and during such calendar year;
       (iii) renewals of advanced pricing agreements issued;
       (iv) pending requests for advance pricing agreements;
       (v) pending renewals of advance pricing agreements;
       (vi) for each of the items in clauses (ii) through (v), the 
     number that are unilateral, bilateral, and multilateral, 
     respectively;
       (vii) advance pricing agreements revoked or canceled, and 
     the number of withdrawals from the advance pricing agreement 
     program; and
       (viii) advanced pricing agreements finalized or renewed by 
     industry.
       (D) General descriptions of--
       (i) the nature of the relationships between the related 
     organizations, trades, or businesses covered by advance 
     pricing agreements;
       (ii) the covered transactions and the business functions 
     performed and risks assumed by such organizations, trades, or 
     businesses;
       (iii) the related organizations, trades, or businesses 
     whose prices or results are tested to determine compliance 
     with transfer pricing methodologies prescribed in advanced 
     pricing agreements;

[[Page 17121]]

       (iv) methodologies used to evaluate tested parties and 
     transactions and the circumstances leading to the use of 
     those methodologies;
       (v) critical assumptions made and sources of comparables 
     used;
       (vi) comparable selection criteria and the rationale used 
     in determining such criteria;
       (vii) the nature of adjustments to comparables or tested 
     parties;
       (viii) the nature of any ranges agreed to, including 
     information regarding when no range was used and why, when 
     interquartile ranges were used, and when there was a 
     statistical narrowing of the comparables;
       (ix) adjustment mechanisms provided to rectify results that 
     fall outside of the agreed upon advance pricing agreement 
     range;
       (x) the various term lengths for advance pricing 
     agreements, including rollback years, and the number of 
     advance pricing agreements with each such term length;
       (xi) the nature of documentation required; and
       (xii) approaches for sharing of currency or other risks.
       (E) Statistics regarding the amount of time taken to 
     complete new and renewal advance pricing agreements.
       (3) Confidentiality.--The reports required by this 
     subsection shall be treated as authorized by the Internal 
     Revenue Code of 1986 for purposes of section 6103 of such 
     Code, but the reports shall not include information--
       (A) which would not be permitted to be disclosed under 
     section 6110(c) of such Code if such report were a written 
     determination as defined in section 6110 of such Code, or
       (B) which can be associated with, or otherwise identify, 
     directly or indirectly, a particular taxpayer.
       (4) First report.--The report for calendar year 1999 shall 
     include prior calendar years after 1990.
       (c) User Fee.--Section 7527, as added by title XV of this 
     Act, is amended by redesignating subsection (c) as subsection 
     (d) and by inserting after subsection (b) the following new 
     subsection:
       ``(c) Advance Pricing Agreements.--
       ``(1) In general.--In addition to any fee otherwise imposed 
     under this section, the fee imposed for requests for advance 
     pricing agreements shall be increased by $500.
       ``(2) Reduced fee for small businesses.--The Secretary 
     shall provide an appropriate reduction in the amount imposed 
     by reason of paragraph (1) for requests for advance pricing 
     agreements for small businesses.''
       (d) Regulations.--The Secretary of the Treasury or the 
     Secretary's delegate shall prescribe such regulations as may 
     be necessary or appropriate to carry out the purposes of 
     section 6103(b)(2)(C), and the last sentence of section 
     6110(b)(1), of the Internal Revenue Code of 1986, as added by 
     this section.

     SEC. 912. INCREASE IN DOLLAR LIMITATION ON SECTION 911 
                   EXCLUSION.

       (a) General Rule.--The table contained in clause (i) of 
     section 911(b)(2)(D) is amended to read as follows:

``For calendar year--                         The exclusion amount is--
  2000.........................................................$76,000 
  2001..........................................................78,000 
  2002..........................................................80,000 
  2003..........................................................83,000 
  2004..........................................................86,000 
  2005..........................................................89,000 
  2006..........................................................92,000 
  2007 and thereafter.........................................95,000.''
       (b) Conforming Amendment.--Clause (ii) of section 
     911(b)(2)(D) is amended by striking ``$80,000'' and inserting 
     ``$95,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

     SEC. 1001. 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, or
       ``(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,
       ``(iii) the State law governing the association permits the 
     association to levy assessments 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 executive 
     branch 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) and 
     to make disbursements to pay claims on insurance contracts 
     issued by such association.
       ``(C) Subparagraph (A) shall not apply to an association 
     for any taxable year if the association's surplus income for 
     such year exceeds 15 percent of the total coverage in force 
     under insurance contracts issued by such association and 
     outstanding as of the close of the taxable year.''
       (b) 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).
       (c) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1002. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN 
                   FUNDS.

       (a) In General.--Paragraph (1) of section 648 of the Tax 
     Reform Act of 1984 is amended to read as follows:
       ``(1) such securities or obligations are held in a fund--
       ``(A) which, except to the extent of the investment 
     earnings on such securities or obligations, cannot be used, 
     under State constitutional or statutory restrictions 
     continuously in effect since October 9, 1969, through the 
     date of issue of the bond issue, to pay debt service on the 
     bond issue or to finance the facilities that are to be 
     financed with the proceeds of the bonds, or
       ``(B) the annual distributions from which cannot exceed 7 
     percent of the average fair market value of the assets held 
     in such fund except to the extent distributions are necessary 
     to pay debt service on the bond issue,''.
       (b) Conforming Amendment.--Paragraph (3) of such section is 
     amended by striking ``the investment earnings of'' and 
     inserting ``distributions from''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 2000.

     SEC. 1003. CHARITABLE SPLIT-DOLLAR LIFE INSURANCE, ANNUITY, 
                   AND ENDOWMENT CONTRACTS.

       (a) In General.--Subsection (f) of section 170 (relating to 
     disallowance of deduction in certain cases and special rules) 
     is amended by adding at the end the following new paragraph:
       ``(10) Split-dollar life insurance, annuity, and endowment 
     contracts.--
       ``(A) In general.--Nothing in this section or in section 
     545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 shall 
     be construed to allow a deduction, and no deduction shall be 
     allowed, for any transfer to or for the use of an 
     organization described in subsection (c) if in connection 
     with such transfer--
       ``(i) the organization directly or indirectly pays, or has 
     previously paid, any premium on any personal benefit contract 
     with respect to the transferor, or
       ``(ii) there is an understanding or expectation that any 
     person will directly or indirectly pay any premium on any 
     personal benefit contract with respect to the transferor.
       ``(B) Personal benefit contract.--For purposes of 
     subparagraph (A), the term `personal benefit contract' means, 
     with respect to the transferor, any life insurance, annuity, 
     or endowment contract if any direct or indirect beneficiary 
     under such contract is the transferor, any member of the 
     transferor's family, or any other person (other than an 
     organization described in subsection (c)) designated by the 
     transferor.
       ``(C) Application to charitable remainder trusts.--In the 
     case of a transfer to a trust referred to in subparagraph 
     (E), references in subparagraphs (A) and (F) to an 
     organization described in subsection (c) shall be treated as 
     a reference to such trust.
       ``(D) Exception for certain annuity contracts.--If, in 
     connection with a transfer to or for the use of an 
     organization described in subsection (c), such organization 
     incurs an obligation to pay a charitable gift annuity (as 
     defined in section 501(m)) and such organization purchases 
     any annuity contract to

[[Page 17122]]

     fund such obligation, persons receiving payments under the 
     charitable gift annuity shall not be treated for purposes of 
     subparagraph (B) as indirect beneficiaries under such 
     contract if--
       ``(i) such organization possesses all of the incidents of 
     ownership under such contract,
       ``(ii) such organization is entitled to all the payments 
     under such contract, and
       ``(iii) the timing and amount of payments under such 
     contract are substantially the same as the timing and amount 
     of payments to each such person under such obligation (as 
     such obligation is in effect at the time of such transfer).
       ``(E) Exception for certain contracts held by charitable 
     remainder trusts.--A person shall not be treated for purposes 
     of subparagraph (B) as an indirect beneficiary under any life 
     insurance, annuity, or endowment contract held by a 
     charitable remainder annuity trust or a charitable remainder 
     unitrust (as defined in section 664(d)) solely by reason of 
     being entitled to any payment referred to in paragraph (1)(A) 
     or (2)(A) of section 664(d) if--
       ``(i) such trust possesses all of the incidents of 
     ownership under such contract, and
       ``(ii) such trust is entitled to all the payments under 
     such contract.
       ``(F) Excise tax on premiums paid.--
       ``(i) In general.--There is hereby imposed on any 
     organization described in subsection (c) an excise tax equal 
     to the premiums paid by such organization on any life 
     insurance, annuity, or endowment contract if the payment of 
     premiums on such contract is in connection with a transfer 
     for which a deduction is not allowable under subparagraph 
     (A), determined without regard to when such transfer is made.
       ``(ii) Payments by other persons.--For purposes of clause 
     (i), payments made by any other person pursuant to an 
     understanding or expectation referred to in subparagraph (A) 
     shall be treated as made by the organization.
       ``(iii) Reporting.--Any organization on which tax is 
     imposed by clause (i) with respect to any premium shall file 
     an annual return which includes--

       ``(I) the amount of such premiums paid during the year and 
     the name and TIN of each beneficiary under the contract to 
     which the premium relates, and
       ``(II) such other information as the Secretary may require.

     The penalties applicable to returns required under section 
     6033 shall apply to returns required under this clause. 
     Returns required under this clause shall be furnished at such 
     time and in such manner as the Secretary shall by forms or 
     regulations require.
       ``(iv) Certain rules to apply.--The tax imposed by this 
     subparagraph shall be treated as imposed by chapter 42 for 
     purposes of this title other than subchapter B of chapter 42.
       ``(G) Special rule where state requires specification of 
     charitable gift annuitant in contract.--In the case of an 
     obligation to pay a charitable gift annuity referred to in 
     subparagraph (D) which is entered into under the laws of a 
     State which requires, in order for the charitable gift 
     annuity to be exempt from insurance regulation by such State, 
     that each beneficiary under the charitable gift annuity be 
     named as a beneficiary under an annuity contract issued by an 
     insurance company authorized to transact business in such 
     State, the requirements of clauses (i) and (ii) of 
     subparagraph (D) shall be treated as met if--
       ``(i) such State law requirement was in effect on February 
     8, 1999,
       ``(ii) each such beneficiary under the charitable gift 
     annuity is a bona fide resident of such State at the time the 
     obligation to pay a charitable gift annuity is entered into, 
     and
       ``(iii) the only persons entitled to payments under such 
     contract are persons entitled to payments as beneficiaries 
     under such obligation on the date such obligation is entered 
     into.
       ``(H) Member of family.--For purposes of this paragraph, an 
     individual's family consists of the individual's 
     grandparents, the grandparents of such individual's spouse, 
     the lineal descendants of such grandparents, and any spouse 
     of such a lineal descendant.
       ``(I) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations to 
     prevent the avoidance of such purposes.''
       (b) Effective Date.--
       (1) In general.--Except as otherwise provided in this 
     section, the amendment made by this section shall apply to 
     transfers made after February 8, 1999.
       (2) Excise tax.--Except as provided in paragraph (3) of 
     this subsection, section 170(f)(10)(F) of the Internal 
     Revenue Code of 1986 (as added by this section) shall apply 
     to premiums paid after the date of the enactment of this Act.
       (3) Reporting.--Clause (iii) of such section 170(f)(10)(F) 
     shall apply to premiums paid after February 8, 1999 
     (determined as if the tax imposed by such section applies to 
     premiums paid after such date).

     SEC. 1004. EXEMPTION PROCEDURE FROM TAXES ON SELF-DEALING.

       (a) In General.--Subsection (d) of section 4941 (relating 
     to taxes on self-dealing) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special exemption.--The Secretary shall establish an 
     exemption procedure for purposes of this subsection. Pursuant 
     to such procedure, the Secretary may grant a conditional or 
     unconditional exemption of any disqualified person or 
     transaction or class of disqualified persons or transactions, 
     from all or part of the restrictions imposed by paragraph 
     (1). The Secretary may not grant an exemption under this 
     paragraph unless he finds that such exemption is--
       ``(A) administratively feasible,
       ``(B) in the interests of the private foundation, and
       ``(C) protective of the rights of the private foundation.

     Before granting an exemption under this paragraph, the 
     Secretary shall require adequate notice to be given to 
     interested persons and shall publish notice in the Federal 
     Register of the pendency of such exemption and shall afford 
     interested persons an opportunity to present views.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 1005. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-
                   EXEMPT ORGANIZATIONS.

       (a) In General.--Subsection (a) of section 7428 (relating 
     to creation of remedy) is amended--
       (1) in subparagraph (B) by inserting after ``509(a))'' the 
     following: ``or as a private operating foundation (as defined 
     in section 4942(j)(3))'', and
       (2) by amending subparagraph (C) to read as follows:
       ``(C) with respect to the initial qualification or 
     continuing qualification of an organization as an 
     organization described in section 501(c) (other than 
     paragraph (3)) which is exempt from tax under section 501(a), 
     or''.
       (b) Court Jurisdiction.--Subsection (a) of section 7428 is 
     amended in the material following paragraph (2) by striking 
     ``United States Tax Court, the United States Claims Court, or 
     the district court of the United States for the District of 
     Columbia'' and inserting the following: ``United States Tax 
     Court (in the case of any such determination or failure) or 
     the United States Claims Court or the district court of the 
     United States for the District of Columbia (in the case of a 
     determination or failure with respect to an issue referred to 
     in subparagraph (A) or (B) of paragraph (1)),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to pleadings filed with respect to determinations 
     (or requests for determinations) made after the date of the 
     enactment of this Act.

     SEC. 1006. 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, 
     1999.
       (2) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 do not apply to any amount received or accrued 
     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, 2000.

                    TITLE XI--REAL ESTATE PROVISIONS

    Subtitle A--Provisions Relating to Real Estate Investment Trusts

   PART I--TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT 
                              SUBSIDIARIES

     SEC. 1101. MODIFICATIONS TO ASSET DIVERSIFICATION TEST.

       (a) In General.--Subparagraph (B) of section 856(c)(4) is 
     amended to read as follows:
       ``(B)(i) not more than 25 percent of the value of its total 
     assets is represented by securities (other than those 
     includible under subparagraph (A)), and
       ``(ii) except with respect to a taxable REIT subsidiary and 
     securities includible under subparagraph (A)--
       ``(I) not more than 5 percent of the value of its total 
     assets is represented by securities of any 1 issuer,
       ``(II) the trust does not hold securities possessing more 
     than 10 percent of the total voting power of the outstanding 
     securities of any 1 issuer, and
       ``(III) the trust does not hold securities having a value 
     of more than 10 percent of the

[[Page 17123]]

     total value of the outstanding securities of any 1 issuer.''
       (b) Exception for Straight Debt Securities.--Subsection (c) 
     of section 856 is amended by adding at the end the following 
     new paragraph:
       ``(7) Straight debt safe harbor in applying paragraph 
     (4).--Securities of an issuer which are straight debt (as 
     defined in section 1361(c)(5) without regard to subparagraph 
     (B)(iii) thereof) shall not be taken into account in applying 
     paragraph (4)(B)(ii)(III) if--
       ``(A) the only securities of such issuer which are held by 
     the trust or a taxable REIT subsidiary of the trust are 
     straight debt (as so defined), or
       ``(B) the issuer is a partnership and the trust holds at 
     least a 20 percent profits interest in the partnership.''

     SEC. 1102. TREATMENT OF INCOME AND SERVICES PROVIDED BY 
                   TAXABLE REIT SUBSIDIARIES.

       (a) Income From Taxable REIT Subsidiaries Not Treated as 
     Impermissible Tenant Service Income.--Clause (i) of section 
     856(d)(7)(C) (relating to exceptions to impermissible tenant 
     service income) is amended by inserting ``or through a 
     taxable REIT subsidiary of such trust'' after ``income''.
       (b) Certain Income From Taxable REIT Subsidiaries Not 
     Excluded From Rents From Real Property.--
       (1) In general.--Subsection (d) of section 856 (relating to 
     rents from real property defined) is amended by adding at the 
     end the following new paragraphs:
       ``(8) Special rule for taxable reit subsidiaries.--For 
     purposes of this subsection, amounts paid to a real estate 
     investment trust by a taxable REIT subsidiary of such trust 
     shall not be excluded from rents from real property by reason 
     of paragraph (2)(B) if the requirements of subparagraph (A) 
     or (B) are met.
       ``(A) Limited rental exception.--The requirements of this 
     subparagraph are met with respect to any property if at least 
     90 percent of the leased space of the property is rented to 
     persons other than taxable REIT subsidiaries of such trust 
     and other than persons described in section 856(d)(2)(B). The 
     preceding sentence shall apply only to the extent that the 
     amounts paid to the trust as rents from real property (as 
     defined in paragraph (1) without regard to paragraph (2)(B)) 
     from such property are substantially comparable to such rents 
     made by the other tenants of the trust's property for 
     comparable space.
       ``(B) Exception for certain lodging facilities.--The 
     requirements of this subparagraph are met with respect to an 
     interest in real property which is a qualified lodging 
     facility leased by the trust to a taxable REIT subsidiary of 
     the trust if the property is operated on behalf of such 
     subsidiary by a person who is an eligible independent 
     contractor.
       ``(9) Eligible independent contractor.--For purposes of 
     paragraph (8)(B)--
       ``(A) In general.--The term `eligible independent 
     contractor' means, with respect to any qualified lodging 
     facility, any independent contractor if, at the time such 
     contractor enters into a management agreement or other 
     similar service contract with the taxable REIT subsidiary to 
     operate the facility, such contractor (or any related person) 
     is actively engaged in the trade or business of operating 
     qualified lodging facilities for any person who is not a 
     related person with respect to the real estate investment 
     trust or the taxable REIT subsidiary.
       ``(B) Special rules.--Solely for purposes of this paragraph 
     and paragraph (8)(B), a person shall not fail to be treated 
     as an independent contractor with respect to any qualified 
     lodging facility by reason of any of the following:
       ``(i) The taxable REIT subsidiary bears the expenses for 
     the operation of the facility pursuant to the management 
     agreement or other similar service contract.
       ``(ii) The taxable REIT subsidiary receives the revenues 
     from the operation of such facility, net of expenses for such 
     operation and fees payable to the operator pursuant to such 
     agreement or contract.
       ``(iii) The real estate investment trust receives income 
     from such person with respect to another property that is 
     attributable to a lease of such other property to such person 
     that was in effect as on the later of--

       ``(I) January 1, 1999, or
       ``(II) the earliest date that any taxable REIT subsidiary 
     of such trust entered into a management agreement or other 
     similar service contract with such person with respect to 
     such qualified lodging facility.

       ``(C) Renewals, etc., of existing leases.--For purposes of 
     subparagraph (B)(iii)--
       ``(i) a lease shall be treated as in effect on January 1, 
     1999, without regard to its renewal after such date, so long 
     as such renewal is pursuant to the terms of such lease as in 
     effect on whichever of the dates under subparagraph (B)(iii) 
     is the latest, and
       ``(ii) a lease of a property entered into after whichever 
     of the dates under subparagraph (B)(iii) is the latest shall 
     be treated as in effect on such date if--

       ``(I) on such date, a lease of such property from the trust 
     was in effect, and
       ``(II) under the terms of the new lease, such trust 
     receives a substantially similar or lesser benefit in 
     comparison to the lease referred to in subclause (I).

       ``(D) Qualified lodging facility.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `qualified lodging facility' 
     means any lodging facility unless wagering activities are 
     conducted at or in connection with such facility by any 
     person who is engaged in the business of accepting wagers and 
     who is legally authorized to engage in such business at or in 
     connection with such facility.
       ``(ii) Lodging facility.--The term `lodging facility' means 
     a hotel, motel, or other establishment more than one-half of 
     the dwelling units in which are used on a transient basis.
       ``(iii) Customary amenities and facilities.--The term 
     `lodging facility' includes customary amenities and 
     facilities operated as part of, or associated with, the 
     lodging facility so long as such amenities and facilities are 
     customary for other properties of a comparable size and class 
     owned by other owners unrelated to such real estate 
     investment trust.
       ``(E) Operate includes manage.--References in this 
     paragraph to operating a property shall be treated as 
     including a reference to managing the property.
       ``(F) Related person.--Persons shall be treated as related 
     to each other if such persons are treated as a single 
     employer under subsection (a) or (b) of section 52.''.
       (2) Conforming amendment.--Subparagraph (B) of section 
     856(d)(2) is amended by inserting ``except as provided in 
     paragraph (8),'' after ``(B)''.

     SEC. 1103. TAXABLE REIT SUBSIDIARY.

       (a) In General.--Section 856 is amended by adding at the 
     end the following new subsection:
       ``(l) Taxable REIT Subsidiary.--For purposes of this part--
       ``(1) In general.--The term `taxable REIT subsidiary' 
     means, with respect to a real estate investment trust, a 
     corporation (other than a real estate investment trust) if--
       ``(A) such trust directly or indirectly owns stock in such 
     corporation, and
       ``(B) such trust and such corporation jointly elect that 
     such corporation shall be treated as a taxable REIT 
     subsidiary of such trust for purposes of this part.

     Such an election, once made, shall be irrevocable unless both 
     such trust and corporation consent to its revocation. Such 
     election, and any revocation thereof, may be made without the 
     consent of the Secretary.
       ``(2) 35 percent ownership in another taxable reit 
     subsidiary.--The term `taxable REIT subsidiary' includes, 
     with respect to any real estate investment trust, any 
     corporation (other than a real estate investment trust) with 
     respect to which a taxable REIT subsidiary of such trust owns 
     directly or indirectly--
       ``(A) securities possessing more than 35 percent of the 
     total voting power of the outstanding securities of such 
     corporation, or
       ``(B) securities having a value of more than 35 percent of 
     the total value of the outstanding securities of such 
     corporation.

     The preceding sentence shall not apply to a qualified REIT 
     subsidiary (as defined in subsection (i)(2)). The rule of 
     section 856(c)(7) shall apply for purposes of subparagraph 
     (B).
       ``(3) Exceptions.--The term `taxable REIT subsidiary' shall 
     not include--
       ``(A) any corporation which directly or indirectly operates 
     or manages a lodging facility or a health care facility, and
       ``(B) any corporation which directly or indirectly provides 
     to any other person (under a franchise, license, or 
     otherwise) rights to any brand name under which any lodging 
     facility or health care facility is operated.

     Subparagraph (B) shall not apply to rights provided to an 
     eligible independent contractor to operate or manage a 
     lodging facility if such rights are held by such corporation 
     as a franchisee, licensee, or in a similar capacity and such 
     lodging facility is either owned by such corporation or is 
     leased to such corporation from the real estate investment 
     trust.
       ``(4) Definitions.--For purposes of paragraph (3)--
       ``(A) Lodging facility.--The term `lodging facility' has 
     the meaning given to such term by paragraph (9)(D)(ii).
       ``(B) Health care facility.--The term `health care 
     facility' has the meaning given to such term by subsection 
     (e)(6)(D)(ii).''.
       (b) Conforming Amendment.--Paragraph (2) of section 856(i) 
     is amended by adding at the end the following new sentence: 
     ``Such term shall not include a taxable REIT subsidiary.''

     SEC. 1104. LIMITATION ON EARNINGS STRIPPING.

       Paragraph (3) of section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     striking ``and'' at the end of subparagraph (A), by striking 
     the period at the end of subparagraph (B) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(C) any interest paid or accrued (directly or indirectly) 
     by a taxable REIT subsidiary (as defined in section 856(l)) 
     of a real estate investment trust to such trust.''.

[[Page 17124]]



     SEC. 1105. 100 PERCENT TAX ON IMPROPERLY ALLOCATED AMOUNTS.

       (a) In General.--Subsection (b) of section 857 (relating to 
     method of taxation of real estate investment trusts and 
     holders of shares or certificates of beneficial interest) is 
     amended by redesignating paragraphs (7) and (8) as paragraphs 
     (8) and (9), respectively, and by inserting after paragraph 
     (6) the following new paragraph:
       ``(7) Income from redetermined rents, redetermined 
     deductions, and excess interest.--
       ``(A) Imposition of tax.--There is hereby imposed for each 
     taxable year of the real estate investment trust a tax equal 
     to 100 percent of redetermined rents, redetermined 
     deductions, and excess interest.
       ``(B) Redetermined rents.--
       ``(i) In general.--The term `redetermined rents' means 
     rents from real property (as defined in subsection 856(d)) 
     the amount of which would (but for subparagraph (E)) be 
     reduced on distribution, apportionment, or allocation under 
     section 482 to clearly reflect income as a result of services 
     furnished or rendered by a taxable REIT subsidiary of the 
     real estate investment trust to a tenant of such trust.
       ``(ii) Exception for certain services.--Clause (i) shall 
     not apply to amounts received directly or indirectly by a 
     real estate investment trust for services described in 
     paragraph (1)(B) or (7)(C)(i) of section 856(d).
       ``(iii) Exception for de minimis amounts.--Clause (i) shall 
     not apply to amounts described in section 856(d)(7)(A) with 
     respect to a property to the extent such amounts do not 
     exceed the one percent threshold described in section 
     856(d)(7)(B) with respect to such property.
       ``(iv) Exception for comparably priced services.--Clause 
     (i) shall not apply to any service rendered by a taxable REIT 
     subsidiary of a real estate investment trust to a tenant of 
     such trust if--

       ``(I) such subsidiary renders a significant amount of 
     similar services to persons other than such trust and tenants 
     of such trust who are unrelated (within the meaning of 
     section 856(d)(8)(F)) to such subsidiary, trust, and tenants, 
     but
       ``(II) only to the extent the charge for such service so 
     rendered is substantially comparable to the charge for the 
     similar services rendered to persons referred to in subclause 
     (I).

       ``(v) Exception for certain separately charged services.--
     Clause (i) shall not apply to any service rendered by a 
     taxable REIT subsidiary of a real estate investment trust to 
     a tenant of such trust if--

       ``(I) the rents paid to the trust by tenants (leasing at 
     least 25 percent of the net leasable space in the trust's 
     property) who are not receiving such service from such 
     subsidiary are substantially comparable to the rents paid by 
     tenants leasing comparable space who are receiving such 
     service from such subsidiary, and
       ``(II) the charge for such service from such subsidiary is 
     separately stated.

       ``(vi) Exception for certain services based on subsidiary's 
     income from the services.--Clause (i) shall not apply to any 
     service rendered by a taxable REIT subsidiary of a real 
     estate investment trust to a tenant of such trust if the 
     gross income of such subsidiary from such service is not less 
     than 150 percent of such subsidiary's direct cost in 
     furnishing or rendering the service.
       ``(vii) Exceptions granted by secretary.--The Secretary may 
     waive the tax otherwise imposed by subparagraph (A) if the 
     trust establishes to the satisfaction of the Secretary that 
     rents charged to tenants were established on an arms' length 
     basis even though a taxable REIT subsidiary of the trust 
     provided services to such tenants.
       ``(C) Redetermined deductions.--The term `redetermined 
     deductions' means deductions (other than redetermined rents) 
     of a taxable REIT subsidiary of a real estate investment 
     trust if the amount of such deductions would (but for 
     subparagraph (E)) be increased on distribution, 
     apportionment, or allocation under section 482 to clearly 
     reflect income as between such subsidiary and such trust.
       ``(D) Excess interest.--The term `excess interest' means 
     any deductions for interest payments by a taxable REIT 
     subsidiary of a real estate investment trust to such trust to 
     the extent that the interest payments are in excess of a rate 
     that is commercially reasonable.
       ``(E) Coordination with section 482.--The imposition of tax 
     under subparagraph (A) shall be in lieu of any distribution, 
     apportionment, or allocation under section 482.
       ``(F) Regulatory authority.--The Secretary shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of this paragraph. Until the Secretary 
     prescribes such regulations, real estate investment trusts 
     and their taxable REIT subsidiaries may base their 
     allocations on any reasonable method.''.
       (b) Amount Subject to Tax Not Required To Be Distributed.--
     Subparagraph (E) of section 857(b)(2) (relating to real 
     estate investment trust taxable income) is amended by 
     striking ``paragraph (5)'' and inserting ``paragraphs (5) and 
     (7)''.

     SEC. 1106. EFFECTIVE DATE.

       (a) In General.--The amendments made by this part shall 
     apply to taxable years beginning after December 31, 2000.
       (b) Transitional Rules Related to Section 1101.--
       (1) Existing arrangements.--
       (A) In general.--Except as otherwise provided in this 
     paragraph, the amendment made by section 1101 shall not apply 
     to a real estate investment trust with respect to--
       (i) securities of a corporation held directly or indirectly 
     by such trust on July 12, 1999,
       (ii) securities of a corporation held by an entity on July 
     12, 1999, if such trust acquires control of such entity 
     pursuant to a written binding contract in effect on such date 
     and at all times thereafter before such acquisition,
       (iii) securities received by such trust (or a successor) in 
     exchange for, or with respect to, securities described in 
     clause (i) or (ii) in a transaction in which gain or loss is 
     not recognized, and
       (iv) securities acquired directly or indirectly by such 
     trust as part of a reorganization (as defined in section 
     368(a)(1) of the Internal Revenue Code of 1986) with respect 
     to such trust if such securities are described in clause (i), 
     (ii), or (iii) with respect to any other real estate 
     investment trust.
       (B) New trade or business or substantial new assets.--
     Subparagraph (A) shall cease to apply to securities of a 
     corporation as of the first day after July 12, 1999, on which 
     such corporation engages in a substantial new line of 
     business, or acquires any substantial asset, other than--
       (i) pursuant to a binding contract in effect on such date 
     and at all times thereafter before the acquisition of such 
     asset,
       (ii) in a transaction in which gain or loss is not 
     recognized by reason of section 1031 or 1033 of the Internal 
     Revenue Code of 1986, or
       (iii) in a reorganization (as so defined) with another 
     corporation the securities of which are described in 
     paragraph (1)(A) of this subsection.
       (2) Tax-free conversion.--If--
       (A) at the time of an election for a corporation to become 
     a taxable REIT subsidiary, the amendment made by section 1101 
     does not apply to such corporation by reason of paragraph 
     (1), and
       (B) such election first takes effect before January 1, 
     2004,

     such election shall be treated as a reorganization qualifying 
     under section 368(a)(1)(A) of such Code.

                       PART II--HEALTH CARE REITS

     SEC. 1111. HEALTH CARE REITS.

       (a) Special Foreclosure Rule for Health Care Properties.--
     Subsection (e) of section 856 (relating to special rules for 
     foreclosure property) is amended by adding at the end the 
     following new paragraph:
       ``(6) Special rule for qualified health care properties.--
     For purposes of this subsection--
       ``(A) Acquisition at expiration of lease.--The term 
     `foreclosure property' shall include any qualified health 
     care property acquired by a real estate investment trust as 
     the result of the termination of a lease of such property 
     (other than a termination by reason of a default, or the 
     imminence of a default, on the lease).
       ``(B) Grace period.--In the case of a qualified health care 
     property which is foreclosure property solely by reason of 
     subparagraph (A), in lieu of applying paragraphs (2) and 
     (3)--
       ``(i) the qualified health care property shall cease to be 
     foreclosure property as of the close of the second taxable 
     year after the taxable year in which such trust acquired such 
     property, and
       ``(ii) if the real estate investment trust establishes to 
     the satisfaction of the Secretary that an extension of the 
     grace period in clause (i) is necessary to the orderly 
     leasing or liquidation of the trust's interest in such 
     qualified health care property, the Secretary may grant 1 or 
     more extensions of the grace period for such qualified health 
     care property.

     Any such extension shall not extend the grace period beyond 
     the close of the 6th year after the taxable year in which 
     such trust acquired such qualified health care property.
       ``(C) Income from independent contractors.--For purposes of 
     applying paragraph (4)(C) with respect to qualified health 
     care property which is foreclosure property by reason of 
     subparagraph (A) or paragraph (1), income derived or received 
     by the trust from an independent contractor shall be 
     disregarded to the extent such income is attributable to--
       ``(i) any lease of property in effect on the date the real 
     estate investment trust acquired the qualified health care 
     property (without regard to its renewal after such date so 
     long as such renewal is pursuant to the terms of such lease 
     as in effect on such date), or
       ``(ii) any lease of property entered into after such date 
     if--

       ``(I) on such date, a lease of such property from the trust 
     was in effect, and
       ``(II) under the terms of the new lease, such trust 
     receives a substantially similar or lesser benefit in 
     comparison to the lease referred to in subclause (I).

       ``(D) Qualified health care property.--
       ``(i) In general.--The term `qualified health care 
     property' means any real property (including interests 
     therein), and any personal property incident to such real 
     property, which--

[[Page 17125]]

       ``(I) is a health care facility, or
       ``(II) is necessary or incidental to the use of a health 
     care facility.

       ``(ii) Health care facility.--For purposes of clause (i), 
     the term `health care facility' means a hospital, nursing 
     facility, assisted living facility, congregate care facility, 
     qualified continuing care facility (as defined in section 
     7872(g)(4)), or other licensed facility which extends medical 
     or nursing or ancillary services to patients and which, 
     immediately before the termination, expiration, default, or 
     breach of the lease of or mortgage secured by such facility, 
     was operated by a provider of such services which was 
     eligible for participation in the medicare program under 
     title XVIII of the Social Security Act with respect to such 
     facility.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

      PART III--CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES

     SEC. 1121. CONFORMITY WITH REGULATED INVESTMENT COMPANY 
                   RULES.

       (a) Distribution Requirement.--Clauses (i) and (ii) of 
     section 857(a)(1)(A) (relating to requirements applicable to 
     real estate investment trusts) are each amended by striking 
     ``95 percent (90 percent for taxable years beginning before 
     January 1, 1980)'' and inserting ``90 percent''.
       (b) Imposition of Tax.--Clause (i) of section 857(b)(5)(A) 
     (relating to imposition of tax in case of failure to meet 
     certain requirements) is amended by striking ``95 percent (90 
     percent in the case of taxable years beginning before January 
     1, 1980)'' and inserting ``90 percent''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

 PART IV--CLARIFICATION OF EXCEPTION FROM IMPERMISSIBLE TENANT SERVICE 
                                 INCOME

     SEC. 1131. CLARIFICATION OF EXCEPTION FOR INDEPENDENT 
                   OPERATORS.

       (a) In General.--Paragraph (3) of section 856(d) (relating 
     to independent contractor defined) is amended by adding at 
     the end the following flush sentence:
     ``In the event that any class of stock of either the real 
     estate investment trust or such person is regularly traded on 
     an established securities market, only persons who own, 
     directly or indirectly, more than 5 percent of such class of 
     stock shall be taken into account as owning any of the stock 
     of such class for purposes of applying the 35 percent 
     limitation set forth in subparagraph (B) (but all of the 
     outstanding stock of such class shall be considered 
     outstanding in order to compute the denominator for purpose 
     of determining the applicable percentage of ownership).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

           PART V--MODIFICATION OF EARNINGS AND PROFITS RULES

     SEC. 1141. MODIFICATION OF EARNINGS AND PROFITS RULES.

       (a) Rules for Determining Whether Regulated Investment 
     Company Has Earnings and Profits From Non-RIC Year.--
     Subsection (c) of section 852 is amended by adding at the end 
     the following new paragraph:
       ``(3) Distributions to meet requirements of subsection 
     (a)(2)(B).--Any distribution which is made in order to comply 
     with the requirements of subsection (a)(2)(B)--
       ``(A) shall be treated for purposes of this subsection and 
     subsection (a)(2)(B) as made from the earliest earnings and 
     profits accumulated in any taxable year to which the 
     provisions of this part did not apply rather than the most 
     recently accumulated earnings and profits, and
       ``(B) to the extent treated under subparagraph (A) as made 
     from accumulated earnings and profits, shall not be treated 
     as a distribution for purposes of subsection (b)(2)(D) and 
     section 855.''.
       (b) Clarification of Application of REIT Spillover Dividend 
     Rules to Distributions To Meet Qualification Requirement.--
     Subparagraph (B) of section 857(d)(3) is amended by inserting 
     before the period ``and section 858''.
       (c) Application of Deficiency Dividend Procedures.--
     Paragraph (1) of section 852(e) is amended by adding at the 
     end the following new sentence: ``If the determination under 
     subparagraph (A) is solely as a result of the failure to meet 
     the requirements of subsection (a)(2), the preceding sentence 
     shall also apply for purposes of applying subsection (a)(2) 
     to the non-RIC year.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

          PART VI--STUDY RELATING TO TAXABLE REIT SUBSIDIARIES

     SEC. 1151. STUDY RELATING TO TAXABLE REIT SUBSIDIARIES.

       The Commissioner of the Internal Revenue shall conduct a 
     study to determine how many taxable REIT subsidiaries are in 
     existence and the aggregate amount of taxes paid by such 
     subsidiaries. The Secretary shall submit a report to the 
     Congress describing the results of such study.

     Subtitle B--Modification of At-Risk Rules for Publicly Traded 
                               Securities

     SEC. 1161. TREATMENT UNDER AT-RISK RULES OF PUBLICLY TRADED 
                   NONRECOURSE DEBT.

       (a) In General.--Subparagraph (A) of section 465(b)(6) 
     (relating to qualified nonrecourse financing treated as 
     amount at risk) is amended by striking ``share of'' and all 
     that follows and inserting ``share of--
       ``(i) any qualified nonrecourse financing which is secured 
     by real property used in such activity, and
       ``(ii) any other financing which--

       ``(I) would (but for subparagraph (B)(ii)) be qualified 
     nonrecourse financing,
       ``(II) is qualified publicly traded debt, and
       ``(III) is not borrowed by the taxpayer from a person 
     described in subclause (I), (II), or (III) of section 
     49(a)(1)(D)(iv).''

       (b) Qualified Publicly Traded Debt.--Paragraph (6) of 
     section 465(b) is amended by adding at the end the following 
     new subparagraph:
       ``(F) Qualified publicly traded debt.--For purposes of 
     subparagraph (A), the term `qualified publicly traded debt' 
     means any debt instrument which is readily tradable on an 
     established securities market. Such term shall not include 
     any debt instrument which has a yield to maturity which 
     equals or exceeds the limitation in section 163(i)(1)(B).''
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after December 31, 
     1999.

     Subtitle C--Treatment of Construction Allowances and Certain 
                 Contributions To Capital of Retailers

     SEC. 1171. EXCLUSION FROM GROSS INCOME OF QUALIFIED LESSEE 
                   CONSTRUCTION ALLOWANCES NOT LIMITED FOR CERTAIN 
                   RETAILERS TO SHORT-TERM LEASES.

       (a) In General.--Subsection (a) section 110 (relating to 
     qualified lessee construction allowances for short-term 
     leases) is amended by adding at the end the following new 
     sentence: ``Paragraph (1) shall not apply if the lessee is a 
     qualified retail business (as defined by section 
     118(d)(3)).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to leases entered into after December 31, 1999.

     SEC. 1172. EXCLUSION FROM GROSS INCOME FOR CERTAIN 
                   CONTRIBUTIONS TO THE CAPITAL OF CERTAIN 
                   RETAILERS.

       (a) In General.--Section 118 (relating to contributions to 
     the capital of a corporation) is amended by redesignating 
     subsections (d) and (e) as subsections (e) and (f), 
     respectively, and by inserting after subsection (c) the 
     following new subsection:
       ``(d) Safe Harbor for Contributions to Certain Retailers.--
       ``(1) General rule.--For purposes of this section, the term 
     `contribution to the capital of the taxpayer' includes any 
     amount of money or other property received by the taxpayer 
     if--
       ``(A) the taxpayer has entered into an agreement to operate 
     (or cause to be operated) a qualified retail business at a 
     particular location for a period of at least 15 years,
       ``(B)(i) immediately after the receipt of such money or 
     other property, the taxpayer owns the land and the structure 
     to be used by the taxpayer in carrying on a qualified retail 
     business at such location, or
       ``(ii) the taxpayer uses such amount to acquire ownership 
     of at least such land and structure,
       ``(C) such amount meets the requirements of the expenditure 
     rule of paragraph (2), and
       ``(D) the contributor of such amount does not hold a 
     beneficial interest in any property located on the premises 
     of such qualified retail business other than de minimis 
     amounts of property associated with the operation of property 
     adjacent to such premises.
       ``(2) Expenditure rule.--An amount meets the requirements 
     of this paragraph if--
       ``(A) an amount equal to such amount is expended for the 
     acquisition of land or for acquisition or construction of 
     other property described in section 1231(b)--
       ``(i) which was the purpose motivating the contribution, 
     and
       ``(ii) which is used predominantly in a qualified retail 
     business at the location referred to in paragraph (1)(A),
       ``(B) the expenditure referred to in subparagraph (A) 
     occurs before the end of the second taxable year after the 
     year in which such amount was received, and
       ``(C) accurate records are kept of the amounts contributed 
     and expenditures made on the basis of the project for which 
     the contribution was made and on the basis of the year of the 
     contribution expenditure.
       ``(3) Definition of qualified retail business.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `qualified retail business' means a trade or 
     business of selling tangible personal property to the general 
     public if the premises on which such trade or business is 
     conducted is in close proximity to property that the 
     contributor of the amount referred to in paragraph (1) is 
     developing or operating for profit (or, in the case of a 
     contributor which is a governmental entity, is attempting to 
     revitalize).
       ``(B) Services.--A trade or business shall not fail to be 
     treated as a qualified retail business by reason of sales of 
     services if such sales are incident to the sale of tangible 
     personal property or if the services are de minimis in 
     amount.

[[Page 17126]]

       ``(4) Special rules.--
       ``(A) Leases.--For purposes of paragraph (1)(B)(i), 
     property shall be treated as owned by the taxpayer if the 
     taxpayer is the lessee of such property under a lease having 
     a term of at least 30 years and on which only nominal rent is 
     required.
       ``(B) Controlled groups.--For purposes of this subsection, 
     all persons treated as a single employer under subsection (a) 
     or (b) of section 52 shall be treated as 1 person.
       ``(5) Disallowance of deductions and credits; adjusted 
     basis.--Notwithstanding any other provision of this subtitle, 
     no deduction or credit shall be allowed for, or by reason of, 
     any amount received by the taxpayer which constitutes a 
     contribution to capital to which this subsection applies. The 
     adjusted basis of any property acquired with the 
     contributions to which this subsection applies shall be 
     reduced by the amount of the contributions to which this 
     subsection applies.
       ``(6) Regulations.--The Secretary shall prescribe such 
     regulations are appropriate to prevent the abuse of the 
     purposes of the subsection, including regulations which 
     allocate income and deductions (or adjust the amount 
     excludable under this subsection) in cases in which--
       ``(A) payments in excess of fair market value are paid to 
     the contributor by the taxpayer, or
       ``(B) the contributor and the taxpayer are related 
     parties.''
       (b) Conforming Amendment.--Subsection (e) of section 118 
     (as redesignated by subsection (a)) is amended by adding at 
     the end the following flush sentence:
     ``Rules similar to the rules of the preceding sentence shall 
     apply to any amount treated as a contribution to the capital 
     of the taxpayer under subsection (d).''
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received after December 31, 1999.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

     SEC. 1201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

       (a) Defined Benefit Plans.--
       (1) Dollar limit.--
       (A) Subparagraph (A) of section 415(b)(1) (relating to 
     limitation for defined benefit plans) is amended by striking 
     ``$90,000'' and inserting ``$160,000''.
       (B) Subparagraphs (C) and (D) of section 415(b)(2) are each 
     amended by striking ``$90,000'' each place it appears in the 
     headings and the text and inserting ``$160,000''.
       (C) Paragraph (7) of section 415(b) (relating to benefits 
     under certain collectively bargained plans) is amended by 
     striking ``the greater of $68,212 or one-half the amount 
     otherwise applicable for such year under paragraph (1)(A) for 
     `$90,000' '' and inserting ``one-half the amount otherwise 
     applicable for such year under paragraph (1)(A) for 
     `$160,000' ''.
       (2) Limit reduced when benefit begins before age 62.--
     Subparagraph (C) of section 415(b)(2) is amended by striking 
     ``the social security retirement age'' each place it appears 
     in the heading and text and inserting ``age 62''.
       (3) Limit increased when benefit begins after age 65.--
     Subparagraph (D) of section 415(b)(2) is amended by striking 
     ``the social security retirement age'' each place it appears 
     in the heading and text and inserting ``age 65''.
       (4) Cost-of-living adjustments.--Subsection (d) of section 
     415 (related to cost-of-living adjustments) is amended--
       (A) in paragraph (1)(A) by striking ``$90,000'' and 
     inserting ``$160,000'', and
       (B) in paragraph (3)(A)--
       (i) by striking ``$90,000'' in the heading and inserting 
     ``$160,000'', and
       (ii) by striking ``October 1, 1986'' and inserting ``July 
     1, 2000''.
       (5) Conforming amendment.--Section 415(b)(2) is amended by 
     striking subparagraph (F).
       (b) Defined Contribution Plans.--
       (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
     (relating to limitation for defined contribution plans) is 
     amended by striking ``$30,000'' and inserting ``$40,000''.
       (2) Cost-of-living adjustments.--Subsection (d) of section 
     415 (related to cost-of-living adjustments) is amended--
       (A) in paragraph (1)(C) by striking ``$30,000'' and 
     inserting ``$40,000'', and
       (B) in paragraph (3)(D)--
       (i) by striking ``$30,000'' in the heading and inserting 
     ``$40,000'', and
       (ii) by striking ``October 1, 1993'' and inserting ``July 
     1, 2000''.
       (c) Qualified Trusts.--
       (1) Compensation limit.--Sections 401(a)(17), 404(l), 
     408(k), and 505(b)(7) are each amended by striking 
     ``$150,000'' each place it appears and inserting 
     ``$200,000''.
       (2) Base period and rounding of cost-of-living 
     adjustment.--Subparagraph (B) of section 401(a)(17) is 
     amended--
       (A) by striking ``October 1, 1993'' and inserting ``July 1, 
     2000'', and
       (B) by striking ``$10,000'' both places it appears and 
     inserting ``$5,000''.
       (d) Elective Deferrals.--
       (1) In general.--Paragraph (1) of section 402(g) (relating 
     to limitation on exclusion for elective deferrals) is amended 
     to read as follows:
       ``(1) In general.--
       ``(A) Limitation.--Notwithstanding subsections (e)(3) and 
     (h)(1)(B), the elective deferrals of any individual for any 
     taxable year shall be included in such individual's gross 
     income to the extent the amount of such deferrals for the 
     taxable year exceeds the applicable dollar amount.
       ``(B) Applicable dollar amount.--For purposes of 
     subparagraph (A), the applicable dollar amount shall be the 
     amount determined in accordance with the following table:

    ``Taxable year:                           Applicable dollar amount:
      2001.....................................................$11,000 
      2002.....................................................$12,000 
      2003.....................................................$13,000 
      2004.....................................................$14,000 
      2005 or thereafter....................................$15,000.''.
       (2) Cost-of-living adjustment.--Paragraph (5) of section 
     402(g) is amended to read as follows:
       ``(5) Cost-of-living adjustment.--In the case of taxable 
     years beginning after December 31, 2005, the Secretary shall 
     adjust the $15,000 amount under paragraph (1)(B) at the same 
     time and in the same manner as under section 415(d); except 
     that the base period shall be the calendar quarter beginning 
     July 1, 2004, and any increase under this paragraph which is 
     not a multiple of $500 shall be rounded to the next lowest 
     multiple of $500.''.
       (3) Conforming amendments.--
       (A) Section 402(g) (relating to limitation on exclusion for 
     elective deferrals), as amended by paragraphs (1) and (2), is 
     further amended by striking paragraph (4) and redesignating 
     paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), 
     (5), (6), (7), and (8), respectively.
       (B) Paragraph (2) of section 457(c) is amended by striking 
     ``402(g)(8)(A)(iii)'' and inserting ``402(g)(7)(A)(iii)''.
       (C) Clause (iii) of section 501(c)(18)(D) is amended by 
     striking ``(other than paragraph (4) thereof)''.
       (e) Deferred Compensation Plans of State and Local 
     Governments and Tax-Exempt Organizations.--
       (1) In general.--Section 457 (relating to deferred 
     compensation plans of State and local governments and tax-
     exempt organizations) is amended--
       (A) in subsections (b)(2)(A) and (c)(1) by striking 
     ``$7,500'' each place it appears and inserting ``the 
     applicable dollar amount'', and
       (B) in subsection (b)(3)(A) by striking ``$15,000'' and 
     inserting ``twice the dollar amount in effect under 
     subsection (b)(2)(A)''.
       (2) Applicable dollar amount; cost-of-living adjustment.--
     Paragraph (15) of section 457(e) is amended to read as 
     follows:
       ``(15) Applicable dollar amount.--
       ``(A) In general.--The applicable dollar amount shall be 
     the amount determined in accordance with the following table:

    ``Taxable year:                           Applicable dollar amount:
      2001.....................................................$11,000 
      2002.....................................................$12,000 
      2003.....................................................$13,000 
      2004.....................................................$14,000 
      2005 or thereafter.......................................$15,000.
       ``(B) Cost-of-living adjustments.--In the case of taxable 
     years beginning after December 31, 2005, the Secretary shall 
     adjust the $15,000 amount specified in the table in 
     subparagraph (A) at the same time and in the same manner as 
     under section 415(d), except that the base period shall be 
     the calendar quarter beginning July 1, 2004, and any increase 
     under this paragraph which is not a multiple of $500 shall be 
     rounded to the next lowest multiple of $500.''.
       (f) Simple Retirement Accounts.--
       (1) Limitation.--Clause (ii) of section 408(p)(2)(A) 
     (relating to general rule for qualified salary reduction 
     arrangement) is amended by striking ``$6,000'' and inserting 
     ``the applicable dollar amount''.
       (2) Applicable dollar amount.--Subparagraph (E) of 
     408(p)(2) is amended to read as follows:
       ``(E) Applicable dollar amount; cost-of-living 
     adjustment.--
       ``(i) In general.--For purposes of subparagraph (A)(ii), 
     the applicable dollar amount shall be the amount determined 
     in accordance with the following table:

        ``Taxable year:                       Applicable dollar amount:
          2001..................................................$7,000 
          2002..................................................$8,000 
          2003..................................................$9,000 
          2004 or thereafter...................................$10,000.
       ``(ii) Cost-of-living adjustment.--In the case of a year 
     beginning after December 31, 2004, the Secretary shall adjust 
     the $10,000 amount under clause (i) at the same time and in 
     the same manner as under section 415(d), except that the base 
     period taken into account shall be the calendar quarter 
     beginning July 1, 2003, and any increase under this 
     subparagraph which is not a multiple of $500 shall be rounded 
     to the next lower multiple of $500.''.
       (3) Conforming amendments.--
       (A) Clause (I) of section 401(k)(11)(B)(i) is amended by 
     striking ``$6,000'' and inserting ``the amount in effect 
     under section 408(p)(2)(A)(ii)''.
       (B) Section 401(k)(11) is amended by striking subparagraph 
     (E).
       (g) Rounding Rule Relating to Defined Benefit Plans and 
     Defined Contribution

[[Page 17127]]

     Plans.--Paragraph (4) of section 415(d) is amended to read as 
     follows:
       ``(4) Rounding.--
       ``(A) $160,000 amount.--Any increase under subparagraph (A) 
     of paragraph (1) which is not a multiple of $5,000 shall be 
     rounded to the next lowest multiple of $5,000.
       ``(B) $40,000 amount.--Any increase under subparagraph (C) 
     of paragraph (1) which is not a multiple of $1,000 shall be 
     rounded to the next lowest multiple of $1,000.''.
       (h) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to years beginning after December 31, 2000.
       (2) Collective bargaining agreements.--In the case of a 
     plan maintained pursuant to 1 or more collective bargaining 
     agreements between employee representatives and 1 or more 
     employers ratified by the date of enactment of this Act, the 
     amendments made by this section shall not apply to 
     contributions or benefits pursuant to any such agreement for 
     years beginning before the earlier of--
       (A) the later of--
       (i) the date on which the last of such collective 
     bargaining agreements terminates (determined without regard 
     to any extension thereof on or after such date of enactment), 
     or
       (ii) January 1, 2001, or
       (B) January 1, 2005.

     SEC. 1202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND 
                   SOLE PROPRIETORS.

       (a) In General.--Subparagraph (B) of section 4975(f)(6) 
     (relating to exemptions not to apply to certain transactions) 
     is amended by adding at the end the following new clause:
       ``(iii) Loan exception.--For purposes of subparagraph 
     (A)(i), the term `owner-employee' shall only include a person 
     described in subclause (II) or (III) of clause (i).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to loans made after December 31, 2000.

     SEC. 1203. MODIFICATION OF TOP-HEAVY RULES.

       (a) Simplification of Definition of Key Employee.--
       (1) In general.--Section 416(i)(1)(A) (defining key 
     employee) is amended--
       (A) by striking ``or any of the 4 preceding plan years'' in 
     the matter preceding clause (i),
       (B) by striking clause (i) and inserting the following:
       ``(i) an officer of the employer having an annual 
     compensation greater than $150,000,'',
       (C) by striking clause (ii) and redesignating clauses (iii) 
     and (iv) as clauses (ii) and (iii), respectively, and
       (D) by striking the second sentence in the matter following 
     clause (iii), as redesignated by subparagraph (C).
       (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is 
     amended by striking ``and subparagraph (A)(ii)''.
       (b) Matching Contributions Taken Into Account for Minimum 
     Contribution Requirements.--Section 416(c)(2)(A) (relating to 
     defined contribution plans) is amended by adding at the end 
     the following: ``Employer matching contributions (as defined 
     in section 401(m)(4)(A)) shall be taken into account for 
     purposes of this subparagraph.''.
       (c) Distributions During Last Year Before Determination 
     Date Taken Into Account.--
       (1) In general.--Paragraph (3) of section 416(g) is amended 
     to read as follows:
       ``(3) Distributions during last year before determination 
     date taken into account.--
       ``(A) In general.--For purposes of determining--
       ``(i) the present value of the cumulative accrued benefit 
     for any employee, or
       ``(ii) the amount of the account of any employee,

     such present value or amount shall be increased by the 
     aggregate distributions made with respect to such employee 
     under the plan during the 1-year period ending on the 
     determination date. The preceding sentence shall also apply 
     to distributions under a terminated plan which if it had not 
     been terminated would have been required to be included in an 
     aggregation group.
       ``(B) 5-year period in case of in-service distribution.--In 
     the case of any distribution made for a reason other than 
     separation from service, death, or disability, subparagraph 
     (A) shall be applied by substituting `5-year period' for `1-
     year period'.''.
       (2) Benefits not taken into account.--Subparagraph (E) of 
     section 416(g)(4) is amended--
       (A) by striking ``last 5 years'' in the heading and 
     inserting ``last year before determination date'', and
       (B) by striking ``5-year period'' and inserting ``1-year 
     period''.
       (d) Definition of Top-Heavy Plans.--Paragraph (4) of 
     section 416(g) (relating to other special rules for top-heavy 
     plans) is amended by adding at the end the following new 
     subparagraph:
       ``(H) Cash or deferred arrangements using alternative 
     methods of meeting nondiscrimination requirements.--The term 
     `top-heavy plan' shall not include a plan which consists 
     solely of--
       ``(i) a cash or deferred arrangement which meets the 
     requirements of section 401(k)(12), and
       ``(ii) matching contributions with respect to which the 
     requirements of section 401(m)(11) are met.

     If, but for this subparagraph, a plan would be treated as a 
     top-heavy plan because it is a member of an aggregation group 
     which is a top-heavy group, contributions under the plan may 
     be taken into account in determining whether any other plan 
     in the group meets the requirements of subsection (c)(2).''
       (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
     Subparagraph (C) of section 416(c)(1) (relating to defined 
     benefit plans) is amended--
       (A) in clause (i), by striking ``clause (ii)'' and 
     inserting ``clause (ii) or (iii)'', and
       (B) by adding at the end the following:
       ``(iii) Exception for frozen plan.--For purposes of 
     determining an employee's years of service with the employer, 
     any service with the employer shall be disregarded to the 
     extent that such service occurs during a plan year when the 
     plan benefits (within the meaning of section 410(b)) no 
     employee or former employee.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR 
                   PURPOSES OF DEDUCTION LIMITS.

       (a) In General.--Section 404 (relating to deduction for 
     contributions of an employer to an employees' trust or 
     annuity plan and compensation under a deferred payment plan) 
     is amended by adding at the end the following new subsection:
       ``(n) Elective Deferrals Not Taken Into Account for 
     Purposes of Deduction Limits.--Elective deferrals (as defined 
     in section 402(g)(3)) shall not be subject to any limitation 
     contained in paragraph (3), (7), or (9) of subsection (a), 
     and such elective deferrals shall not be taken into account 
     in applying any such limitation to any other 
     contributions.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1205. REDUCED PBGC PREMIUM FOR NEW PLANS OF SMALL 
                   EMPLOYERS.

       (a) In General.--Subparagraph (A) of section 4006(a)(3) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1306(a)(3)(A)) is amended--
       (1) in clause (i), by inserting ``other than a new single-
     employer plan (as defined in subparagraph (F)) maintained by 
     a small employer (as so defined),'' after ``single-employer 
     plan,'',
       (2) in clause (iii), by striking the period at the end and 
     inserting ``, and'', and
       (3) by adding at the end the following new clause:
       ``(iv) in the case of a new single-employer plan (as 
     defined in subparagraph (F)) maintained by a small employer 
     (as so defined) for the plan year, $5 for each individual who 
     is a participant in such plan during the plan year.''.
       (b) Definition of New Single-Employer Plan.--Section 
     4006(a)(3) of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1306(a)(3)) is amended by adding at the end 
     the following new subparagraph:
       ``(F)(i) For purposes of this paragraph, a single-employer 
     plan maintained by a contributing sponsor shall be treated as 
     a new single-employer plan for each of its first 5 plan years 
     if, during the 36-month period ending on the date of the 
     adoption of such plan, the sponsor or any member of such 
     sponsor's controlled group (or any predecessor of either) had 
     not established or maintained a plan to which this title 
     applies with respect to which benefits were accrued for 
     substantially the same employees as are in the new single-
     employer plan.
       ``(ii)(I) For purposes of this paragraph, the term `small 
     employer' means an employer which on the first day of any 
     plan year has, in aggregation with all members of the 
     controlled group of such employer, 100 or fewer employees.
       ``(II) In the case of a plan maintained by 2 or more 
     contributing sponsors that are not part of the same 
     controlled group, the employees of all contributing sponsors 
     and controlled groups of such sponsors shall be aggregated 
     for purposes of determining whether any contributing sponsor 
     is a small employer.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plans established after December 31, 2000.

     SEC. 1206. REDUCTION OF ADDITIONAL PBGC PREMIUM FOR NEW AND 
                   SMALL PLANS.

       (a) New Plans.--Subparagraph (E) of section 4006(a)(3) of 
     the Employee Retirement Income Security Act of 1974 (29 
     U.S.C. 1306(a)(3)(E)) is amended by adding at the end the 
     following new clause:
       ``(v) In the case of a new defined benefit plan, the amount 
     determined under clause (ii) for any plan year shall be an 
     amount equal to the product of the amount determined under 
     clause (ii) and the applicable percentage. For purposes of 
     this clause, the term `applicable percentage' means--
       ``(I) 0 percent, for the first plan year.
       ``(II) 20 percent, for the second plan year.
       ``(III) 40 percent, for the third plan year.
       ``(IV) 60 percent, for the fourth plan year.
       ``(V) 80 percent, for the fifth plan year.

     For purposes of this clause, a defined benefit plan (as 
     defined in section 3(35)) maintained

[[Page 17128]]

     by a contributing sponsor shall be treated as a new defined 
     benefit plan for its first 5 plan years if, during the 36-
     month period ending on the date of the adoption of the plan, 
     the sponsor and each member of any controlled group including 
     the sponsor (or any predecessor of either) did not establish 
     or maintain a plan to which this title applies with respect 
     to which benefits were accrued for substantially the same 
     employees as are in the new plan.''.
       (b) Small Plans.--Paragraph (3) of section 4006(a) of the 
     Employee Retirement Income Security Act of 1974 (29 U.S.C. 
     1306(a)) is amended--
       (1) in subparagraph (E)(i) by striking ``The'' and 
     inserting ``Except as provided in subparagraph (G), the'', 
     and
       (2) by inserting after subparagraph (F) the following new 
     subparagraph:
       ``(G)(i) In the case of an employer who has 25 or fewer 
     employees on the first day of the plan year, the additional 
     premium determined under subparagraph (E) for each 
     participant shall not exceed $5 multiplied by the number of 
     participants in the plan as of the close of the preceding 
     plan year.
       ``(ii) For purposes of clause (i), whether an employer has 
     25 or fewer employees on the first day of the plan year is 
     determined taking into consideration all of the employees of 
     all members of the contributing sponsor's controlled group. 
     In the case of a plan maintained by 2 or more contributing 
     sponsors, the employees of all contributing sponsors and 
     their controlled groups shall be aggregated for purposes of 
     determining whether 25-or-fewer-employees limitation has been 
     satisfied.''.
       (c) Effective Dates.--
       (1) Subsection (a).--The amendments made by subsection (a) 
     shall apply to plans established after December 31, 2000.
       (2) Subsection (b).--The amendments made by subsection (b) 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 1207. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED 
                   COMPENSATION PLANS OF STATE AND LOCAL 
                   GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

       (a) In General.--Subsection (c) of section 457 (relating to 
     deferred compensation plans of State and local governments 
     and tax-exempt organizations), as amended by section 1201(e), 
     is amended to read as follows:
       ``(c) Limitation.--The maximum amount of the compensation 
     of any one individual which may be deferred under subsection 
     (a) during any taxable year shall not exceed the amount in 
     effect under subsection (b)(2)(A) (as modified by any 
     adjustment provided under subsection (b)(3)).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 2000.

     SEC. 1208. ELIMINATION OF USER FEE FOR REQUESTS TO IRS 
                   REGARDING PENSION PLANS.

       (a) Elimination of Certain User Fees.--The Secretary of the 
     Treasury or the Secretary's delegate shall not require 
     payment of user fees under the program established under 
     section 7527 of the Internal Revenue Code of 1986 for 
     requests to the Internal Revenue Service for determination 
     letters with respect to the qualified status of a pension 
     benefit plan maintained solely by one or more eligible 
     employers or any trust which is part of the plan. The 
     preceding sentence shall not apply to any request made by the 
     sponsor of any prototype or similar plan which the sponsor 
     intends to market to participating employers.
       (b) Pension Benefit Plan.--For purposes of this section, 
     the term ``pension benefit plan'' means a pension, profit-
     sharing, stock bonus, annuity, or employee stock ownership 
     plan.
       (c) Eligible Employer.--For purposes of this section, the 
     term ``eligible employer'' has the same meaning given such 
     term in section 408(p)(2)(C)(i)(I) of the Internal Revenue 
     Code of 1986. The determination of whether an employer is an 
     eligible employer under this section shall be made as of the 
     date of the request described in subsection (a).
       (d) Effective Date.--The provisions of this section shall 
     apply with respect to requests made after December 31, 2000.

     SEC. 1209. DEDUCTION LIMITS.

       (a) In General.--Section 404(a) (relating to general rule) 
     is amended by adding at the end the following:
       ``(12) Definition of compensation.--For purposes of 
     paragraphs (3), (7), (8), and (9), the term `compensation' 
     shall include amounts treated as participant's compensation 
     under subparagraph (C) or (D) of section 415(c)(3).''.
       (b) Conforming Amendment.--Subparagraph (B) of section 
     404(a)(3) is amended by striking the last sentence thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1210. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
                   CONTRIBUTIONS.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 (relating to deferred compensation, etc.) is 
     amended by inserting after section 402 the following new 
     section:

     ``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS 
                   CONTRIBUTIONS.

       ``(a) General Rule.--If an applicable retirement plan 
     includes a qualified plus contribution program--
       ``(1) any designated plus contribution made by an employee 
     pursuant to the program shall be treated as an elective 
     deferral for purposes of this chapter, except that such 
     contribution shall not be excludable from gross income, and
       ``(2) such plan (and any arrangement which is part of such 
     plan) shall not be treated as failing to meet any requirement 
     of this chapter solely by reason of including such program.
       ``(b) Qualified Plus Contribution Program.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified plus contribution 
     program' means a program under which an employee may elect to 
     make designated plus contributions in lieu of all or a 
     portion of elective deferrals the employee is otherwise 
     eligible to make under the applicable retirement plan.
       ``(2) Separate accounting required.--A program shall not be 
     treated as a qualified plus contribution program unless the 
     applicable retirement plan--
       ``(A) establishes separate accounts (`designated plus 
     accounts') for the designated plus contributions of each 
     employee and any earnings properly allocable to the 
     contributions, and
       ``(B) maintains separate recordkeeping with respect to each 
     account.
       ``(c) Definitions and Rules Relating to Designated Plus 
     Contributions.--For purposes of this section--
       ``(1) Designated plus contribution.--The term `designated 
     plus contribution' means any elective deferral which--
       ``(A) is excludable from gross income of an employee 
     without regard to this section, and
       ``(B) the employee designates (at such time and in such 
     manner as the Secretary may prescribe) as not being so 
     excludable.
       ``(2) Designation limits.--The amount of elective deferrals 
     which an employee may designate under paragraph (1) shall not 
     exceed the excess (if any) of--
       ``(A) the maximum amount of elective deferrals excludable 
     from gross income of the employee for the taxable year 
     (without regard to this section), over
       ``(B) the aggregate amount of elective deferrals of the 
     employee for the taxable year which the employee does not 
     designate under paragraph (1).
       ``(3) Rollover contributions.--
       ``(A) In general.--A rollover contribution of any payment 
     or distribution from a designated plus account which is 
     otherwise allowable under this chapter may be made only if 
     the contribution is to--
       ``(i) another designated plus account of the individual 
     from whose account the payment or distribution was made, or
       ``(ii) a Roth IRA of such individual.
       ``(B) Coordination with limit.--Any rollover contribution 
     to a designated plus account under subparagraph (A) shall not 
     be taken into account for purposes of paragraph (1).
       ``(d) Distribution Rules.--For purposes of this title--
       ``(1) Exclusion.--Any qualified distribution from a 
     designated plus account shall not be includible in gross 
     income.
       ``(2) Qualified distribution.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified distribution' has 
     the meaning given such term by section 408A(d)(2)(A) (without 
     regard to clause (iv) thereof).
       ``(B) Distributions within nonexclusion period.--A payment 
     or distribution from a designated plus account shall not be 
     treated as a qualified distribution if such payment or 
     distribution is made within the 5-taxable-year period 
     beginning with the earlier of--
       ``(i) the 1st taxable year for which the individual made a 
     designated plus contribution to any designated plus account 
     established for such individual under the same applicable 
     retirement plan, or
       ``(ii) if a rollover contribution was made to such 
     designated plus account from a designated plus account 
     previously established for such individual under another 
     applicable retirement plan, the 1st taxable year for which 
     the individual made a designated plus contribution to such 
     previously established account.
       ``(C) Distributions of excess deferrals and earnings.--The 
     term `qualified distribution' shall not include any 
     distribution of any excess deferral under section 402(g)(2) 
     and any income on the excess deferral.
       ``(3) Aggregation rules.--Section 72 shall be applied 
     separately with respect to distributions and payments from a 
     designated plus account and other distributions and payments 
     from the plan.
       ``(e) Other Definitions.--For purposes of this section--
       ``(1) Applicable retirement plan.--The term `applicable 
     retirement plan' means--
       ``(A) an employees' trust described in section 401(a) which 
     is exempt from tax under section 501(a), and
       ``(B) a plan under which amounts are contributed by an 
     individual's employer for an annuity contract described in 
     section 403(b).
       ``(2) Elective deferral.--The term `elective deferral' 
     means any elective deferral described in subparagraph (A) or 
     (C) of section 402(g)(3).''

[[Page 17129]]

       (b) Excess Deferrals.--Section 402(g) (relating to 
     limitation on exclusion for elective deferrals) is amended--
       (1) by adding at the end of paragraph (1) the following new 
     sentence: ``The preceding sentence shall not apply to so much 
     of such excess as does not exceed the designated plus 
     contributions of the individual for the taxable year.'', and
       (2) by inserting ``(or would be included but for the last 
     sentence thereof)'' after ``paragraph (1)'' in paragraph 
     (2)(A).
       (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is 
     amended by adding at the end the following:

     ``If any portion of an eligible rollover distribution is 
     attributable to payments or distributions from a designated 
     plus account (as defined in section 402A), an eligible 
     retirement plan with respect to such portion shall include 
     only another designated plus account and a Roth IRA.''
       (d) Reporting Requirements.--
       (1) W-2 information.--Section 6051(a)(8) is amended by 
     inserting ``, including the amount of designated plus 
     contributions (as defined in section 402A)'' before the comma 
     at the end.
       (2) Information.--Section 6047 is amended by redesignating 
     subsection (f) as subsection (g) and by inserting after 
     subsection (e) the following new subsection:
       ``(f) Designated Plus Contributions.--The Secretary shall 
     require the plan administrator of each applicable retirement 
     plan (as defined in section 402A) to make such returns and 
     reports regarding designated plus contributions (as so 
     defined) to the Secretary, participants and beneficiaries of 
     the plan, and such other persons as the Secretary may 
     prescribe.''
       (e) Conforming Amendments.--
       (1) Section 408A(e) is amended by adding after the first 
     sentence the following new sentence: ``Such term includes a 
     rollover contribution described in section 402A(c)(3)(A).''
       (2) The table of sections for subpart A of part I of 
     subchapter D of chapter 1 is amended by inserting after the 
     item relating to section 402 the following new item:

``Sec. 402A. Optional treatment of elective deferrals as plus 
              contributions.''
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 1211. INCREASE IN MINIMUM DEFINED BENEFIT LIMIT UNDER 
                   SECTION 415.

       (a) In General.--Paragraph (4) of section 415(b) (relating 
     to total annual benefits not in excess of $10,000) is amended 
     to read as follows:
       ``(4) Total annual benefits not in excess of $40,000.--
       ``(A) In general.--Notwithstanding the preceding provisions 
     of this subsection, the benefits payable with respect to a 
     participant under any defined benefit plan shall be deemed 
     not to exceed the limitation of this subsection if the 
     retirement benefits payable with respect to such participant 
     under such plan and under all other defined benefit plans of 
     the employer do not exceed applicable limit which applies to 
     the plan year, or the applicable limit which applies to prior 
     plan years.
       ``(B) Applicable limit.--For purposes of subparagraph (A), 
     the applicable limit is--
       ``(i) $10,000 for plan years beginning before 2001,
       ``(ii) $20,000 for plan years beginning during 2001,
       ``(iii) $30,000 for plan years beginning during 2002, and
       ``(iv) $40,000 for plan years beginning after 2002.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

                Subtitle B--Enhancing Fairness for Women

     SEC. 1221. ADDITIONAL SALARY REDUCTION CATCH-UP 
                   CONTRIBUTIONS.

       (a) Limitation on Exclusion for Elective Deferrals.--
       (1) In general.--Subsection (g) of section 402 (as amended 
     by section 1201(d)) is further amended by adding at the end 
     the following:
       ``(9) Catch-up contributions for those approaching 
     retirement.--
       ``(A) In general.--In the case of an individual who is at 
     least age 50 as of the end of any taxable year, the 
     limitation of paragraph (1) for such year, after the 
     application of paragraph (7), shall be increased by the 
     applicable catch-up amount.
       ``(B) Applicable catch-up amount.--For purposes of 
     subparagraph (A), the applicable catch-up amount shall be the 
     amount determined in accordance with the following table:

                                                             Applicable
    ``Taxable year:                                    catch-up amount:
      2001......................................................$1,000 
      2002......................................................$2,000 
      2003......................................................$3,000 
      2004......................................................$4,000 
      2005 or thereafter.....................................$5,000.''.
       (2) Cost-of-living adjustments.--Paragraph (4) of section 
     402(g) (relating to cost-of-living adjustment), as amended by 
     section 1201(d), is further amended by inserting ``and the 
     $5,000 dollar amount in paragraph (9)'' after ``paragraph 
     (1)(B)''.
       (b) Simple Retirement Accounts.--Paragraph (2) of section 
     408(p) (relating to qualified salary reduction arrangement) 
     is amended by inserting at the end of the following new 
     subparagraph:
       ``(F) Catch-up contributions for those approaching 
     retirement.--In the case of an individual who is at least age 
     50 as of the end of any taxable year, the limitation of 
     subparagraph (A)(ii) for such year shall be increased by the 
     applicable catch-up amount. For purposes of the preceding 
     sentence, the applicable catch-up amount is the amount in 
     effect under section 402(g)(9) for such taxable year.''.
       (c) Deferred Compensation Plans of State and Local 
     Governments and Tax-Exempt Organizations.--Subsection (e) of 
     section 457 (relating to other definitions and special rules) 
     is amended by adding after paragraph (16) the following new 
     paragraph:
       ``(17) Catch-up amounts.--In the case of an individual who 
     is at least age 50 as of the end of any taxable year, the 
     limitation of subsection (b)(2)(A) for such year shall be 
     increased by the applicable catch-up amount (as in effect 
     under section 402(g)(9) for such taxable year), except that 
     this paragraph shall not apply to any taxable year to which 
     subsection (b)(3) applies.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1222. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES 
                   TO DEFINED CONTRIBUTION PLANS.

       (a) Equitable Treatment.--
       (1) In general.--Subparagraph (B) of section 415(c)(1) 
     (relating to limitation for defined contribution plans) is 
     amended by striking ``25 percent'' and inserting ``100 
     percent''.
       (2) Application to section 403(b).--Section 403(b) is 
     amended--
       (A) by striking ``the exclusion allowance for such taxable 
     year'' in paragraph (1) and inserting ``the applicable limit 
     under section 415'',
       (B) by striking paragraph (2), and
       (C) by inserting ``or any amount received by a former 
     employee after the 5th taxable year following the taxable 
     year in which such employee was terminated'' before the 
     period at the end of the second sentence of paragraph (3).
       (3) Conforming amendments.--
       (A) Subsection (f) of section 72 is amended by striking 
     ``section 403(b)(2)(D)(iii))'' and inserting ``section 
     403(b)(2)(D)(iii), as in effect on December 31, 2000)''.
       (B) Section 404(a)(10)(B) is amended by striking ``, the 
     exclusion allowance under section 403(b)(2),''.
       (C) Section 415(a)(2) is amended by striking ``, and the 
     amount of the contribution for such portion shall reduce the 
     exclusion allowance as provided in section 403(b)(2)''.
       (D) Section 415(c)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(E) Annuity contracts.--In the case of an annuity 
     contract described in section 403(b), the term `participant's 
     compensation' means the participant's includible compensation 
     determined under section 403(b)(3).''.
       (E) Section 415(c) is amended by striking paragraph (4).
       (F) Section 415(c)(7) is amended to read as follows:
       ``(7) Certain contributions by church plans not treated as 
     exceeding limit.--
       ``(A) In general.--Notwithstanding any other provision of 
     this subsection, at the election of a participant who is an 
     employee of a church or a convention or association of 
     churches, including an organization described in section 
     414(e)(3)(B)(ii), contributions and other additions for an 
     annuity contract or retirement income account described in 
     section 403(b) with respect to such participant, when 
     expressed as an annual addition to such participant's 
     account, shall be treated as not exceeding the limitation of 
     paragraph (1) if such annual addition is not in excess of 
     $10,000.
       ``(B) $40,000 aggregate limitation.--The total amount of 
     additions with respect to any participant which may be taken 
     into account for purposes of this subparagraph for all years 
     may not exceed $40,000.
       ``(C) Annual addition.--For purposes of this paragraph, the 
     term `annual addition' has the meaning given such term by 
     paragraph (2).''.
       (G) Subparagraph (B) of section 402(g)(7) (as amended by 
     section 1201(d)) is amended by inserting before the period at 
     the end the following: ``(as in effect on the date of the 
     enactment of the Financial Freedom Act of 1999)''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to years beginning after December 31, 2000.
       (b) Special Rules for Sections 403(b) and 408.--
       (1) In general.--Subsection (k) of section 415 is amended 
     by adding at the end the following new paragraph:
       ``(4) Special rules for sections 403(b) and 408.--For 
     purposes of this section, any annuity contract described in 
     section 403(b) for the benefit of a participant shall be 
     treated as a defined contribution plan maintained by each 
     employer with respect to which the participant has the 
     control required under subsection (b) or (c) of section 414 
     (as modified by subsection (h)). For purposes of this 
     section, any contribution by an employer to a simplified 
     employee pension plan for an individual for a taxable year 
     shall be treated as

[[Page 17130]]

     an employer contribution to a defined contribution plan for 
     such individual for such year.''.
       (2) Effective date.--
       (A) In general.--The amendment made by paragraph (1) shall 
     apply to limitation years beginning after December 31, 1999.
       (B) Exclusion allowance.--Effective for limitation years 
     beginning in 2000, in the case of any annuity contract 
     described in section 403(b) of the Internal Revenue Code of 
     1986, the amount of the contribution disqualified by reason 
     of section 415(g) of such Code shall reduce the exclusion 
     allowance as provided in section 403(b)(2) of such Code.
       (c) Deferred Compensation Plans of State and Local 
     Governments and Tax-Exempt Organizations.--
       (1) In general.--Subparagraph (B) of section 457(b)(2) 
     (relating to salary limitation on eligible deferred 
     compensation plans) is amended by striking ``33\1/3\ 
     percent'' and inserting ``100 percent''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 2000.

     SEC. 1223. FASTER VESTING OF CERTAIN EMPLOYER MATCHING 
                   CONTRIBUTIONS.

       (a) In General.--Section 411(a) (relating to minimum 
     vesting standards) is amended--
       (1) in paragraph (2), by striking ``A plan'' and inserting 
     ``Except as provided in paragraph (12), a plan'', and
       (2) by adding at the end the following:
       ``(12) Faster vesting for matching contributions.--In the 
     case of matching contributions (as defined in section 
     401(m)(4)(A)), paragraph (2) shall be applied--
       ``(A) by substituting `3 years' for `5 years' in 
     subparagraph (A), and
       ``(B) by substituting the following table for the table 
     contained in subparagraph (B):

                                                     The nonforfeitable
    ``Years of service:                                percentage is:  
      2.............................................................20 
      3.............................................................40 
      4.............................................................60 
      5.............................................................80 
      6 or more.................................................100.''.
       (b) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to plan years 
     beginning after December 31, 2000.
       (2) Collective bargaining agreements.--In the case of a 
     plan maintained pursuant to 1 or more collective bargaining 
     agreements between employee representatives and 1 or more 
     employers ratified by the date of the enactment of this Act, 
     the amendments made by this section shall not apply to plan 
     years beginning before the earlier of--
       (A) the later of--
       (i) the date on which the last of such collective 
     bargaining agreements terminates (determined without regard 
     to any extension thereof on or after such date of enactment), 
     or
       (ii) January 1, 2001, or
       (B) January 1, 2005.
       (3) Service required.--With respect to any plan, the 
     amendments made by this section shall not apply to any 
     employee before the date that such employee has 1 hour of 
     service under such plan in any plan year to which the 
     amendments made by this section apply.

     SEC. 1224. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION 
                   RULES.

       (a) Simplification and Finalization of Minimum Distribution 
     Requirements.--
       (1) In general.--The Secretary of the Treasury shall--
       (A) simplify and finalize the regulations relating to 
     minimum distribution requirements under sections 401(a)(9), 
     408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2) of the 
     Internal Revenue Code of 1986, and
       (B) modify such regulations to--
       (i) reflect current life expectancy, and
       (ii) revise the required distribution methods so that, 
     under reasonable assumptions, the amount of the required 
     minimum distribution does not decrease over a participant's 
     life expectancy.
       (2) Fresh start.--Notwithstanding subparagraph (D) of 
     section 401(a)(9) of such Code, during the first year that 
     regulations are in effect under this subsection, required 
     distributions for future years may be redetermined to reflect 
     changes under such regulations. Such redetermination shall 
     include the opportunity to choose a new designated 
     beneficiary and to elect a new method of calculating life 
     expectancy.
       (3) Effective date for regulations.--Regulations referred 
     to in paragraph (1) shall be effective for years beginning 
     after December 31, 2000, and shall apply in such years 
     without regard to whether an individual had previously begun 
     receiving minimum distributions.
       (b) Repeal of Rule Where Distributions Had Begun Before 
     Death Occurs.--
       (1) In general.--Subparagraph (B) of section 401(a)(9) is 
     amended by striking clause (i) and redesignating clauses 
     (ii), (iii), and (iv) as clauses (i), (ii), and (iii), 
     respectively.
       (2) Conforming changes.--
       (A) Clause (i) of section 401(a)(9)(B) (as so redesignated) 
     is amended--
       (i) by striking ``for other cases'' in the heading, and
       (ii) by striking ``the distribution of the employee's 
     interest has begun in accordance with subparagraph (A)(ii)'' 
     and inserting ``his entire interest has been distributed to 
     him,''.
       (B) Clause (ii) of section 401(a)(9)(B) (as so 
     redesignated) is amended by striking ``clause (ii)'' and 
     inserting ``clause (i)''.
       (C) Clause (iii) of section 401(a)(9)(B) (as so 
     redesignated) is amended--
       (i) by striking ``clause (iii)(I)'' and inserting ``clause 
     (ii)(I)'',
       (ii) in subclause (I) by striking ``clause (iii)(III)'' and 
     inserting ``clause (ii)(III)'',
       (iii) in subclause (I) by striking ``the date on which the 
     employee would have attained the age 70\1/2\,'' and inserting 
     ``April 1 of the calendar year following the calendar year in 
     which the spouse attains 70\1/2\,'', and
       (iv) in subclause (II) by striking ``the distributions to 
     such spouse begin,'' and inserting ``his entire interest has 
     been distributed to him,''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to years beginning after December 31, 2000.
       (c) Reduction in Excise Tax.--
       (1) In general.--Subsection (a) of section 4974 is amended 
     by striking ``50 percent'' and inserting ``10 percent''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 2000.

     SEC. 1225. CLARIFICATION OF TAX TREATMENT OF DIVISION OF 
                   SECTION 457 PLAN BENEFITS UPON DIVORCE.

       (a) In General.--Section 414(p)(11) (relating to 
     application of rules to governmental and church plans) is 
     amended--
       (1) by inserting ``or an eligible deferred compensation 
     plan (within the meaning of section 457(b))'' after 
     ``subsection (e))'', and
       (2) in the heading, by striking ``governmental and church 
     plans'' and inserting ``certain other plans''.
       (b) Waiver of Certain Distribution Requirements.--Paragraph 
     (10) of section 414(p) is amended by striking ``and section 
     409(d)'' and inserting ``section 409(d), and section 
     457(d)''.
       (c) Tax Treatment of Payments From a Section 457 Plan.--
     Subsection (p) of section 414 is amended by redesignating 
     paragraph (12) as paragraph (13) and inserting after 
     paragraph (11) the following new paragraph:
       ``(12) Tax treatment of payments from a section 457 plan.--
     If a distribution or payment from an eligible deferred 
     compensation plan described in section 457(b) is made 
     pursuant to a qualified domestic relations order, rules 
     similar to the rules of section 402(e)(1)(A) shall apply to 
     such distribution or payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transfers, distributions, and payments made 
     after December 31, 2000.

          Subtitle C--Increasing Portability for Participants

     SEC. 1231. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

       (a) Rollovers From and to Section 457 Plans.--
       (1) Rollovers from section 457 plans.--
       (A) In general.--Section 457(e) (relating to other 
     definitions and special rules) is amended by adding at the 
     end the following:
       ``(16) Rollover amounts.--
       ``(A) General rule.--In the case of an eligible deferred 
     compensation plan established and maintained by an employer 
     described in subsection (e)(1)(A), if--
       ``(i) any portion of the balance to the credit of an 
     employee in such plan is paid to such employee in an eligible 
     rollover distribution (within the meaning of section 
     402(c)(4) without regard to subparagraph (C) thereof),
       ``(ii) the employee transfers any portion of the property 
     such employee receives in such distribution to an eligible 
     retirement plan described in section 402(c)(8)(B), and
       ``(iii) in the case of a distribution of property other 
     than money, the amount so transferred consists of the 
     property distributed,
     then such distribution (to the extent so transferred) shall 
     not be includible in gross income for the taxable year in 
     which paid.
       ``(B) Certain rules made applicable.--The rules of 
     paragraphs (2) through (7) (other than paragraph (4)(C)) and 
     (9) of section 402(c) and section 402(f) shall apply for 
     purposes of subparagraph (A).
       ``(C) Reporting.--Rollovers under this paragraph shall be 
     reported to the Secretary in the same manner as rollovers 
     from qualified retirement plans (as defined in section 
     4974(c)).''.
       (B) Deferral limit determined without regard to rollover 
     amounts.--Section 457(b)(2) (defining eligible deferred 
     compensation plan) is amended by inserting ``(other than 
     rollover amounts)'' after ``taxable year''.
       (C) Direct rollover.--Paragraph (1) of section 457(d) is 
     amended by striking ``and'' at the end of subparagraph (A), 
     by striking the period at the end of subparagraph (B) and 
     inserting ``, and'', and by inserting after subparagraph (B) 
     the following:
       ``(C) in the case of a plan maintained by an employer 
     described in subsection (e)(1)(A), the plan meets 
     requirements similar to the requirements of section 
     401(a)(31).
     Any amount transferred in a direct trustee-to-trustee 
     transfer in accordance with section 401(a)(31) shall not be 
     includible in gross income for the taxable year of 
     transfer.''.
       (D) Withholding.--
       (i) Paragraph (12) of section 3401(a) is amended by adding 
     at the end the following:

[[Page 17131]]

       ``(E) under or to an eligible deferred compensation plan 
     which, at the time of such payment, is a plan described in 
     section 457(b) maintained by an employer described in section 
     457(e)(1)(A); or''.
       (ii) Paragraph (3) of section 3405(c) is amended to read as 
     follows:
       ``(3) Eligible rollover distribution.--For purposes of this 
     subsection, the term `eligible rollover distribution' has the 
     meaning given such term by section 402(f)(2)(A).''.
       (iii) Liability for withholding.--Subparagraph (B) of 
     section 3405(d)(2) is amended by striking ``or'' at the end 
     of clause (ii), by striking the period at the end of clause 
     (iii) and inserting ``, or'', and by adding at the end the 
     following:
       ``(iv) section 457(b).''.
       (2) Rollovers to section 457 plans.--
       (A) In general.--Section 402(c)(8)(B) (defining eligible 
     retirement plan) is amended by striking ``and'' at the end of 
     clause (iii), by striking the period at the end of clause 
     (iv) and inserting ``, and'', and by inserting after clause 
     (iv) the following new clause:
       ``(v) an eligible deferred compensation plan described in 
     section 457(b) of an employer described in section 
     457(e)(1)(A).''.
       (B) Separate accounting.--Section 402(c) is amended by 
     adding at the end the following new paragraph:
       ``(11) Separate accounting.--Unless a plan described in 
     clause (v) of paragraph (8)(B) agrees to separately account 
     for amounts rolled into such plan from eligible retirement 
     plans not described in such clause, the plan described in 
     such clause may not accept transfers or rollovers from such 
     retirement plans.''.
       (C) 10 percent additional tax.--Subsection (t) of section 
     72 (relating to 10-percent additional tax on early 
     distributions from qualified retirement plans) is amended by 
     adding at the end the following new paragraph:
       ``(9) Special rule for rollovers to section 457 plans.--For 
     purposes of this subsection, a distribution from an eligible 
     deferred compensation plan (as defined in section 457(b)) of 
     an employer described in section 457(e)(1)(A) shall be 
     treated as a distribution from a qualified retirement plan 
     described in 4974(c)(1) to the extent that such distribution 
     is attributable to an amount transferred to an eligible 
     deferred compensation plan from a qualified retirement plan 
     (as defined in section 4974(c)).''.
       (b) Allowance of Rollovers From and to 403(b) Plans.--
       (1) Rollovers from section 403(b) plans.--Section 
     403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
     striking ``such distribution'' and all that follows and 
     inserting ``such distribution to an eligible retirement plan 
     described in section 402(c)(8)(B), and''.
       (2) Rollovers to section 403(b) plans.--Section 
     402(c)(8)(B) (defining eligible retirement plan), as amended 
     by subsection (a), is amended by striking ``and'' at the end 
     of clause (iv), by striking the period at the end of clause 
     (v) and inserting 
     ``, and'', and by inserting after clause (v) the following 
     new clause:
       ``(vi) an annuity contract described in section 403(b).''
       (c) Expanded Explanation to Recipients of Rollover 
     Distributions.--Paragraph (1) of section 402(f) (relating to 
     written explanation to recipients of distributions eligible 
     for rollover treatment) is amended by striking ``and'' at the 
     end of subparagraph (C), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) of the provisions under which distributions from the 
     eligible retirement plan receiving the distribution may be 
     subject to restrictions and tax consequences which are 
     different from those applicable to distributions from the 
     plan making such distribution.''.
       (d) Spousal Rollovers.--Section 402(c)(9) (relating to 
     rollover where spouse receives distribution after death of 
     employee) is amended by striking ``; except that'' and all 
     that follows up to the end period.
       (e) Conforming Amendments.--
       (1) Section 72(o)(4) is amended by striking ``and 
     408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and 
     457(e)(16)''.
       (2) Section 219(d)(2) is amended by striking ``or 
     408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
       (3) Section 401(a)(31)(B) is amended by striking ``and 
     403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
     457(e)(16)''.
       (4) Subparagraph (A) of section 402(f)(2) is amended by 
     striking ``or paragraph (4) of section 403(a)'' and inserting 
     ``, paragraph (4) of section 403(a), subparagraph (A) of 
     section 403(b)(8), or subparagraph (A) of section 
     457(e)(16)''.
       (5) Paragraph (1) of section 402(f) is amended by striking 
     ``from an eligible retirement plan''.
       (6) Subparagraphs (A) and (B) of section 402(f)(1) are 
     amended by striking ``another eligible retirement plan'' and 
     inserting ``an eligible retirement plan''.
       (7) Subparagraph (B) of section 403(b)(8) is amended to 
     read as follows:
       ``(B) Certain rules made applicable.--The rules of 
     paragraphs (2) through (7) and (9) of section 402(c) and 
     section 402(f) shall apply for purposes of subparagraph (A), 
     except that section 402(f) shall be applied to the payor in 
     lieu of the plan administrator.''.
       (8) Section 408(a)(1) is amended by striking ``or 
     403(b)(8)'' and inserting ``, 403(b)(8), or 457(e)(16)''.
       (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
     amended by striking ``and 408(d)(3)'' and inserting 
     ``403(b)(8), 408(d)(3), and 457(e)(16)''.
       (10) Section 415(c)(2) is amended by striking ``and 
     408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
       (11) Section 4973(b)(1)(A) is amended by striking ``or 
     408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
       (f) Effective Date; Special Rule.--
       (1) Effective date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.
       (2) Special rule.--Notwithstanding any other provision of 
     law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
     Reform Act of 1986 shall not apply to any distribution from 
     an eligible retirement plan (as defined in clause (iii) or 
     (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 
     1986) on behalf of an individual if there was a rollover to 
     such plan on behalf of such individual which is permitted 
     solely by reason of any amendment made by this section.

     SEC. 1232. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

       (a) In General.--Subparagraph (A) of section 408(d)(3) 
     (relating to rollover amounts) is amended by adding ``or'' at 
     the end of clause (i), by striking clauses (ii) and (iii), 
     and by adding at the end the following:
       ``(ii) the entire amount received (including money and any 
     other property) is paid into an eligible retirement plan for 
     the benefit of such individual not later than the 60th day 
     after the date on which the payment or distribution is 
     received, except that the maximum amount which may be paid 
     into such plan may not exceed the portion of the amount 
     received which is includible in gross income (determined 
     without regard to this paragraph).
     For purposes of clause (ii), the term `eligible retirement 
     plan' has the meaning given such term by clauses (iii), (iv), 
     (v), and (vi) of section 402(c)(8)(B).''.
       (b) Conforming Amendments.--
       (1) Paragraph (1) of section 403(b) is amended by striking 
     ``section 408(d)(3)(A)(iii)'' and inserting ``section 
     408(d)(3)(A)(ii)''.
       (2) Clause (i) of section 408(d)(3)(D) is amended by 
     striking ``(i), (ii), or (iii)'' and inserting ``(i) or 
     (ii)''.
       (3) Subparagraph (G) of section 408(d)(3) is amended to 
     read as follows:
       ``(G) Simple retirement accounts.--In the case of any 
     payment or distribution out of a simple retirement account 
     (as defined in subsection (p)) to which section 72(t)(6) 
     applies, this paragraph shall not apply unless such payment 
     or distribution is paid into another simple retirement 
     account.''.
       (c) Effective Date; Special Rule.--
       (1) Effective date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.
       (2) Special rule.--Notwithstanding any other provision of 
     law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
     Reform Act of 1986 shall not apply to any distribution from 
     an eligible retirement plan (as defined in clause (iii) or 
     (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 
     1986) on behalf of an individual if there was a rollover to 
     such plan on behalf of such individual which is permitted 
     solely by reason of the amendments made by this section.

     SEC. 1233. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

       (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 
     402(c) (relating to maximum amount which may be rolled over) 
     is amended by adding at the end the following: ``The 
     preceding sentence shall not apply to such distribution to 
     the extent--
       ``(A) such portion is transferred in a direct trustee-to-
     trustee transfer to a qualified trust which is part of a plan 
     which is a defined contribution plan and which agrees to 
     separately account for amounts so transferred, including 
     separately accounting for the portion of such distribution 
     which is includible in gross income and the portion of such 
     distribution which is not so includible, or
       ``(B) such portion is transferred to an eligible retirement 
     plan described in clause (i) or (ii) of paragraph (8)(B).''.
       (b) Optional Direct Transfer of Eligible Rollover 
     Distributions.--Subparagraph (B) of section 401(a)(31) 
     (relating to limitation) is amended by adding at the end the 
     following: ``The preceding sentence shall not apply to such 
     distribution if the plan to which such distribution is 
     transferred--
       ``(i) agrees to separately account for amounts so 
     transferred, including separately accounting for the portion 
     of such distribution which is includible in gross income and 
     the portion of such distribution which is not so includible, 
     or
       ``(ii) is an eligible retirement plan described in clause 
     (i) or (ii) of section 402(c)(8)(B).''.
       (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) 
     of section 408(d) (relating to special rules for applying 
     section 72) is amended by inserting at the end the following:
       ``(H) Application of section 72.--
       ``(i) In general.--If--

[[Page 17132]]

       ``(I) a distribution is made from an individual retirement 
     plan, and
       ``(II) a rollover contribution is made to an eligible 
     retirement plan described in section 402(c)(8)(B)(iii), (iv), 
     (v), or (vi) with respect to all or part of such 
     distribution,

     then, notwithstanding paragraph (2), the rules of clause (ii) 
     shall apply for purposes of applying section 72.
       ``(ii) Applicable rules.--In the case of a distribution 
     described in clause (i)--

       ``(I) section 72 shall be applied separately to such 
     distribution,
       ``(II) notwithstanding the pro rata allocation of income 
     on, and investment in the contract, to distributions under 
     section 72, the portion of such distribution rolled over to 
     an eligible retirement plan described in clause (i) shall be 
     treated as from income on the contract (to the extent of the 
     aggregate income on the contract from all individual 
     retirement plans of the distributee), and
       ``(III) appropriate adjustments shall be made in applying 
     section 72 to other distributions in such taxable year and 
     subsequent taxable years.''

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

     SEC. 1234. HARDSHIP EXCEPTION TO 60-DAY RULE.

       (a) Exempt Trusts.--Paragraph (3) of section 402(c) 
     (relating to transfer must be made within 60 days of receipt) 
     is amended to read as follows:
       ``(3) Transfer must be made within 60 days of receipt.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     paragraph (1) shall not apply to any transfer of a 
     distribution made after the 60th day following the day on 
     which the distributee received the property distributed.
       ``(B) Hardship exception.--The Secretary may waive the 60-
     day requirement under subparagraph (A) where the failure to 
     waive such requirement would be against equity or good 
     conscience, including casualty, disaster, or other events 
     beyond the reasonable control of the individual subject to 
     such requirement.''.
       (b) IRAs.--Paragraph (3) of section 408(d) (relating to 
     rollover contributions) is amended by adding after 
     subparagraph (H) the following new subparagraph:
       ``(I) Waiver of 60-day requirement.--The Secretary may 
     waive the 60-day requirement under subparagraphs (A) and (D) 
     where the failure to waive such requirement would be against 
     equity or good conscience, including casualty, disaster, or 
     other events beyond the reasonable control of the individual 
     subject to such requirement.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 1235. TREATMENT OF FORMS OF DISTRIBUTION.

       (a) Plan Transfers.--
       (1) In general.--Paragraph (6) of section 411(d) (relating 
     to accrued benefit not to be decreased by amendment) is 
     amended by adding at the end the following:
       ``(D) Plan transfers.--
       ``(i) A defined contribution plan (in this subparagraph 
     referred to as the `transferee plan') shall not be treated as 
     failing to meet the requirements of this subsection merely 
     because the transferee plan does not provide some or all of 
     the forms of distribution previously available under another 
     defined contribution plan (in this subparagraph referred to 
     as the `transferor plan') to the extent that--

       ``(I) the forms of distribution previously available under 
     the transferor plan applied to the account of a participant 
     or beneficiary under the transferor plan that was transferred 
     from the transferor plan to the transferee plan pursuant to a 
     direct transfer rather than pursuant to a distribution from 
     the transferor plan;
       ``(II) the terms of both the transferor plan and the 
     transferee plan authorize the transfer described in subclause 
     (I);
       ``(III) the transfer described in subclause (I) was made 
     pursuant to a voluntary election by the participant or 
     beneficiary whose account was transferred to the transferee 
     plan;
       ``(IV) the election described in subclause (III) was made 
     after the participant or beneficiary received a notice 
     describing the consequences of making the election;
       ``(V) if the transferor plan provides for an annuity as the 
     normal form of distribution under the plan in accordance with 
     section 417, the transfer is made with the consent of the 
     participant's spouse (if any), and such consent meets 
     requirements similar to the requirements imposed by section 
     417(a)(2); and
       ``(VI) the transferee plan allows the participant or 
     beneficiary described in subclause (III) to receive any 
     distribution to which the participant or beneficiary is 
     entitled under the transferee plan in the form of a single 
     sum distribution.

       ``(ii) Clause (i) shall apply to plan mergers and other 
     transactions having the effect of a direct transfer, 
     including consolidations of benefits attributable to 
     different employers within a multiple employer plan.
       ``(E) Elimination of form of distribution.--Except to the 
     extent provided in regulations, a defined contribution plan 
     shall not be treated as failing to meet the requirements of 
     this section merely because of the elimination of a form of 
     distribution previously available thereunder. This 
     subparagraph shall not apply to the elimination of a form of 
     distribution with respect to any participant unless--
       ``(i) a single sum payment is available to such participant 
     at the same time or times as the form of distribution being 
     eliminated; and
       ``(ii) such single sum payment is based on the same or 
     greater portion of the participant's account as the form of 
     distribution being eliminated.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 2000.
       (b) Regulations.--
       (1) In general.--The last sentence of paragraph (6)(B) of 
     section 411(d) (relating to accrued benefit not to be 
     decreased by amendment) is amended to read as follows: ``The 
     Secretary may by regulations provide that this subparagraph 
     shall not apply to any plan amendment that does not adversely 
     affect the rights of participants in a material manner.''.
       (2) Secretary directed.--Not later than December 31, 2001, 
     the Secretary of the Treasury is directed to issue final 
     regulations under section 411(d)(6) of the Internal Revenue 
     Code of 1986. Such regulations shall apply to plan years 
     beginning after December 31, 2001, or such earlier date as is 
     specified by the Secretary of the Treasury.

     SEC. 1236. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

       (a) Modification of Same Desk Exception.--
       (1) Section 401(k).--
       (A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash 
     or deferred arrangements) is amended by striking ``separation 
     from service'' and inserting ``severance from employment''.
       (B) Subparagraph (A) of section 401(k)(10) (relating to 
     distributions upon termination of plan or disposition of 
     assets or subsidiary) is amended to read as follows:
       ``(A) In general.--An event described in this subparagraph 
     is the termination of the plan without establishment or 
     maintenance of another defined contribution plan (other than 
     an employee stock ownership plan as defined in section 
     4975(e)(7)).''.
       (C) Section 401(k)(10) is amended--
       (i) in subparagraph (B)--

       (I) by striking ``An event'' in clause (i) and inserting 
     ``A termination'', and
       (II) by striking ``the event'' in clause (i) and inserting 
     ``the termination'',

       (ii) by striking subparagraph (C), and
       (iii) by striking ``or disposition of assets or 
     subsidiary'' in the heading.
       (2) Section 403(b).--
       (A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are 
     each amended by striking ``separates from service'' and 
     inserting ``has a severance from employment''.
       (B) The heading for paragraph (11) of section 403(b) is 
     amended by striking ``separation from service'' and inserting 
     ``severance from employment''.
       (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
     amended by striking ``is separated from service'' and 
     inserting ``has a severance from employment''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 1237. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED 
                   BENEFIT PLANS.

       (a) 403(b) Plans.--Subsection (b) of section 403 is amended 
     by adding at the end the following new paragraph:
       ``(13) Trustee-to-trustee transfers to purchase permissive 
     service credit.--No amount shall be includible in gross 
     income by reason of a direct trustee-to-trustee transfer to a 
     defined benefit governmental plan (as defined in section 
     414(d)) if such transfer is--
       ``(A) for the purchase of permissive service credit (as 
     defined in section 415(n)(3)(A)) under such plan, or
       ``(B) a repayment to which section 415 does not apply by 
     reason of subsection (k)(3) thereof.''.
       (b) 457 Plans.--
       (1) Subsection (e) of section 457 is amended by adding 
     after paragraph (17) the following new paragraph:
       ``(18) Trustee-to-trustee transfers to purchase permissive 
     service credit.--No amount shall be includible in gross 
     income by reason of a direct trustee-to-trustee transfer to a 
     defined benefit governmental plan (as defined in section 
     414(d)) if such transfer is--
       ``(A) for the purchase of permissive service credit (as 
     defined in section 415(n)(3)(A)) under such plan, or
       ``(B) a repayment to which section 415 does not apply by 
     reason of subsection (k)(3) thereof.''.
       (2) Section 457(b)(2) is amended by striking ``(other than 
     rollover amounts)'' and inserting ``(other than rollover 
     amounts and amounts received in a transfer referred to in 
     subsection (e)(16))''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to trustee-to-trustee transfers after December 
     31, 2000.

[[Page 17133]]



     SEC. 1238. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF 
                   CASH-OUT AMOUNTS.

       (a) In General.--Section 411(a)(11) (relating to 
     restrictions on certain mandatory distributions) is amended 
     by adding at the end the following:
       ``(D) Special rule for rollover contributions.--A plan 
     shall not fail to meet the requirements of this paragraph if, 
     under the terms of the plan, the present value of the 
     nonforfeitable accrued benefit is determined without regard 
     to that portion of such benefit which is attributable to 
     rollover contributions (and earnings allocable thereto). For 
     purposes of this subparagraph, the term `rollover 
     contributions' means any rollover contribution under sections 
     402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 
     457(e)(16).''.
       (b) Eligible Deferred Compensation Plans.--Clause (i) of 
     section 457(e)(9)(A) is amended by striking ``such amount'' 
     and inserting ``the portion of such amount which is not 
     attributable to rollover contributions (as defined in section 
     411(a)(11)(D))''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 1239. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS 
                   FOR SECTION 457 PLANS.

       (a) Minimum Distribution Requirements.--Paragraph (2) of 
     section 457(d) (relating to distribution requirements) is 
     amended to read as follows:
       ``(2) Minimum distribution requirements.--A plan meets the 
     minimum distribution requirements of this paragraph if such 
     plan meets the requirements of section 401(a)(9).''
       (b) Inclusion in Gross Income.--
       (1) Year of inclusion.--Subsection (a) of section 457 
     (relating to year of inclusion in gross income) is amended to 
     read as follows:
       ``(a) Year of inclusion in gross income.--
       ``(1) In general.--Any amount of compensation deferred 
     under an eligible deferred compensation plan, and any income 
     attributable to the amounts so deferred, shall be includible 
     in gross income only for the taxable year in which such 
     compensation or other income--
       ``(A) is paid to the participant or other beneficiary, in 
     the case of a plan of an eligible employer described in 
     subsection (e)(1)(A), and
       ``(B) is paid or otherwise made available to the 
     participant or other beneficiary, in the case of a plan of an 
     eligible employer described in subsection (e)(1)(B).
       ``(2) Special rule for rollover amounts.--To the extent 
     provided in section 72(t)(9), section 72(t) shall apply to 
     any amount includible in gross income under this 
     subsection.''.
       (2) Conforming amendment.--So much of paragraph (9) of 
     section 457(e) as precedes subparagraph (A) is amended to 
     read as follows:
       ``(9) Benefits of tax exempt organization plans not treated 
     as made available by reason of certain elections, etc.--In 
     the case of an eligible deferred compensation plan of an 
     employer described in subsection (e)(1)(B)--''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

       Subtitle D--Strengthening Pension Security and Enforcement

     SEC. 1241. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING 
                   LIMIT.

       (a) In General.--Section 412(c)(7) (relating to full-
     funding limitation) is amended--
       (1) by striking ``the applicable percentage'' in 
     subparagraph (A)(i)(I) and inserting ``in the case of plan 
     years beginning before January 1, 2004, the applicable 
     percentage'', and
       (2) by amending subparagraph (F) to read as follows:
       ``(F) Applicable percentage.--For purposes of subparagraph 
     (A)(i)(I), the applicable percentage shall be determined in 
     accordance with the following table:

``In the case of any plan year beginning The applicable percentage is--
      2001.........................................................160 
      2002.........................................................165 
      2003......................................................170.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 1242. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND 
                   APPLIED TO ALL DEFINED BENEFIT PLANS.

       (a) In General.--Subparagraph (D) of section 404(a)(1) 
     (relating to special rule in case of certain plans) is 
     amended to read as follows:
       ``(D) Special rule in case of certain plans.--
       ``(i) In general.--In the case of any defined benefit plan, 
     except as provided in regulations, the maximum amount 
     deductible under the limitations of this paragraph shall not 
     be less than the unfunded termination liability (determined 
     as if the proposed termination date referred to in section 
     4041(b)(2)(A)(i)(II) of the Employee Retirement Income 
     Security Act of 1974 were the last day of the plan year).
       ``(ii) Plans with less than 100 participants.--For purposes 
     of this subparagraph, in the case of a plan which has less 
     than 100 participants for the plan year, termination 
     liability shall not include the liability attributable to 
     benefit increases for highly compensated employees (as 
     defined in section 414(q)) resulting from a plan amendment 
     which is made or becomes effective, whichever is later, 
     within the last 2 years before the termination date.
       ``(iii) Rule for determining number of participants.--For 
     purposes of determining whether a plan has more than 100 
     participants, all defined benefit plans maintained by the 
     same employer (or any member of such employer's controlled 
     group (within the meaning of section 412(l)(8)(C))) shall be 
     treated as 1 plan, but only employees of such member or 
     employer shall be taken into account.
       ``(iv) Plans established and maintain by professional 
     service employers.--Clause (i) shall not apply to a plan 
     described in section 4021(b)(13) of the Employee Retirement 
     Income Security Act of 1974.''.
       (b) Conforming Amendment.--Paragraph (6) of section 4972(c) 
     is amended to read as follows:
       ``(6) Exceptions.--In determining the amount of 
     nondeductible contributions for any taxable year, there shall 
     not be taken into account so much of the contributions to 1 
     or more defined contribution plans which are not deductible 
     when contributed solely because of section 404(a)(7) as does 
     not exceed the greater of--
       ``(A) the amount of contributions not in excess of 6 
     percent of compensation (within the meaning of section 
     404(a)) paid or accrued (during the taxable year for which 
     the contributions were made) to beneficiaries under the 
     plans, or
       ``(B) the sum of--
       ``(i) the amount of contributions described in section 
     401(m)(4)(A), plus
       ``(ii) the amount of contributions described in section 
     402(g)(3)(A).
     For purposes of this paragraph, the deductible limits under 
     section 404(a)(7) shall first be applied to amounts 
     contributed to a defined benefit plan and then to amounts 
     described in subparagraph (B).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 1243. MISSING PARTICIPANTS.

       (a) In General.--Section 4050 of the Employee Retirement 
     Income Security Act of 1974 (29 U.S.C. 1350) is amended by 
     redesignating subsection (c) as subsection (e) and by 
     inserting after subsection (b) the following:
       ``(c) Multiemployer Plans.--The corporation shall prescribe 
     rules similar to the rules in subsection (a) for 
     multiemployer plans covered by this title that terminate 
     under section 4041A.
       ``(d) Plans Not Otherwise Subject to Title.--
       ``(1) Transfer to corporation.--The plan administrator of a 
     plan described in paragraph (4) may elect to transfer a 
     missing participant's benefits to the corporation upon 
     termination of the plan.
       ``(2) Information to the corporation.--To the extent 
     provided in regulations, the plan administrator of a plan 
     described in paragraph (4) shall, upon termination of the 
     plan, provide the corporation information with respect to 
     benefits of a missing participant if the plan transfers such 
     benefits--
       ``(A) to the corporation, or
       ``(B) to an entity other than the corporation or a plan 
     described in paragraph (4)(B)(ii).
       ``(3) Payment by the corporation.--If benefits of a missing 
     participant were transferred to the corporation under 
     paragraph (1), the corporation shall, upon location of the 
     participant or beneficiary, pay to the participant or 
     beneficiary the amount transferred (or the appropriate 
     survivor benefit) either--
       ``(A) in a single sum (plus interest), or
       ``(B) in such other form as is specified in regulations of 
     the corporation.
       ``(4) Plans described.--A plan is described in this 
     paragraph if--
       ``(A) the plan is a pension plan (within the meaning of 
     section 3(2))--
       ``(i) to which the provisions of this section do not apply 
     (without regard to this subsection), and
       ``(ii) which is not a plan described in paragraphs (2) 
     through (11) of section 4021(b), and
       ``(B) at the time the assets are to be distributed upon 
     termination, the plan--
       ``(i) has missing participants, and
       ``(ii) has not provided for the transfer of assets to pay 
     the benefits of all missing participants to another pension 
     plan (within the meaning of section 3(2)).
       ``(5) Certain provisions not to apply.--Subsections (a)(1) 
     and (a)(3) shall not apply to a plan described in paragraph 
     (4).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to distributions made after final regulations 
     implementing subsections (c) and (d) of section 4050 of the 
     Employee Retirement Income Security Act of 1974 (as added by 
     subsection (a)), respectively, are prescribed.

     SEC. 1244. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

       (a) In General.--Subsection (c) of section 4972 (relating 
     to nondeductible contributions) is amended by adding at the 
     end the following new paragraph:
       ``(7) Defined benefit plan exception.--In determining the 
     amount of nondeductible

[[Page 17134]]

     contributions for any taxable year, an employer may elect for 
     such year not to take into account any contributions to a 
     defined benefit plan except to the extent that such 
     contributions exceed the full-funding limitation (as defined 
     in section 412(c)(7), determined without regard to 
     subparagraph (A)(i)(I) thereof). For purposes of this 
     paragraph, the deductible limits under section 404(a)(7) 
     shall first be applied to amounts contributed to defined 
     contribution plans and then to amounts described in this 
     paragraph. If an employer makes an election under this 
     paragraph for a taxable year, paragraph (6) shall not apply 
     to such employer for such taxable year.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1245. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED 
                   BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE 
                   BENEFIT ACCRUALS.

       (a) In General.--Chapter 43 of subtitle D (relating to 
     qualified pension, etc., plans) is amended by adding at the 
     end the following new section:

     ``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT 
                   ACCRUALS TO SATISFY NOTICE REQUIREMENTS.

       ``(a) Imposition of Tax.--There is hereby imposed a tax on 
     the failure of any applicable pension plan to meet the 
     requirements of subsection (e) with respect to any applicable 
     individual.
       ``(b) Amount of Tax.--
       ``(1) In general.--The amount of the tax imposed by 
     subsection (a) on any failure with respect to any applicable 
     individual shall be $100 for each day in the noncompliance 
     period with respect to such failure.
       ``(2) Noncompliance period.--For purposes of this section, 
     the term `noncompliance period' means, with respect to any 
     failure, the period beginning on the date the failure first 
     occurs and ending on the date the failure is corrected.
       ``(c) Limitations on Amount of Tax.--
       ``(1) Overall limitation for unintentional failures.--In 
     the case of failures that are due to reasonable cause and not 
     to willful neglect, the tax imposed by subsection (a) for 
     failures during the taxable year of the employer (or, in the 
     case of a multiemployer plan, the taxable year of the trust 
     forming part of the plan) shall not exceed $500,000. For 
     purposes of the preceding sentence, all multiemployer plans 
     of which the same trust forms a part shall be treated as 1 
     plan. For purposes of this paragraph, if not all persons who 
     are treated as a single employer for purposes of this section 
     have the same taxable year, the taxable years taken into 
     account shall be determined under principles similar to the 
     principles of section 1561.
       ``(2) Waiver by secretary.--In the case of a failure which 
     is due to reasonable cause and not to willful neglect, the 
     Secretary may waive part or all of the tax imposed by 
     subsection (a) to the extent that the payment of such tax 
     would be excessive relative to the failure involved.
       ``(d) Liability for Tax.--The following shall be liable for 
     the tax imposed by subsection (a):
       ``(1) In the case of a plan other than a multiemployer 
     plan, the employer.
       ``(2) In the case of a multiemployer plan, the plan.
       ``(e) Notice Requirements for Plans Significantly Reducing 
     Benefit Accruals.--
       ``(1) In general.--If an applicable pension plan is amended 
     to provide for a significant reduction in the rate of future 
     benefit accrual, the plan administrator shall provide written 
     notice to each applicable individual (and to each employee 
     organization representing applicable individuals).
       ``(2) Notice.--The notice required by paragraph (1) shall 
     be written in a manner calculated to be understood by the 
     average plan participant and shall provide sufficient 
     information (as determined in accordance with regulations 
     prescribed by the Secretary) to allow applicable individuals 
     to understand the effect of the plan amendment.
       ``(3) Timing of notice.--Except as provided in regulations, 
     the notice required by paragraph (1) shall be provided within 
     a reasonable time before the effective date of the plan 
     amendment.
       ``(4) Designees.--Any notice under paragraph (1) may be 
     provided to a person designated, in writing, by the person to 
     which it would otherwise be provided.
       ``(5) Notice before adoption of amendment.--A plan shall 
     not be treated as failing to meet the requirements of 
     paragraph (1) merely because notice is provided before the 
     adoption of the plan amendment if no material modification of 
     the amendment occurs before the amendment is adopted.
       ``(f) Applicable Individual; Applicable Pension Plan.--For 
     purposes of this section--
       ``(1) Applicable individual.--The term `applicable 
     individual' means, with respect to any plan amendment--
       ``(A) any participant in the plan, and
       ``(B) any beneficiary who is an alternate payee (within the 
     meaning of section 414(p)(8)) under an applicable qualified 
     domestic relations order (within the meaning of section 
     414(p)(1)(A)),
     who may reasonably be expected to be affected by such plan 
     amendment.
       ``(2) Applicable pension plan.--The term `applicable 
     pension plan' means--
       ``(A) any defined benefit plan, or
       ``(B) an individual account plan which is subject to the 
     funding standards of section 412,
     which had 100 or more participants who had accrued a benefit, 
     or with respect to whom contributions were made, under the 
     plan (whether or not vested) as of the last day of the plan 
     year preceding the plan year in which the plan amendment 
     becomes effective.''
       (b) Clerical Amendment.--The table of sections for chapter 
     43 of subtitle D is amended by adding at the end the 
     following new item:

``Sec. 4980F. Failure of applicable plans reducing benefit accruals to 
              satisfy notice requirements.''
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to plan amendments taking effect on or after the date 
     of the enactment of this Act.
       (2) Transition.--Until such time as the Secretary of the 
     Treasury issues regulations under sections 4980F(e)(2) and 
     (3) of the Internal Revenue Code of 1986 (as added by the 
     amendment made by subsection (a)), a plan shall be treated as 
     meeting the requirements of such section if it makes a good 
     faith effort to comply with such requirements.
       (3) Special rule.--The period for providing any notice 
     required by the amendments made by this section shall not end 
     before the date which is 3 months after the date of the 
     enactment of this Act.

                Subtitle E--Reducing Regulatory Burdens

     SEC. 1251. REPEAL OF THE MULTIPLE USE TEST.

       (a) In General.--Paragraph (9) of section 401(m) is amended 
     to read as follows:
       ``(9) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this subsection and subsection (k), including regulations 
     permitting appropriate aggregation of plans and 
     contributions.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1252. MODIFICATION OF TIMING OF PLAN VALUATIONS.

       (a) In General.--Section 412(c)(9) (relating to annual 
     valuation) is amended--
       (1) by striking ``For purposes'' and inserting the 
     following:
       ``(A) In general.--For purposes'', and
       (2) by adding at the end the following:
       ``(B) Election to use prior year valuation.--
       ``(i) In general.--Except as provided in clause (ii), if, 
     for any plan year--

       ``(I) an election is in effect under this subparagraph with 
     respect to a plan, and
       ``(II) the assets of the plan are not less than 125 percent 
     of the plan's current liability (as defined in paragraph 
     (7)(B)), determined as of the valuation date for the 
     preceding plan year,

     then this section shall be applied using the information 
     available as of such valuation date.
       ``(ii) Exceptions.--

       ``(I) Actual valuation every 3 years.--Clause (i) shall not 
     apply for more than 2 consecutive plan years and valuation 
     shall be under subparagraph (A) with respect to any plan year 
     to which clause (i) does not apply by reason of this clause.
       ``(II) Regulations.--Subclause (I) shall not apply to the 
     extent that more frequent valuations are required under the 
     regulations under subparagraph (A).

       ``(iii) Adjustments.--Information under clause (i) shall, 
     in accordance with regulations, be actuarially adjusted to 
     reflect significant differences in participants.
       ``(iv) Election.--An election under this subparagraph, once 
     made, shall be irrevocable without the consent of the 
     Secretary.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 1253. FLEXIBILITY AND NONDISCRIMINATION AND LINE OF 
                   BUSINESS RULES.

       The Secretary of the Treasury shall, on or before December 
     31, 2000, modify the existing regulations issued under 
     section 401(a)(4) and section 414(r) of the Internal Revenue 
     Code of 1986 in order to expand (to the extent that the 
     Secretary determines appropriate) the ability of a pension 
     plan to demonstrate compliance with the nondiscrimination and 
     line of business requirements based upon the facts and 
     circumstances surrounding the design and operation of the 
     plan, even though the plan is unable to satisfy the 
     mechanical tests currently used to determine compliance.

     SEC. 1254. SUBSTANTIAL OWNER BENEFITS IN TERMINATED PLANS.

       (a) Modification of Phase-In of Guarantee.--Section 
     4022(b)(5) of the Employee Retirement Income Security Act of 
     1974 (29 U.S.C. 1322(b)(5)) is amended to read as follows:
       ``(5)(A) For purposes of this paragraph, the term `majority 
     owner' means an individual who, at any time during the 60-
     month period ending on the date the determination is being 
     made--
       ``(i) owns the entire interest in an unincorporated trade 
     or business,

[[Page 17135]]

       ``(ii) in the case of a partnership, is a partner who owns, 
     directly or indirectly, 50 percent or more of either the 
     capital interest or the profits interest in such partnership, 
     or
       ``(iii) in the case of a corporation, owns, directly or 
     indirectly, 50 percent or more in value of either the voting 
     stock of that corporation or all the stock of that 
     corporation.
     For purposes of clause (iii), the constructive ownership 
     rules of section 1563(e) of the Internal Revenue Code of 1986 
     shall apply (determined without regard to section 
     1563(e)(3)(C)).
       ``(B) In the case of a participant who is a majority owner, 
     the amount of benefits guaranteed under this section shall 
     equal the product of--
       ``(i) a fraction (not to exceed 1) the numerator of which 
     is the number of years from the later of the effective date 
     or the adoption date of the plan to the termination date, and 
     the denominator of which is 10, and
       ``(ii) the amount of benefits that would be guaranteed 
     under this section if the participant were not a majority 
     owner.''.
       (b) Modification of Allocation of Assets.--
       (1) Section 4044(a)(4)(B) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1344(a)(4)(B)) is amended by 
     striking ``section 4022(b)(5)'' and inserting ``section 
     4022(b)(5)(B)''.
       (2) Section 4044(b) of such Act (29 U.S.C. 1344(b)) is 
     amended--
       (A) by striking ``(5)'' in paragraph (2) and inserting 
     ``(4), (5),'', and
       (B) by redesignating paragraphs (3) through (6) as 
     paragraphs (4) through (7), respectively, and by inserting 
     after paragraph (2) the following:
       ``(3) If assets available for allocation under paragraph 
     (4) of subsection (a) are insufficient to satisfy in full the 
     benefits of all individuals who are described in that 
     paragraph, the assets shall be allocated first to benefits 
     described in subparagraph (A) of that paragraph. Any 
     remaining assets shall then be allocated to benefits 
     described in subparagraph (B) of that paragraph. If assets 
     allocated to such subparagraph (B) are insufficient to 
     satisfy in full the benefits described in that subparagraph, 
     the assets shall be allocated pro rata among individuals on 
     the basis of the present value (as of the termination date) 
     of their respective benefits described in that 
     subparagraph.''.
       (c) Conforming Amendments.--
       (1) Section 4021 of the Employee Retirement Income Security 
     Act of 1974 (29 U.S.C. 1321) is amended--
       (A) in subsection (b)(9), by striking ``as defined in 
     section 4022(b)(6)'', and
       (B) by adding at the end the following:
       ``(d) For purposes of subsection (b)(9), the term 
     `substantial owner' means an individual who, at any time 
     during the 60-month period ending on the date the 
     determination is being made--
       ``(1) owns the entire interest in an unincorporated trade 
     or business,
       ``(2) in the case of a partnership, is a partner who owns, 
     directly or indirectly, more than 10 percent of either the 
     capital interest or the profits interest in such partnership, 
     or
       ``(3) in the case of a corporation, owns, directly or 
     indirectly, more than 10 percent in value of either the 
     voting stock of that corporation or all the stock of that 
     corporation.
     For purposes of paragraph (3), the constructive ownership 
     rules of section 1563(e) of the Internal Revenue Code of 1986 
     shall apply (determined without regard to section 
     1563(e)(3)(C)).''.
       (2) Section 4043(c)(7) of such Act (29 U.S.C. 1343(c)(7)) 
     is amended by striking ``section 4022(b)(6)'' and inserting 
     ``section 4021(d)''.
       (d) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to plan 
     terminations--
       (A) under section 4041(c) of the Employee Retirement Income 
     Security Act of 1974 (29 U.S.C. 1341(c)) with respect to 
     which notices of intent to terminate are provided under 
     section 4041(a)(2) of such Act (29 U.S.C. 1341(a)(2)) after 
     December 31, 2000, and
       (B) under section 4042 of such Act (29 U.S.C. 1342) with 
     respect to which proceedings are instituted by the 
     corporation after such date.
       (2) Conforming amendments.--The amendments made by 
     subsection (c) shall take effect on the date of enactment of 
     this Act.

     SEC. 1255. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF 
                   DIVIDEND DEDUCTION.

       (a) In General.--Section 404(k)(2)(A) (defining applicable 
     dividends) is amended by striking ``or'' at the end of clause 
     (ii), by redesignating clause (iii) as clause (iv), and by 
     inserting after clause (ii) the following new clause:
       ``(iii) is, at the election of such participants or their 
     beneficiaries--

       ``(I) payable as provided in clause (i) or (ii), or
       ``(II) paid to the plan and reinvested in qualifying 
     employer securities, or''.

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

     SEC. 1256. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

       (a) Expansion of Period.--
       (1) In general.--Subparagraph (A) of section 417(a)(6) is 
     amended by striking ``90-day'' and inserting ``180-day''.
       (2) Modification of regulations.--The Secretary of the 
     Treasury shall modify the regulations under sections 402(f), 
     411(a)(11), and 417 of the Internal Revenue Code of 1986 to 
     substitute ``180 days'' for ``90 days'' each place it appears 
     in Treasury Regulations sections 1.402(f)-1, 1.411(a)-11(c), 
     and 1.417(e)-1(b).
       (3) Effective date.--The amendments made by paragraph (1) 
     and the modifications required by paragraph (2) shall apply 
     to years beginning after December 31, 2000.
       (b) Consent Regulation Inapplicable to Certain 
     Distributions.--
       (1) In general.--The Secretary of the Treasury shall modify 
     the regulations under section 411(a)(11) of the Internal 
     Revenue Code of 1986 to provide that the description of a 
     participant's right, if any, to defer receipt of a 
     distribution shall also describe the consequences of failing 
     to defer such receipt.
       (2) Effective date.--The modifications required by 
     paragraph (1) shall apply to years beginning after December 
     31, 2000.

     SEC. 1257. REPEAL OF TRANSITION RULE RELATING TO CERTAIN 
                   HIGHLY COMPENSATED EMPLOYEES.

       (a) In General.--Paragraph (4) of section 1114(c) of the 
     Tax Reform Act of 1986 is hereby repealed.
       (b) Effective Date.--The repeal made by subsection (a) 
     shall apply to plan years beginning on or after January 1, 
     2000.

     SEC. 1258. EMPLOYEES OF TAX-EXEMPT ENTITIES.

       (a) In General.--The Secretary of the Treasury shall modify 
     Treasury Regulations section 1.410(b)-6(g) to provide that 
     employees of an organization described in section 
     403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who are 
     eligible to make contributions under section 403(b) pursuant 
     to a salary reduction agreement may be treated as excludable 
     with respect to a plan under section 401(k), or section 
     401(m) of such Code that is provided under the same general 
     arrangement as a plan under such section 401(k), if--
       (1) no employee of an organization described in section 
     403(b)(1)(A)(i) of such Code is eligible to participate in 
     such section 401(k) plan or section 401(m) plan, and
       (2) 95 percent of the employees who are not employees of an 
     organization described in section 403(b)(1)(A)(i) of such 
     Code are eligible to participate in such section 401(k) plan 
     or section 401(m) plan.
       (b) Effective Date.--The modification required by 
     subsection (a) shall apply as of the same date set forth in 
     section 1426(b) of the Small Business Job Protection Act of 
     1996.

     SEC. 1259. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED 
                   RETIREMENT ADVICE.

       (a) In General.--Subsection (a) of section 132 (relating to 
     exclusion from gross income) is amended by striking ``or'' at 
     the end of paragraph (5), by striking the period at the end 
     of paragraph (6) and inserting ``, or'', and by adding at the 
     end the following new paragraph:
       ``(7) qualified retirement planning services.''.
       (b) Qualified Retirement Planning Services Defined.--
     Section 132 is amended by redesignating subsection (m) as 
     subsection (n) and by inserting after subsection (l) the 
     following:
       ``(m) Qualified Retirement Planning Services.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified retirement planning services' means any retirement 
     planning service provided to an employee and his spouse by an 
     employer maintaining a retirement plan.
       ``(2) Nondiscrimination rule.--Subsection (a)(7) shall 
     apply in the case of highly compensated employees only if 
     such services are available on substantially the same terms 
     to each member of the group of employees normally provided 
     education and information regarding the employer's pension 
     plan.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1260. PROVISIONS RELATING TO PLAN AMENDMENTS.

       (a) In General.--If this section applies to any plan or 
     contract amendment--
       (1) such plan or contract shall be treated as being 
     operated in accordance with the terms of the plan during the 
     period described in subsection (b)(2)(A), and
       (2) such plan shall not fail to meet the requirements of 
     section 411(d)(6) of the Internal Revenue Code of 1986 by 
     reason of such amendment.
       (b) Amendments to Which Section Applies.--
       (1) In general.--This section shall apply to any amendment 
     to any plan or annuity contract which is made--
       (A) pursuant to any amendment made by this Act, or pursuant 
     to any regulation issued under this Act, and
       (B) on or before the last day of the first plan year 
     beginning on or after January 1, 2003.
     In the case of a government plan (as defined in section 
     414(d) of the Internal Revenue Code of 1986, this paragraph 
     shall be applied by substituting ``2005'' for ``2003''.
       (2) Conditions.--This section shall not apply to any 
     amendment unless--

[[Page 17136]]

       (A) during the period--
       (i) beginning on the date the legislative or regulatory 
     amendment described in paragraph (1)(A) takes effect (or in 
     the case of a plan or contract amendment not required by such 
     legislative or regulatory amendment, the effective date 
     specified by the plan), and
       (ii) ending on the date described in paragraph (1)(B) (or, 
     if earlier, the date the plan or contract amendment is 
     adopted),
     the plan or contract is operated as if such plan or contract 
     amendment were in effect, and
       (B) such plan or contract amendment applies retroactively 
     for such period.

     SEC. 1261. MODEL PLANS FOR SMALL BUSINESSES.

       (a) In General.--Not later than December 31, 2000, the 
     Secretary of the Treasury is directed to issue at least one 
     model defined contribution plan and at least one model 
     defined benefit plan that fit the needs of small businesses 
     and that shall be treated as meeting the requirements of 
     section 401(a) of the Internal Revenue Code of 1986 with 
     respect to the form of the plan. To the extent that the 
     requirements of section 401(a) of such Code are modified 
     after the issuance of such plans, the Secretary of the 
     Treasury shall, in a timely manner, issue model amendments 
     that, if adopted in a timely manner by an employer that has a 
     model plan in effect, shall cause such model plan to be 
     treated as meeting the requirements of section 401(a) of such 
     Code, as modified, with respect to the form of the plan.
       (b) Prototype Plan Alternative.--The Secretary of the 
     Treasury may satisfy the requirements of subsection (a) 
     through the enhancement and simplification of the Secretary's 
     programs for prototype plans in such a manner as to achieve 
     the purposes of subsection (a).

     SEC. 1262. SIMPLIFIED ANNUAL FILING REQUIREMENT FOR PLANS 
                   WITH FEWER THAN 25 EMPLOYEES.

       (a) In General.--In the case of a retirement plan which 
     covers less than 25 employees on the 1st day of the plan year 
     and meets the requirements described in subsection (b), the 
     Secretary of the Treasury shall provide for the filing of a 
     simplified annual return that is substantially similar to the 
     annual return required to be filed by a one-participant 
     retirement plan.
       (b) Requirements.--A plan meets the requirements of this 
     subsection if it--
       (1) meets the minimum coverage requirements of section 
     410(b) of the Internal Revenue Code of 1986 without being 
     combined with any other plan of the business that covers the 
     employees of the business,
       (2) does not cover a business that is a member of an 
     affiliated service group, a controlled group of corporations, 
     or a group of businesses under common control, and
       (3) does not cover a business that leases employees.

     SEC. 1263. INTERMEDIATE SANCTIONS FOR INADVERTENT FAILURES.

       The Secretary of the Treasury shall continue to update and 
     improve the Employee Plans Compliance Resolution System (or 
     any successor program) giving special attention to--
       (1) increasing the awareness and knowledge of small 
     employers concerning the availability and use of the program,
       (2) taking into account special concerns and circumstances 
     that small employers face with respect to compliance and 
     correction of compliance failures,
       (3) extending the duration of the self-correction period 
     under the Administrative Policy Regarding Self-Correction for 
     significant compliance failures,
       (4) expanding the availability to correct insignificant 
     compliance failures under the Administrative Policy Regarding 
     Self-Correction during audit, and
       (5) assuring that any tax, penalty, or sanction that is 
     imposed by reason of a compliance failure is not excessive 
     and bears a reasonable relationship to the nature, extent, 
     and severity of the failure.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

     SEC. 1301. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO 
                   PAYMENTS BY QUALIFIED PLACEMENT AGENCIES.

       (a) In General.--The matter preceding subparagraph (B) of 
     section 131(b)(1) (defining qualified foster care payment) is 
     amended to read as follows:
       ``(1) In general.--The term `qualified foster care payment' 
     means any payment made pursuant to a foster care program of a 
     State or political subdivision thereof--
       ``(A) which is paid by--
       ``(i) a State or political subdivision thereof, or
       ``(ii) a qualified foster care placement agency, and''.
       (b) Qualified Foster Individuals To Include Individuals 
     Placed by Qualified Placement Agencies.--Subparagraph (B) of 
     section 131(b)(2) (defining qualified foster individual) is 
     amended to read as follows:
       ``(B) a qualified foster care placement agency.''
       (c) Qualified Foster Care Placement Agency Defined.--
     Subsection (b) of section 131 is amended by redesignating 
     paragraph (3) as paragraph (4) and by inserting after 
     paragraph (2) the following new paragraph:
       ``(3) Qualified foster care placement agency.--The term 
     `qualified foster care placement agency' means any placement 
     agency which is licensed or certified by--
       ``(A) a State or political subdivision thereof, or
       ``(B) an entity designated by a State or political 
     subdivision thereof,
     for the foster care program of such State or political 
     subdivision to make foster care payments to providers of 
     foster care.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1302. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS 
                   EXCLUDED FROM GROSS INCOME.

       (A) In General.--Part III of subchapter B of chapter 1 is 
     amended by inserting after section 138 the following new 
     section:

     ``SEC. 138A. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS.

       ``(a) In General.--Gross income of an individual does not 
     include amounts received, from an organization described in 
     section 170(c), as reimbursement of operating expenses with 
     respect to use of a passenger automobile for the benefit of 
     such organization. The preceding sentence shall apply only to 
     the extent that such reimbursement would be deductible under 
     section 274(d) (determined by applying the standard business 
     mileage rate established pursuant to section 274(d)) if the 
     organization were not so described and such individual were 
     an employee of such organization.
       ``(b) No Double Benefit.--Subsection (a) shall not apply 
     with respect to any expenses if the individual claims a 
     deduction or credit for such expenses under any other 
     provision of this title.
       ``(c) Exemption From Reporting Requirements.--Section 6041 
     shall not apply with respect to reimbursements excluded from 
     income under subsection (a).''
       (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 138 the following new items:

``Sec. 138A. Reimbursement for use of passenger automobile for 
              charity.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1303. W-2 TO INCLUDE EMPLOYER SOCIAL SECURITY TAXES.

       (a) In General.--Subsection (a) of section 6051 (relating 
     to receipts for employees) is amended by striking ``and'' at 
     the end of paragraph (10), by striking the period at the end 
     of paragraph (11) and inserting a comma, and by inserting 
     after paragraph (11) the following new paragraphs:
       ``(12) the amount of tax imposed by section 3111(a), and
       ``(13) the amount of tax imposed by section 3111(b).''
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to remuneration paid after December 
     31, 1999.

         Subtitle B--Provisions Primarily Affecting Businesses

     SEC. 1311. DISTRIBUTIONS FROM PUBLICLY TRADED PARTNERSHIPS 
                   TREATED AS QUALIFYING INCOME OF REGULATED 
                   INVESTMENT COMPANIES.

       (a) In General.--Paragraph (2) of section 851(b) (defining 
     regulated investment company) is amended by inserting 
     ``income derived from an interest in a publicly traded 
     partnership (as defined in section 7704(b)),'' after 
     ``dividends, interest,''.
       (b) Source Flow-Through Rule Not To Apply.--The last 
     sentence of section 851(b) is amended by inserting ``(other 
     than a publicly traded partnership (as defined in section 
     7704(b)))'' after ``derived from a partnership''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 1312. SPECIAL PASSIVE ACTIVITY RULE FOR PUBLICLY TRADED 
                   PARTNERSHIPS TO APPLY TO REGULATED INVESTMENT 
                   COMPANIES.

       (a) In General.--Subsection (k) of section 469 (relating to 
     separate application of section in case of publicly traded 
     partnerships) is amended by adding at the end the following 
     new paragraph:
       ``(4) Application to regulated investment companies.--For 
     purposes of this section, a regulated investment company (as 
     defined in section 851) holding an interest in a publicly 
     traded partnership shall be treated as a taxpayer described 
     in subsection (a)(2) with respect to items attributable to 
     such interest.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 1313. LARGE ELECTRIC TRUCKS, VANS, AND BUSES ELIGIBLE 
                   FOR DEDUCTION FOR CLEAN-FUEL VEHICLES IN LIEU 
                   OF CREDIT.

       (a) In General.--Paragraph (1) of section 30(c) (relating 
     to credit for qualified electric vehicles) is amended by 
     adding at the end the following new flush sentence:
     ``Such term shall not include any vehicle described in 
     subclause (I) or (II) of section 179A(b)(1)(A)(iii).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to property placed in service after December 31, 
     1999.

[[Page 17137]]



     SEC. 1314. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR 
                   DECOMMISSIONING COSTS.

       (a) Repeal of Limitation on Deposits Into Fund Based on 
     Cost of Service.--Subsection (b) of section 468A is amended 
     to read as follows:
       ``(b) Limitation on Amounts Paid Into Fund.--The amount 
     which a taxpayer may pay into the Fund for any taxable year 
     shall not exceed the ruling amount applicable to such taxable 
     year.''
       (b) Clarification of Treatment of Fund Transfers.--
     Subsection (e) of section 468A is amended by adding at the 
     end the following new paragraph:
       ``(8) Treatment of fund transfers.--If, in connection with 
     the transfer of the taxpayer's interest in a nuclear 
     powerplant, the taxpayer transfers the Fund with respect to 
     such powerplant to the transferee of such interest and the 
     transferee elects to continue the application of this section 
     to such Fund--
       ``(A) the transfer of such Fund shall not cause such Fund 
     to be disqualified from the application of this section, and
       ``(B) no amount shall be treated as distributed from such 
     Fund, or be includible in gross income, by reason of such 
     transfer.''
       (c) Transfers of Balances in Nonqualified Funds.--Section 
     468A is amended by redesignating subsections (f) and (g) as 
     subsections (g) and (h), respectively, and by inserting after 
     subsection (e) the following new subsection:
       ``(f) Transfers of Balances in Nonqualified Funds Into 
     Qualified Funds.--
       ``(1) In general.--Notwithstanding subsection (b), any 
     taxpayer maintaining a Fund to which this section applies 
     with respect to a nuclear powerplant may transfer into such 
     Fund amounts held in any nonqualified fund of such taxpayer 
     with respect to such powerplant.
       ``(2) Maximum amount permitted to be transferred.--The 
     amount permitted to be transferred under paragraph (1) shall 
     not exceed the balance in the nonqualified fund as of 
     December 31, 1998.
       ``(3) Deduction for amounts transferred.--
       ``(A) In general.--The deduction allowed by subsection (a) 
     for any transfer permitted by this subsection shall be 
     allowed ratably over the remaining estimated useful life 
     (within the meaning of subsection (d)(2)(A)) of the nuclear 
     powerplant, beginning with the later of the taxable year 
     during which the transfer is made or the taxpayer's first 
     taxable year beginning after December 31, 2001.
       ``(B) Denial of deduction for previously deducted 
     amounts.--No deduction shall be allowed for any transfer 
     under this subsection of an amount for which a deduction was 
     allowed when such amount was paid into the nonqualified fund. 
     For purposes of the preceding sentence, a ratable portion of 
     each transfer shall be treated as being from previously 
     deducted amounts to the extent thereof.
       ``(C) Transfers of qualified funds.--If--
       ``(i) any transfer permitted by this subsection is made to 
     any Fund to which this section applies, and
       ``(ii) such Fund is transferred thereafter,
     any deduction under this subsection for taxable years ending 
     after the date that such Fund is transferred shall be allowed 
     to the transferee and not to the transferor. The preceding 
     sentence shall not apply if the transferor is an organization 
     exempt from tax imposed by this chapter.
       ``(4) New ruling amount required.--Paragraph (1) shall not 
     apply to any transfer unless the taxpayer requests from the 
     Secretary a new schedule of ruling amounts in connection with 
     such transfer.
       ``(5) Nonqualified fund.--For purposes of this subsection, 
     the term `nonqualified fund' means, with respect to any 
     nuclear powerplant, any fund in which amounts are irrevocably 
     set aside pursuant to the requirements of any State or 
     Federal agency exclusively for the purpose of funding the 
     decommissioning of such powerplant.
       ``(6) No basis in qualified funds.--Notwithstanding any 
     other provision of law, the basis of any Fund to which this 
     section applies shall not be increased by reason of any 
     transfer permitted by this subsection.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1315. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH 
                   OTHER CORPORATIONS.

       (a) In General.--Section 1504(b) (defining includible 
     corporation) is amended by striking paragraph (2).
       (b) Conforming Amendments.--
       (1) Subsection (c) of section 1503 is amended by striking 
     paragraph (2) (relating to losses of recent nonlife 
     affiliates).
       (2) Section 1504 is amended by striking subsection (c) and 
     by redesignating subsections (d), (e), and (f) as subsections 
     (c), (d), and (e), respectively.
       (3) Section 1503(c)(1) (relating to special rule for 
     application of certain losses against income of insurance 
     companies taxed under section 801) is amended by striking 
     ``an election under section 1504(c)(2) is in effect for the 
     taxable year and''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.
       (d) No Carryback Before January 1, 2005.--To the extent 
     that a consolidated net operating loss is allowed or 
     increased by reason of the amendments made by this section, 
     such loss may not be carried back to a taxable year beginning 
     before January 1, 2005.
       (e) Nontermination of Group.--No affiliated group shall 
     terminate solely as a result of the amendments made by this 
     section.
       (f) Waiver of 5-Year Waiting Period.--Under regulations 
     prescribed by the Secretary of the Treasury or his delegate, 
     an automatic waiver from the 5-year waiting period for 
     reconsolidation provided in section 1504(a)(3) of such Code 
     shall be granted to any corporation which was previously an 
     includible corporation but was subsequently deemed a 
     nonincludible corporation as a result of becoming a 
     subsidiary of a corporation which was not an includible 
     corporation solely by operation of section 1504(c)(2) of such 
     Code (as in effect on the day before the date of enactment of 
     this Act).

            Subtitle C--Provisions Relating to Excise Taxes

     SEC. 1321. CONSOLIDATION OF HAZARDOUS SUBSTANCE SUPERFUND AND 
                   LEAKING UNDERGROUND STORAGE TANK TRUST FUND.

       (a) In General.--Subchapter A of chapter 98 (relating to 
     trust fund code) is amended by striking sections 9507 and 
     9508 and inserting the following new section:

     ``SEC. 9507. ENVIRONMENTAL REMEDIATION TRUST FUND.

       ``(a) Creation of Trust Fund.--There is established in the 
     Treasury of the United States a trust fund to be known as the 
     `Environmental Remediation Trust Fund' consisting of such 
     amounts as may be--
       ``(1) appropriated to the Environmental Remediation Trust 
     Fund as provided in this section,
       ``(2) appropriated to the Environmental Remediation Trust 
     Fund pursuant to section 517(b) of the Superfund Revenue Act 
     of 1986, or
       ``(3) credited to the Environmental Remediation Trust Fund 
     as provided in section 9602(b).
       ``(b) Transfers to Environmental Remediation Trust Fund.--
       ``(1) In general.--There are hereby appropriated to the 
     Environmental Remediation Trust Fund amounts equivalent to--
       ``(A) the taxes received in the Treasury under--
       ``(i) section 59A, 4611, 4661, or 4671 (relating to 
     environmental taxes),
       ``(ii) section 4041(d) (relating to additional taxes on 
     motor fuels),
       ``(iii) section 4081 (relating to tax on gasoline, diesel 
     fuel, and kerosene) to the extent attributable to the 
     Environmental Remediation Trust Fund financing rate under 
     such section,
       ``(iv) section 4091 (relating to tax on aviation fuel) to 
     the extent attributable to the Environmental Remediation 
     Trust Fund financing rate under such section, and
       ``(v) section 4042 (relating to tax on fuel used in 
     commercial transportation on inland waterways) to the extent 
     attributable to the Environmental Remediation Trust Fund 
     financing rate under such section,
       ``(B) amounts recovered on behalf of the Environmental 
     Remediation Trust Fund under the Comprehensive Environmental 
     Response, Compensation, and Liability Act of 1980 
     (hereinafter in this section referred to as `CERCLA'),
       ``(C) all moneys recovered or collected under section 
     311(b)(6)(B) of the Clean Water Act,
       ``(D) penalties assessed under title I of CERCLA,
       ``(E) punitive damages under section 107(c)(3) of CERCLA, 
     and
       ``(F) amounts received in the Treasury and collected under 
     section 9003(h)(6) of the Solid Waste Disposal Act.
       ``(2) Limitation on transfers.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     no amount may be appropriated or credited to the 
     Environmental Remediation Trust Fund on and after the date of 
     any expenditure from any such Trust Fund which is not 
     permitted by this section. The determination of whether an 
     expenditure is so permitted shall be made without regard to--
       ``(i) any provision of law which is not contained or 
     referenced in this title or in a revenue Act, and
       ``(ii) whether such provision of law is a subsequently 
     enacted provision or directly or indirectly seeks to waive 
     the application of this paragraph.
       ``(B) Exception for prior obligations.--Subparagraph (A) 
     shall not apply to any expenditure to liquidate any contract 
     entered into (or for any amount otherwise obligated) in 
     accordance with the provisions of this section.''
       ``(c) Expenditures From Environmental Remediation Trust 
     Fund.--
       ``(1) In general.--Amounts in the Environmental Remediation 
     Trust Fund shall be available, as provided in appropriation 
     Acts, only for purposes of making expenditures--
       ``(A) to carry out the purposes of--
       ``(i) paragraphs (1), (2), (5), and (6) of section 111(a) 
     of CERCLA as in effect on July 12, 1999,

[[Page 17138]]

       ``(ii) section 111(c) of CERCLA (as so in effect), other 
     than paragraphs (1) and (2) thereof, and
       ``(iii) section 111(m) of CERCLA (as so in effect), or
       ``(B) to carry out section 9003(h) of the Solid Waste 
     Disposal Act as in effect on July 12, 1999.
       ``(2) Exception for certain transfers, etc., of hazardous 
     substances.--No amount in the Environmental Remediation Trust 
     Fund or derived from the Environmental Remediation Trust Fund 
     shall be available or used for the transfer or disposal of 
     hazardous waste carried out pursuant to a cooperative 
     agreement between the Administrator of the Environmental 
     Protection Agency and a State if the following conditions 
     apply--
       ``(A) the transfer or disposal, if made on December 13, 
     1985, would not comply with a State or local requirement,
       ``(B) the transfer is to a facility for which a final 
     permit under section 3005(a) of the Solid Waste Disposal Act 
     was issued after January 1, 1983, and before November 1, 
     1984, and
       ``(C) the transfer is from a facility identified as the 
     McColl Site in Fullerton, California.
       ``(3) Transfers from trust fund for certain repayments and 
     credits.--
       ``(A) In general.--The Secretary shall pay from time to 
     time from the Environmental Remediation Trust Fund into the 
     general fund of the Treasury amounts equivalent to--
       ``(i) amounts paid under--

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

       ``(ii) credits allowed under section 34,
     with respect to the taxes imposed by section 4041(d) or by 
     sections 4081 and 4091 (to the extent attributable to the 
     Leaking Underground Storage Tank Trust Fund financing rate or 
     the Environmental Remediation Trust Fund financing rate under 
     such sections).
       ``(B) Transfers based on estimates.--Transfers under 
     subparagraph (A) shall be made on the basis of estimates by 
     the Secretary, and proper adjustments shall be made in 
     amounts subsequently transferred to the extent prior 
     estimates were in excess of or less than the amounts required 
     to be transferred.
       ``(d) Liability of United States Limited to Amount in Trust 
     Fund.--
       ``(1) General rule.--Any claim filed against the 
     Environmental Remediation Trust Fund may be paid only out of 
     the Environmental Remediation Trust Fund.
       ``(2) Coordination with other provisions.--Nothing in 
     CERCLA or the Superfund Amendments and Reauthorization Act of 
     1986 (or in any amendment made by either of such Acts) shall 
     authorize the payment by the United States Government of any 
     amount with respect to any such claim out of any source other 
     than the Environmental Remediation Trust Fund.
       ``(3) Order in which unpaid claims are to be paid.--If at 
     any time the Environmental Remediation Trust Fund has 
     insufficient funds to pay all of the claims payable out of 
     the Environmental Remediation Trust Fund at such time, such 
     claims shall, to the extent permitted under paragraph (1), be 
     paid in full in the order in which they were finally 
     determined.''
       (b) Conforming Amendments.--
       (1) Subsections (c) and (d) of section 4611 are each 
     amended by striking ``Hazardous Substance Superfund'' each 
     place it appears and inserting ``Environmental Remediation 
     Trust Fund''.
       (2) Subsection (c) of section 4661 is amended by striking 
     ``Hazardous Substance Superfund'' and inserting 
     ``Environmental Remediation Trust Fund''.
       (3) Sections 4041(d), 4042(b), 4081(a)(2)(B), 4081(d)(3), 
     4091(b), 4092(b), 6421(f), and 6427(l) are each amended by 
     striking ``Leaking Underground Storage Tank'' each place it 
     appears (other than the headings) and inserting 
     ``Environmental Remediation''.
       (4) The heading for subsection (d) of section 4041 is 
     amended by striking ``Leaking Underground Storage Tank'' and 
     inserting ``Environmental Remediation''.
       (5) The headings for subsections (a)(2)(B) and (d)(3) of 
     section 4081 and section 4091(b)(2) are each amended by 
     striking ``Leaking underground storage tank'' and inserting 
     ``Environmental remediation''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 1999.
       (d) Environmental Remediation Trust Fund Treated as 
     Continuation of Old Trust Funds.--The Environmental 
     Remediation Trust Fund established by the amendments made by 
     this section shall be treated for all purposes of law as a 
     continuation of both the Hazardous Substance Superfund and 
     the Leaking Underground Storage Tank Trust Fund. Any 
     reference in any law to the Hazardous Substance Superfund or 
     the Leaking Underground Storage Tank Trust Fund shall be 
     deemed to include (wherever appropriate) a reference to the 
     Environmental Remediation Trust Fund established by such 
     amendments.

     SEC. 1322. REPEAL OF CERTAIN MOTOR FUEL EXCISE TAXES ON FUEL 
                   USED BY RAILROADS AND ON INLAND WATERWAY 
                   TRANSPORTATION.

       (a) Repeal of Leaking Underground Storage Tank Trust Fund 
     Taxes on Fuel Used in Trains.--
       (1) In general.--Paragraph (1) of section 4041(d) is 
     amended by adding at the end the following new sentence: 
     ``The preceding sentence shall not apply to any sale for use, 
     or use, of fuel in a diesel-powered train.''
       (2) Conforming amendments.--
       (A) Paragraph (3) of section 6421(f) is amended by striking 
     ``with respect to--'' and all that follows through ``so much 
     of'' and inserting ``with respect to so much of''.
       (B) Paragraph (3) of section 6427(l) is amended by striking 
     ``with respect to--'' and all that follows through ``so much 
     of'' and inserting ``with respect to so much of''.
       (b) Repeal of 4.3-Cent Motor Fuel Excise Taxes on Railroads 
     and Inland Waterway Transportation Which Remain in General 
     Fund.--
       (1) Taxes on trains.--
       (A) In general.--Subparagraph (A) of section 4041(a)(1) is 
     amended by striking ``or a diesel-powered train'' each place 
     it appears and by striking ``or train''.
       (B) Conforming amendments.--
       (i) Subparagraph (C) of section 4041(a)(1) is amended by 
     striking clause (ii) and by redesignating clause (iii) as 
     clause (ii).
       (ii) Subparagraph (C) of section 4041(b)(1) is amended by 
     striking all that follows ``section 6421(e)(2)'' and 
     inserting a period.
       (iii) Paragraph (3) of section 4083(a) is amended by 
     striking ``or a diesel-powered train''.
       (iv) Section 6421(f) is amended by striking paragraph (3).
       (v) Section 6427(l) is amended by striking paragraph (3).
       (2) Fuel used on inland waterways.--
       (A) In general.--Paragraph (1) of section 4042(b) is 
     amended by adding ``and'' at the end of subparagraph (A), by 
     striking ``, and'' at the end of subparagraph (B) and 
     inserting a period, and by striking subparagraph (C).
       (B) Conforming amendment.--Paragraph (2) of section 4042(b) 
     is amended by striking subparagraph (C).
       (c) Effective Date.--The amendments made by this subsection 
     shall take effect on October 1, 1999 (October 1, 2003, in the 
     case of the amendments made by subsection (b)), but shall not 
     take effect if section 1321 does not take effect.

     SEC. 1323. REPEAL OF EXCISE TAX ON FISHING TACKLE BOXES.

       (a) In General.--Paragraph (6) of section 4162(a) (defining 
     sport fishing equipment) is amended by striking subparagraph 
     (C) and by redesignating subparagraphs (D) through (J) as 
     subparagraphs (C) through (I), respectively.
       (b) Effective Date.--The amendment made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer more than 30 days after the date of the enactment 
     of this Act.

                      Subtitle D--Other Provisions

     SEC. 1331. INCREASE IN VOLUME CAP ON PRIVATE ACTIVITY BONDS.

       (a) In General.--Subsection (d) of section 146 (relating to 
     volume cap) is amended by striking paragraph (2), by 
     redesignating paragraphs (3) and (4) as paragraphs (2) and 
     (3), respectively, and by striking paragraph (1) and 
     inserting the following new paragraph:
       ``(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.
     Subparagraph (B) shall not apply to any possession of the 
     United States.''.
       (b) Conforming Amendment.--Sections 25(f)(3) and 
     42(h)(3)(E)(iii) are each amended by striking ``section 
     146(d)(3)(C)'' and inserting ``section 146(d)(2)(C)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to calendar years after 1999.

     SEC. 1332. TAX TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS.

       (a) In General.--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. ELECTING 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) Beneficiaries of Electing Trust Not Taxed on 
     Contributions.--
       ``(1) In general.--In the case of a Settlement Trust for 
     which an election under paragraph (2) is in effect for any 
     taxable year, no amount shall be includible in the gross 
     income of a beneficiary of the Settlement Trust by reason of 
     a contribution to the Settlement Trust made during such 
     taxable year.
       ``(2) One-time election.--
       ``(A) In general.--A Settlement Trust may elect to have the 
     provisions of this section apply to the trust and its 
     beneficiaries.
       ``(B) Time and method of election.--An election under 
     subparagraph (A) shall be made--

[[Page 17139]]

       ``(i) before the due date (including extensions) for filing 
     the Settlement Trust's return of tax for the 1st taxable year 
     of the Settlement Trust ending after December 31, 1999, and
       ``(ii) by attaching to such return of tax a statement 
     specifically providing for such election.
       ``(C) Period election in effect.--Except as provided in 
     paragraph (3), an election under subparagraph (A)--
       ``(i) shall apply to the 1st taxable year described in 
     subparagraph (B)(i) and all subsequent taxable years, and
       ``(ii) may not be revoked once it is made.
       ``(c) Special Rules Where Transfer Restrictions Modified.--
       ``(1) Transfer of beneficial interests.--If, at any time, a 
     beneficial interest in a 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 (b)(2) with 
     respect to such trust, and
       ``(B) if such an election is in effect as of such time, 
     such election shall cease to apply for purposes of subsection 
     (b)(1) as of the 1st day of the taxable year following the 
     taxable year in which such disposition is first permitted.
       ``(2) Stock in corporation.--If--
       ``(A) the Settlement Common Stock in any Native Corporation 
     which transferred assets to a Settlement Trust making an 
     election under subsection (b)(2) may be disposed of to a 
     person in a 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 such trust,
     subparagraph (B) of paragraph (1) 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).
       ``(c) Tax Treatment of Distributions to Beneficiaries.--
       ``(1) In general.--In the case of a Settlement Trust for 
     which an election under subsection (b)(2) is in effect for 
     any taxable year, any distribution to a beneficiary shall be 
     included in gross income of the beneficiary as ordinary 
     income to the extent such distribution reduces the earnings 
     and profits of any Native Corporation making a contribution 
     to such Trust.
       ``(2) Earnings and profits.--The earnings and profits of 
     any Native Corporation making a contribution to a Settlement 
     Trust shall not be reduced on account thereof at the time of 
     such contribution, but such earnings and profits shall be 
     reduced (up to the amount of such contribution) as 
     distributions are thereafter made by the Settlement Trust 
     which exceed the sum of--
       ``(A) such Trust's total undistributed net income for all 
     prior years during which an election under subsection (b)(2) 
     is in effect, and
       ``(B) such Trust's distributable net income.
       ``(d) Definitions.--For purposes of this section--
       ``(1) 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)).
       ``(2) Settlement trust.--The term `Settlement Trust' means 
     a trust which constitutes a Settlement Trust under section 39 
     of the Alaska Native Claims Settlement Act (43 U.S.C. 
     1629e).''
       (b) Withholding on Distributions by Electing ANCSA 
     Settlement Trusts.--Section 3402 is amended by adding at the 
     end the following new subsection:
       ``(t) Tax Withholding on Distributions by Electing ANCSA 
     Settlement Trusts.--
       ``(1) In general.--Any Settlement Trust (as defined in 
     section 646(d)) for which an election under section 646(b)(2) 
     is in effect (in this subsection referred to as an `electing 
     trust') and which makes a payment to any beneficiary which is 
     includable in gross income under section 646(c) shall deduct 
     and withhold from such payment a tax in an amount equal to 
     such payment's proportionate share of the annualized tax.
       ``(2) Exception.--The tax imposed by paragraph (1) shall 
     not apply to any payment to the extent that such payment, 
     when annualized, does not exceed an amount equal to the 
     amount in effect under section 6012(a)(1)(A)(i) for taxable 
     years beginning in the calendar year in which the payment is 
     made.
       ``(3) Annualized tax.--For purposes of paragraph (1), the 
     term `annualized tax' means, with respect to any payment, the 
     amount of tax which would be imposed by section 1(c) 
     (determined without regard to any rate of tax in excess of 31 
     percent) on an amount of taxable income equal to the excess 
     of--
       ``(A) the annualized amount of such payment, over
       ``(B) the amount determined under paragraph (2).
       ``(4) Annualization.--For purposes of this subsection, 
     amounts shall be annualized in the manner prescribed by the 
     Secretary.
       ``(5) Alternate withholding procedures.--At the election of 
     an electing trust, the tax imposed by this subsection on any 
     payment made by such trust shall be determined in accordance 
     with such tables or computational procedures as may be 
     specified in regulations prescribed by the Secretary (in lieu 
     of in accordance with paragraphs (2) and (3)).
       ``(6) Coordination with other sections.--For purposes of 
     this chapter and so much of subtitle F as relates to this 
     chapter, payments which are subject to withholding under this 
     subsection shall be treated as if they were wages paid by an 
     employer to an employee.''
       (c) Reporting.--Section 6041 is amended by adding at the 
     end the following new subsection:
       ``(f) Application to Alaska Native Settlement Trusts.--In 
     the case of any distribution from a Settlement Trust (as 
     defined in section 646(d)) to a beneficiary which is 
     includable in gross income under section 646(c), this section 
     shall apply, except that--
       ``(1) this section shall apply to such distribution without 
     regard to the amount thereof,
       ``(2) the Settlement Trust shall include on any return or 
     statement required by this section information as to the 
     character of such distribution (if applicable) and the amount 
     of tax imposed by chapter 1 which has been deducted and 
     withheld from such distribution, and
       ``(3) the filing of any return or statement required by 
     this section shall satisfy any requirement to file any other 
     form or schedule under this title with respect to 
     distributive share information (including any form or 
     schedule to be included with the trust's tax return).''
       (d) Clerical Amendment.--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.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years of Settlement Trusts ending 
     after December 31, 1999, and to contributions to such trusts 
     after such date.

     SEC. 1333. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS 
                   ON REFUNDS AND CREDITS.

       (a) General Rule.--Subsections (a) and (b) of section 6405 
     are each amended by striking ``$1,000,000'' and inserting 
     ``$2,000,000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act, 
     except that such amendment shall not apply with respect to 
     any refund or credit with respect to a report that has been 
     made before such date of enactment under section 6405 of the 
     Internal Revenue Code of 1986.

                    Subtitle E--Tax Court Provisions

     SEC. 1341. TAX COURT FILING FEE IN ALL CASES COMMENCED BY 
                   FILING PETITION.

       (a) In General.--Section 7451 (relating to fee for filing a 
     Tax Court petition) is amended by striking all that follows 
     ``petition'' and inserting a period.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1342. EXPANDED USE OF TAX COURT PRACTICE FEE.

       Subsection (b) of section 7475 (relating to use of fees) is 
     amended by inserting before the period at the end ``and to 
     provide services to pro se taxpayers''.

     SEC. 1343. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY 
                   DOCTRINE OF EQUITABLE RECOUPMENT.

       (a) Confirmation of Authority of Tax Court To Apply 
     Doctrine of Equitable Recoupment.--Subsection (b) of section 
     6214 (relating to jurisdiction over other years and quarters) 
     is amended by adding at the end the following new sentence: 
     ``Notwithstanding the preceding sentence, the Tax Court may 
     apply the doctrine of equitable recoupment to the same extent 
     that it is available in civil tax cases before the district 
     courts of the United States and the United States Court of 
     Federal Claims.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to any action or proceeding in the Tax Court with 
     respect to which a decision has not become final (as 
     determined under section 7481 of the Internal Revenue Code of 
     1986) as of the date of the enactment of this Act.

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

     SEC. 1401. RESEARCH CREDIT.

       (a) Extension.--
       (1) In general.--Paragraph (1) of section 41(h) (relating 
     to termination) is amended--
       (A) by striking ``June 30, 1999'' and inserting ``June 30, 
     2004'', and
       (B) by striking the material following subparagraph (B).
       (2) Technical amendment.--Subparagraph (D) of section 
     45C(b)(1) is amended by striking ``June 30, 1999'' and 
     inserting ``June 30, 2004''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid or incurred after June 30, 1999.
       (b) Increase in Percentages Under Alternative Incremental 
     Credit.--
       (1) In general.--Subparagraph (A) of section 41(c)(4) is 
     amended--
       (A) by striking ``1.65 percent'' and inserting ``2.65 
     percent'',

[[Page 17140]]

       (B) by striking ``2.2 percent'' and inserting ``3.2 
     percent'', and
       (C) by striking ``2.75 percent'' and inserting ``3.75 
     percent''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after June 30, 1999.

     SEC. 1402. SUBPART F EXEMPTION FOR ACTIVE FINANCING INCOME.

       (a) In General.--Sections 953(e)(10) and 954(h)(9) are each 
     amended--
       (1) by striking ``the first taxable year'' and inserting 
     ``taxable years'', and
       (2) by striking ``January 1, 2000'' and inserting ``January 
     1, 2005''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1403. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR 
                   MARGINAL PRODUCTION.

       (a) In General.--Subparagraph (H) of section 613A(c)(6) is 
     amended by striking ``January 1, 2000'' and inserting 
     ``January 1, 2005''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1404. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK 
                   CREDIT.

       (a) Temporary Extension.--Sections 51(c)(4)(B) and 51A(f) 
     (relating to termination) are each amended by striking ``June 
     30, 1999'' and inserting ``June 30, 2001''.
       (b) Clarification of First Year of Employment.--Paragraph 
     (2) of section 51(i) is amended by striking ``during which he 
     was not a member of a targeted group''.
       (c) Electronic Filing of Certification.--Not later than 
     July 1, 2001, the Secretary of the Treasury or the 
     Secretary's delegate shall provide an electronic format by 
     which employers may submit requests to designated local 
     agencies (as defined in section 51(d)(11) of the Internal 
     Revenue Code of 1986) for certifications that individuals are 
     members of targeted groups for purposes of section 51 of such 
     Code.
       (d) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after June 30, 1999.

                       TITLE XV--REVENUE OFFSETS

     SEC. 1501. RETURNS RELATING TO CANCELLATIONS OF INDEBTEDNESS 
                   BY ORGANIZATIONS LENDING MONEY.

       (a) In General.--Paragraph (2) of section 6050P(c) 
     (relating to definitions and special rules) is amended by 
     striking ``and'' at the end of subparagraph (B), by striking 
     the period at the end of subparagraph (C) and inserting ``, 
     and'', and by inserting after subparagraph (C) the following 
     new subparagraph:
       ``(D) any organization a significant trade or business of 
     which is the lending of money.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to discharges of indebtedness after December 31, 
     1999.

     SEC. 1502. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.

       ``(a) General Rule.--The Secretary shall establish a 
     program requiring the payment of user fees for--
       ``(1) requests to the Internal Revenue Service for ruling 
     letters, opinion letters, and determination letters, and
       ``(2) other similar requests.
       ``(b) Program Criteria.--
       ``(1) In general.--The fees charged under the program 
     required by subsection (a)--
       ``(A) shall vary according to categories (or subcategories) 
     established by the Secretary,
       ``(B) shall be determined after taking into account the 
     average time for (and difficulty of) complying with requests 
     in each category (and subcategory), and
       ``(C) shall be payable in advance.
       ``(2) Exemptions, etc.--The Secretary shall provide for 
     such exemptions (and reduced fees) under such program as the 
     Secretary determines to be appropriate.
       ``(3) Average fee requirement.--The average fee charged 
     under the program required by subsection (a) shall not be 
     less than the amount determined under the following table:

``Category                                                  Average Fee
  Employee plan ruling and opinion............................$250 ....

  Exempt organization ruling..................................$350 ....

  Employee plan determination.................................$300 ....

  Exempt organization determination...........................$275 ....

  Chief counsel ruling........................................$200.....

       ``(c) Termination.--No fee shall be imposed under this 
     section with respect to requests made after September 30, 
     2007.''
       (b) Conforming Amendments.--
       (1) The table of sections for chapter 77 is amended by 
     adding at the end the following new item:

``Sec. 7527. Internal Revenue Service user fees.''
       (2) Section 10511 of the Revenue Act of 1987 is repealed.
       (c) Effective Date.--The amendments made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.

     SEC. 1503. LIMITATIONS ON WELFARE BENEFIT FUNDS OF 10 OR MORE 
                   EMPLOYER PLANS.

       (a) Benefits to Which Exception Applies.--Section 
     419A(f)(6)(A) (relating to exception for 10 or more employer 
     plans) is amended to read as follows:
       ``(A) In general.--This subpart shall not apply to a 
     welfare benefit fund which is part of a 10 or more employer 
     plan if the only benefits provided through the fund are 1 or 
     more of the following:
       ``(i) Medical benefits.
       ``(ii) Disability benefits.
       ``(iii) Group term life insurance benefits which do not 
     provide for any cash surrender value or other money that can 
     be paid, assigned, borrowed, or pledged for collateral for a 
     loan.
     The preceding sentence shall not apply to any plan which 
     maintains experience-rating arrangements with respect to 
     individual employers.''
       (b) Limitation on Use of Amounts for Other Purposes.--
     Section 4976(b) (defining disqualified benefit) is amended by 
     adding at the end the following new paragraph:
       ``(5) Special rule for 10 or more employer plans exempted 
     from prefunding limits.--For purposes of paragraph (1)(C), 
     if--
       ``(A) subpart D of part I of subchapter D of chapter 1 does 
     not apply by reason of section 419A(f)(6) to contributions to 
     provide 1 or more welfare benefits through a welfare benefit 
     fund under a 10 or more employer plan, and
       ``(B) any portion of the welfare benefit fund attributable 
     to such contributions is used for a purpose other than that 
     for which the contributions were made,
     then such portion shall be treated as reverting to the 
     benefit of the employers maintaining the fund.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions paid or accrued after June 9, 
     1999, in taxable years ending after such date.

     SEC. 1504. INCREASE IN ELECTIVE WITHHOLDING RATE FOR 
                   NONPERIODIC DISTRIBUTIONS FROM DEFERRED 
                   COMPENSATION PLANS.

       (a) In General.--Section 3405(b)(1) (relating to 
     withholding) is amended by striking `10 percent' and 
     inserting `15 percent'.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to distributions after December 31, 1999.

     SEC. 1505. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.

       (a) In General.--Subsection (a) of section 856 (relating to 
     definition of real estate investment trust) is amended by 
     striking ``and'' at the end of paragraph (6), by 
     redesignating paragraph (7) as paragraph (8), and by 
     inserting after paragraph (6) the following new paragraph:
       ``(7) which is not a controlled entity (as defined in 
     subsection (l)); and''.
       (b) Controlled Entity.--Section 856 is amended by adding at 
     the end the following new subsection:
       ``(l) Controlled Entity.--
       ``(1) In general.--For purposes of subsection (a)(7), an 
     entity is a controlled entity if, at any time during the 
     taxable year, one person (other than a qualified entity)--
       ``(A) in the case of a corporation, owns stock--
       ``(i) possessing at least 50 percent of the total voting 
     power of the stock of such corporation, or
       ``(ii) having a value equal to at least 50 percent of the 
     total value of the stock of such corporation,
       ``(B) in the case of a partnership, owns at least 50 
     percent of the capital or profits interests in the 
     partnership, or
       ``(C) in the case of a trust, owns at least 50 percent of 
     the beneficial interests in the trust.
       ``(2) Qualified entity.--For purposes of paragraph (1), the 
     term `qualified entity' means--
       ``(A) any real estate investment trust, and
       ``(B) any partnership in which one real estate investment 
     trust owns at least 50 percent of the capital and profits 
     interests in the partnership.
       ``(3) Attribution rules.--For purposes of this paragraphs 
     (1) and (2)--
       ``(A) In general.--Rules similar to the rules of 
     subsections (d)(5) and (h)(3) shall apply.
       ``(B) Stapled entities.--A group of entities which are 
     stapled entities (as defined in section 269B(c)(2)) shall be 
     treated as 1 person.
       ``(4) Exception for certain new reits.--
       ``(A) In general.--The term `controlled entity' shall not 
     include an incubator REIT.
       ``(B) Incubator reit.--A corporation shall be treated as an 
     incubator REIT for any taxable year during the eligibility 
     period if it meets all the following requirements for such 
     year:
       ``(i) The corporation elects to be treated as an incubator 
     REIT.
       ``(ii) The corporation has only voting common stock 
     outstanding.
       ``(iii) Not more than 50 percent of the corporation's real 
     estate assets consist of mortgages.
       ``(iv) From not later than the beginning of the last half 
     of the second taxable year, at least 10 percent of the 
     corporation's capital is provided by lenders or equity 
     investors who are unrelated to the corporation's largest 
     shareholder.

[[Page 17141]]

       ``(v) The directors of the corporation adopt a resolution 
     setting forth an intent to engage in a going public 
     transaction.
     No election may be made with respect to any REIT if an 
     election under this subsection was in effect for any 
     predecessor of such REIT.
       ``(C) Eligibility period.--The eligibility period (for 
     which an incubator REIT election can be made) begins with the 
     REIT's second taxable year and ends at the close of the 
     REIT's third taxable year, but, subject to the following 
     rules, it may be extended for an additional 2 taxable years 
     if the REIT so elects:
       ``(i) A REIT cannot elect to extend the eligibility period 
     unless it agrees that, if it does not engage in a going 
     public transaction by the end of the extended eligibility 
     period, it shall pay Federal income taxes for the 2 years of 
     the extended eligibility period as if it had not made an 
     incubator REIT election and had ceased to qualify as a REIT 
     for those 2 taxable years.
       ``(ii) In the event the corporation ceases to be treated as 
     a REIT by operation of clause (i), the corporation shall file 
     any appropriate amended returns reflecting the change in 
     status within 3 months of the close of the extended 
     eligibility period. Interest would be payable but, unless 
     there was a finding under subparagraph (D), no substantial 
     underpayment penalties shall be imposed. The corporation 
     shall, at the same time, also notify its shareholders and any 
     other persons whose tax position is, or may reasonably be 
     expected to be, affected by the change in status so they also 
     may file any appropriate amended returns to conform their tax 
     treatment consistent with the corporation's loss of REIT 
     status. The Secretary shall provide appropriate regulations 
     setting forth transferee liability and other provisions to 
     ensure collection of tax and the proper administration of 
     this provision.
       ``(iii) Clause (i) and (ii) shall not apply if the 
     corporation allows its incubator REIT status to lapse at the 
     end of the initial 2-year eligibility period without engaging 
     in a going public transaction, provided the corporation 
     satisfies the requirements of the closely-held test 
     commencing with its fourth taxable year. In such a case, the 
     corporation's directors may still be liable for the penalties 
     described in subparagraph (D) during the eligibility period.
       ``(D) Special penalties.--If the Secretary determines that 
     an incubator REIT election was filed for a principal purpose 
     other than as part of a reasonable plan to undertake a going 
     public transaction, an excise tax of $20,000 would be imposed 
     on each of the corporation's directors for each taxable year 
     for which an election was in effect.
       ``(E) Going public transaction.--For purposes of this 
     paragraph, a going public transaction means--
       ``(i) a public offering of shares of the stock of the 
     incubator REIT;
       ``(ii) a transaction, or series of transactions, that 
     results in the stock of the incubator REIT being regularly 
     traded on an established securities market and that results 
     in at least 50 percent of such stock being held by 
     shareholders who are unrelated to persons who held such stock 
     before it began to be so regularly traded; or
       ``(iii) any transaction resulting in ownership of the REIT 
     by 200 or more persons (excluding the largest single 
     shareholder) who in the aggregate own at least 50 percent of 
     the stock of the REIT.
     For the purposes of this subparagraph, the rules of section 
     318 shall apply in determining the ownership of stock.
       ``(F) Definitions.--The term ``established securities 
     market'' shall have the meaning set forth in the regulations 
     under section 897.''
       (c) Conforming Amendment.--Paragraph (2) of section 856(h) 
     is amended by striking ``and (6)'' each place it appears and 
     inserting ``, (6), and (7)''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after July 12, 1999.
       (2) Exception for existing controlled entities.--The 
     amendments made by this section shall not apply to any entity 
     which is a controlled entity (as defined in section 856(l) of 
     the Internal Revenue Code of 1986, as added by this section) 
     as of July 12, 1999, and which has significant business 
     assets or activities as of such date.

     SEC. 1506. TREATMENT OF GAIN FROM CONSTRUCTIVE OWNERSHIP 
                   TRANSACTIONS.

       (a) In General.--Part IV of subchapter P of chapter 1 
     (relating to special rules for determining capital gains and 
     losses) is amended by inserting after section 1259 the 
     following new section:

     ``SEC. 1260. GAINS FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.

       ``(a) In General.--If the taxpayer has gain from a 
     constructive ownership transaction with respect to any 
     financial asset and such gain would (without regard to this 
     section) be treated as a long-term capital gain--
       ``(1) such gain shall be treated as ordinary income to the 
     extent that such gain exceeds the net underlying long-term 
     capital gain, and
       ``(2) to the extent such gain is treated as a long-term 
     capital gain after the application of paragraph (1), the 
     determination of the capital gain rate (or rates) applicable 
     to such gain under section 1(h) shall be determined on the 
     basis of the respective rate (or rates) that would have been 
     applicable to the net underlying long-term capital gain.
       ``(b) Interest Charge on Deferral of Gain Recognition.--
       ``(1) In general.--If any gain is treated as ordinary 
     income for any taxable year by reason of subsection (a)(1), 
     the tax imposed by this chapter for such taxable year shall 
     be increased by the amount of interest determined under 
     paragraph (2) with respect to each prior taxable year during 
     any portion of which the constructive ownership transaction 
     was open. Any amount payable under this paragraph shall be 
     taken into account in computing the amount of any deduction 
     allowable to the taxpayer for interest paid or accrued during 
     such taxable year.
       ``(2) Amount of interest.--The amount of interest 
     determined under this paragraph with respect to a prior 
     taxable year is the amount of interest which would have been 
     imposed under section 6601 on the underpayment of tax for 
     such year which would have resulted if the gain (which is 
     treated as ordinary income by reason of subsection (a)(1)) 
     had been included in gross income in the taxable years in 
     which it accrued (determined by treating the income as 
     accruing at a constant rate equal to the applicable Federal 
     rate as in effect on the day the transaction closed). The 
     period during which such interest shall accrue shall end on 
     the due date (without extensions) for the return of tax 
     imposed by this chapter for the taxable year in which such 
     transaction closed.
       ``(3) Applicable federal rate.--For purposes of paragraph 
     (2), the applicable Federal rate is the applicable Federal 
     rate determined under 1274(d) (compounded semiannually) which 
     would apply to a debt instrument with a term equal to the 
     period the transaction was open.
       ``(4) No credits against increase in tax.--Any increase in 
     tax under paragraph (1) shall not be treated as tax imposed 
     by this chapter for purposes of determining--
       ``(A) the amount of any credit allowable under this 
     chapter, or
       ``(B) the amount of the tax imposed by section 55.
       ``(c) Financial Asset.--For purposes of this section--
       ``(1) In general.--The term `financial asset' means--
       ``(A) any equity interest in any pass-thru entity, and
       ``(B) to the extent provided in regulations--
       ``(i) any debt instrument, and
       ``(ii) any stock in a corporation which is not a pass-thru 
     entity.
       ``(2) Pass-thru entity.--For purposes of paragraph (1), the 
     term `pass-thru entity' means--
       ``(A) a regulated investment company,
       ``(B) a real estate investment trust,
       ``(C) an S corporation,
       ``(D) a partnership,
       ``(E) a trust,
       ``(F) a common trust fund,
       ``(G) a passive foreign investment company (as defined in 
     section 1297),
       ``(H) a foreign personal holding company, and
       ``(I) a foreign investment company (as defined in section 
     1246(b)).
       ``(d) Constructive Ownership Transaction.--For purposes of 
     this section--
       ``(1) In general.--The taxpayer shall be treated as having 
     entered into a constructive ownership transaction with 
     respect to any financial asset if the taxpayer--
       ``(A) holds a long position under a notional principal 
     contract with respect to the financial asset,
       ``(B) enters into a forward or futures contract to acquire 
     the financial asset,
       ``(C) is the holder of a call option, and is the grantor of 
     a put option, with respect to the financial asset and such 
     options have substantially equal strike prices and 
     substantially contemporaneous maturity dates, or
       ``(D) to the extent provided in regulations prescribed by 
     the Secretary, enters into 1 or more other transactions (or 
     acquires 1 or more positions) that have substantially the 
     same effect as a transaction described in any of the 
     preceding subparagraphs.
       ``(2) Exception for positions which are marked to market.--
     This section shall not apply to any constructive ownership 
     transaction if all of the positions which are part of such 
     transaction are marked to market under any provision of this 
     title or the regulations thereunder.
       ``(3) Long position under notional principal contract.--A 
     person shall be treated as holding a long position under a 
     notional principal contract with respect to any financial 
     asset if such person--
       ``(A) has the right to be paid (or receive credit for) all 
     or substantially all of the investment yield (including 
     appreciation) on such financial asset for a specified period, 
     and
       ``(B) is obligated to reimburse (or provide credit for) all 
     or substantially all of any decline in the value of such 
     financial asset.
       ``(4) Forward contract.--The term `forward contract' means 
     any contract to acquire in the future (or provide or receive 
     credit for the future value of) any financial asset.

[[Page 17142]]

       ``(e) Net Underlying Long-Term Capital Gain.--For purposes 
     of this section, in the case of any constructive ownership 
     transaction with respect to any financial asset, the term 
     `net underlying long-term capital gain' means the aggregate 
     net capital gain that the taxpayer would have had if--
       ``(1) the financial asset had been acquired for fair market 
     value on the date such transaction was opened and sold for 
     fair market value on the date such transaction was closed, 
     and
       ``(2) only gains and losses that would have resulted from 
     the deemed ownership under paragraph (1) were taken into 
     account.
     The amount of the net underlying long-term capital gain with 
     respect to any financial asset shall be treated as zero 
     unless the amount thereof is established by clear and 
     convincing evidence.
       ``(f) Special Rule Where Taxpayer Takes Delivery.--Except 
     as provided in regulations prescribed by the Secretary, if a 
     constructive ownership transaction is closed by reason of 
     taking delivery, this section shall be applied as if the 
     taxpayer had sold all the contracts, options, or other 
     positions which are part of such transaction for fair market 
     value on the closing date. The amount of gain recognized 
     under the preceding sentence shall not exceed the amount of 
     gain treated as ordinary income under subsection (a). Proper 
     adjustments shall be made in the amount of any gain or loss 
     subsequently realized for gain recognized and treated as 
     ordinary income under this subsection.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section, including regulations--
       ``(1) to permit taxpayers to mark to market constructive 
     ownership transactions in lieu of applying this section, and
       ``(2) to exclude certain forward contracts which do not 
     convey substantially all of the economic return with respect 
     to a financial asset.''
       (b) Clerical Amendment.--The table of sections for part IV 
     of subchapter P of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 1260. Gains from constructive ownership transactions.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after July 11, 1999.

     SEC. 1507. TRANSFER OF EXCESS DEFINED BENEFIT PLAN ASSETS FOR 
                   RETIREE HEALTH BENEFITS.

       (a) Extension.--Paragraph (5) of section 420(b) (relating 
     to expiration) is amended by striking ``in any taxable year 
     beginning after December 31, 2000'' and inserting ``made 
     after September 30, 2009''.
       (b) Application of Minimum Cost Requirements.--
       (1) In general.--Paragraph (3) of section 420(c) is amended 
     to read as follows:
       ``(3) Minimum cost requirements.--
       ``(A) In general.--The requirements of this paragraph are 
     met if each group health plan or arrangement under which 
     applicable health benefits are provided provides that the 
     applicable employer cost for each taxable year during the 
     cost maintenance period shall not be less than the higher of 
     the applicable employer costs for each of the 2 taxable years 
     immediately preceding the taxable year of the qualified 
     transfer.
       ``(B) Applicable employer cost.--For purposes of this 
     paragraph, the term `applicable employer cost' means, with 
     respect to any taxable year, the amount determined by 
     dividing--
       ``(i) the qualified current retiree health liabilities of 
     the employer for such taxable year determined--

       ``(I) without regard to any reduction under subsection 
     (e)(1)(B), and
       ``(II) in the case of a taxable year in which there was no 
     qualified transfer, in the same manner as if there had been 
     such a transfer at the end of the taxable year, by

       ``(ii) the number of individuals to whom coverage for 
     applicable health benefits was provided during such taxable 
     year.
       ``(C) Election to compute cost separately.--An employer may 
     elect to have this paragraph applied separately with respect 
     to individuals eligible for benefits under title XVIII of the 
     Social Security Act at any time during the taxable year and 
     with respect to individuals not so eligible.
       ``(D) Cost maintenance period.--For purposes of this 
     paragraph, the term `cost maintenance period' means the 
     period of 5 taxable years beginning with the taxable year in 
     which the qualified transfer occurs. If a taxable year is in 
     2 or more overlapping cost maintenance periods, this 
     paragraph shall be applied by taking into account the highest 
     applicable employer cost required to be provided under 
     subparagraph (A) for such taxable year.''
       (2) Conforming amendments.--
       (A) Clause (iii) of section 420(b)(1)(C) is amended by 
     striking ``benefits'' and inserting ``cost''.
       (B) Subparagraph (D) of section 420(e)(1) is amended by 
     striking ``and shall not be subject to the minimum benefit 
     requirements of subsection (c)(3)'' and inserting ``or in 
     calculating applicable employer cost under subsection 
     (c)(3)(B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to qualified transfers occurring after the date 
     of the enactment of this Act.

     SEC. 1508. MODIFICATION OF INSTALLMENT METHOD AND REPEAL OF 
                   INSTALLMENT METHOD FOR ACCRUAL METHOD 
                   TAXPAYERS.

       (a) Repeal of Installment Method for Accrual Basis 
     Taxpayers.--
       (1) In general.--Subsection (a) of section 453 (relating to 
     installment method) is amended to read as follows:
       ``(a) Use of Installment Method.--
       ``(1) In general.--Except as otherwise provided in this 
     section, income from an installment sale shall be taken into 
     account for purposes of this title under the installment 
     method.
       ``(2) Accrual method taxpayer.--The installment method 
     shall not apply to income from an installment sale if such 
     income would be reported under an accrual method of 
     accounting without regard to this section. The preceding 
     sentence shall not apply to a disposition described in 
     subparagraph (A) or (B) of subsection (l)(2).''
       (2) Conforming amendments.--Sections 453(d)(1), 453(i)(1), 
     and 453(k) are each amended by striking ``(a)'' each place it 
     appears and inserting ``(a)(1)''.
       (b) Modification of Pledge Rules.--Paragraph (4) of section 
     453A(d) (relating to pledges, etc., of installment 
     obligations) is amended by adding at the end the following: 
     ``A payment shall be treated as directly secured by an 
     interest in an installment obligation to the extent an 
     arrangement allows the taxpayer to satisfy all or a portion 
     of the indebtedness with the installment obligation.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales or other dispositions occurring on or 
     after the date of the enactment of this Act.

                    TITLE XVI--TECHNICAL CORRECTIONS

     SEC. 1601. AMENDMENTS RELATED TO TAX AND TRADE RELIEF 
                   EXTENSION ACT OF 1998.

       (a) Amendment Related to Section 1004(b) of the Act.--
     Subsection (d) of section 6104 is amended by adding at the 
     end the following new paragraph:
       ``(6) Application to nonexempt charitable trusts and 
     nonexempt private foundations.--The organizations referred to 
     in paragraphs (1) and (2) of section 6033(d) shall comply 
     with the requirements of this subsection relating to annual 
     returns filed under section 6033 in the same manner as the 
     organizations referred to in paragraph (1).''
       (b) Amendments Related to Section 4003 of the Act.--
       (1) Subsection (b) of section 4003 of the Tax and Trade 
     Relief Extension Act of 1998 is amended by inserting 
     ``(7)(A)(i)(II),'' after ``(5)(A)(ii)(I),''.
       (2) Subparagraph (A) of section 9510(c)(1) is amended by 
     striking ``August 5, 1997'' and inserting ``October 21, 
     1998''.
       (c) Vaccine Tax and Trust Fund.--Sections 1503 and 1504 of 
     the Vaccine Injury Compensation Program Modification Act (and 
     the amendments made by such sections) are hereby repealed.
       (d) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the Tax 
     and Trade Relief Extension Act of 1998 to which they relate.

     SEC. 1602. AMENDMENTS RELATED TO INTERNAL REVENUE SERVICE 
                   RESTRUCTURING AND REFORM ACT OF 1998.

       (a) Amendment Related to 1103  of the Act.--Paragraph (6) 
     of section 6103(k) is amended--
       (1) by inserting ``and an officer or employee of the Office 
     of Treasury Inspector General for Tax Administration'' after 
     ``internal revenue officer or employee'', and
       (2) by striking ``internal revenue'' in the heading and 
     inserting ``certain''.
       (b) Amendment Related to Section 3509 of the Act.--
     Subparagraph (A) of section 6110(g)(5) is amended by 
     inserting ``, any Chief Counsel advice,'' after ``technical 
     advice memorandum''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Internal Revenue Service Restructuring and Reform Act of 1998 
     to which they relate.

     SEC. 1603. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

       (a) Amendment Related to Section 302 of the Act.--The last 
     sentence of section 3405(e)(1)(B) is amended by inserting 
     ``(other than a Roth IRA)'' after ``individual retirement 
     plan''.
       (b) Amendments Related to Section  1072 of the Act.--
       (1) Clause (ii) of section 415(c)(3)(D) and subparagraph 
     (B) of section 403(b)(3) are each amended by striking 
     ``section 125 or'' and inserting ``section 125, 132(f)(4), 
     or''.
       (2) Paragraph (2) of section 414(s) is amended by striking 
     ``section 125, 402(e)(3)'' and inserting ``section 125, 
     132(f)(4), 402(e)(3)''.
       (c) Amendment Related to Section  1454 of the Act.--
     Subsection (a) of section 7436 is amended by inserting before 
     the period at the end of the first sentence ``and the proper 
     amount of employment tax under such determination''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Taxpayer Relief of 1997 to which they relate.

     SEC. 1604. OTHER TECHNICAL CORRECTIONS.

       (a) Affiliated Corporations in Context of Worthless 
     Securities.--

[[Page 17143]]

       (1) Subparagraph (A) of section 165(g)(3) is amended to 
     read as follows:
       ``(A) the taxpayer owns directly stock in such corporation 
     meeting the requirements of section 1504(a)(2), and''.
       (2) Paragraph (3) of section 165(g) is amended by striking 
     the last sentence.
       (3) The amendments made by this subsection shall apply to 
     taxable years beginning after December 31, 1984.
       (b) Reference to Certain State Plans.--
       (1) Subparagraph (B) of section 51(d)(2) is amended--
       (A) by striking ``plan approved'' and inserting ``program 
     funded'', and
       (B) by striking ``(relating to assistance for needy 
     families with minor children)''.
       (2) The amendment made by paragraph (1) shall take effect 
     as if included in the amendments made by section 1201 of the 
     Small Business Job Protection Act of 1996.
       (c) Amount of IRA Contribution of Lesser Earning Spouse.--
       (1) Clause (ii) of section 219(c)(1)(B) is amended by 
     striking ``and'' at the end of subclause (I), by 
     redesignating subclause (II) as subclause (III), and by 
     inserting after subclause (I) the following new subclause:

       ``(II) the amount of any designated nondeductible 
     contribution (as defined in section 408(o)) on behalf of such 
     spouse for such taxable year, and''.

       (2) The amendment made by paragraph (1) shall apply to 
     taxable years beginning after December 31, 1999.
       (d) Modified Endowment Contracts.--
       (1) Paragraph (2) of section 7702A(a) is amended by 
     inserting ``or this paragraph'' before the period.
       (2) Clause (ii) of section 7702A(c)(3)(A) is amended by 
     striking ``under the contract'' and inserting ``under the old 
     contract''.
       (3) The amendments made by this subsection shall take 
     effect as if included in the amendments made by section 5012 
     of the Technical and Miscellaneous Revenue Act of 1988.
       (e) Lump-Sum Distributions.--
       (1) Clause (ii) of section 401(k)(10)(B) is amended by 
     adding at the end the following new sentence: ``Such term 
     includes a distribution of an annuity contract from--

       ``(I) a trust which forms a part of a plan described in 
     section 401(a) and which is exempt from tax under section 
     501(a), or
       ``(II) an annuity plan described in section 403(a).''

       (2) The amendment made by paragraph (1) shall take effect 
     as if included in section 1401 of the Small Business Job 
     Protection Act of 1996.
       (f) Tentative Carryback Adjustments of Losses From Section 
     1256 Contracts.--
       (1) Subsection (a) of section 6411 is amended by striking 
     ``section 1212(a)(1)'' and inserting ``subsection (a)(1) or 
     (c) of section 1212''.
       (2) The amendment made by paragraph (1) shall take effect 
     as if included in the amendments made by section 504 of the 
     Economic Recovery Tax Act of 1981.

     SEC. 1605. CLERICAL CHANGES.

       (1) Subsection (f) of section 67 is amended by striking 
     ``the last sentence'' and inserting ``the second sentence''.
       (2) The heading for paragraph (5) of section 408(d) is 
     amended to read as follows:
       ``(5) Distributions of excess contributions after due date 
     for taxable year and certain excess rollover contributions.--
     ''.
       (3) The heading for subparagraph (B) of section 529(e)(3) 
     is amended by striking ``under guaranteed plans''.
       (4)(A) Subsection (e) of section 678 is amended by striking 
     ``an electing small business corporation'' and inserting ``an 
     S corporation''.
       (B) Clause (v) of section 6103(e)(1)(D) is amended to read 
     as follows:
       ``(v) if the corporation was an S corporation, any person 
     who was a shareholder during any part of the period covered 
     by such return during which an election under section 1362(a) 
     was in effect, or''.
       (5) Subparagraph (B) of section 995(b)(3) is amended by 
     striking ``the Military Security Act of 1954 (22 U.S.C. 
     1934)'' and inserting ``section 38 of the International 
     Security Assistance and Arms Export Control Act of 1976 (22 
     U.S.C. 2778)''.
       (6) Subparagraph (B) of section 4946(c)(3) is amended by 
     striking ``the lowest rate of compensation prescribed for GS-
     16 of the General Schedule under section 5332'' and inserting 
     ``the lowest rate of basic pay for the Senior Executive 
     Service under section 5382''.

  The SPEAKER pro tempore. The amendment printed in the bill, modified 
by the amendments printed in section 3 of House Resolution 256, is 
adopted.
  The text of the committee amendment in the nature of a substitute, as 
modified, is as follows:

                               H.R. 2488

       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 ``Financial 
     Freedom Act of 1999''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.
       (c) Section 15 Not To Apply.--No amendment made by this Act 
     shall be treated as a change in a rate of tax for purposes of 
     section 15 of the Internal Revenue Code of 1986.
       (d) Table of Contents.--The table of contents for this Act 
     is as follows:

Sec. 1. Short title; etc.

                    TITLE I--BROAD-BASED TAX RELIEF

    Subtitle A--10-Percent Reduction in Individual Income Tax Rates

Sec. 101. 10-percent reduction in individual income tax rates.

                Subtitle B--Marriage Penalty Tax Relief

Sec. 111. Elimination of marriage penalty in standard deduction.
Sec. 112. Elimination of marriage penalty in deduction for interest on 
              education loans.
Sec. 113. Rollover from regular IRA to Roth IRA.

      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

Sec. 121. Repeal of alternative minimum tax on individuals.

       TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

Sec. 201. Exemption of certain interest and dividend income from tax.
Sec. 202. Reduction in individual capital gain tax rates.
Sec. 203. Capital gains tax rates applied to capital gains of 
              designated settlement funds.
Sec. 204. Special rule for members of uniformed services and foreign 
              service, and other employees, in determining exclusion of 
              gain from sale of principal residence.
Sec. 205. Treatment of certain dealer derivative financial instruments, 
              hedging transactions, and supplies as ordinary assets.
Sec. 206. Worthless securities of financial institutions.

     TITLE III--INCENTIVES FOR BUSINESS INVESTMENT AND JOB CREATION

Sec. 301. Reduction in corporate capital gain tax rate.
Sec. 302. Repeal of alternative minimum tax on corporations.

                 TITLE IV--EDUCATION SAVINGS INCENTIVES

Sec. 401. Modifications to education individual retirement accounts.
Sec. 402. Modifications to qualified tuition programs.
Sec. 403. Exclusion of certain amounts received under the National 
              Health Service Corps scholarship program, the F. Edward 
              Hebert Armed Forces Health Professions Scholarship and 
              Financial Assistance Program, and certain other programs.
Sec. 404. Additional increase in arbitrage rebate exception for 
              governmental bonds used to finance educational 
              facilities.
Sec. 405. Modification of arbitrage rebate rules applicable to public 
              school construction bonds.
Sec. 406. Repeal of 60-month limitation on deduction for interest on 
              education loans.

                    TITLE V--HEALTH CARE PROVISIONS

Sec. 501. Deduction for health and long-term care insurance costs of 
              individuals not participating in employer-subsidized 
              health plans.
Sec. 502. Long-term care insurance permitted to be offered under 
              cafeteria plans and flexible spending arrangements.
Sec. 503. Expansion of availability of medical savings accounts.
Sec. 504. Additional personal exemption for taxpayer caring for elderly 
              family member in taxpayer's home.
Sec. 505. Expanded human clinical trials qualifying for orphan drug 
              credit.
Sec. 506. Inclusion of certain vaccines against streptococcus 
              pneumoniae to list of taxable vaccines.
Sec. 507. Above-the-line deduction for prescription drug insurance 
              coverage of medicare beneficiaries if certain medicare 
              and low-income assistance provisions in effect.

                      TITLE VI--ESTATE TAX RELIEF

  Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; 
                  Repeal of Step Up in Basis At Death

Sec. 601. Repeal of estate, gift, and generation-skipping taxes.
Sec. 602. Termination of step up in basis at death.
Sec. 603. Carryover basis at death.

  Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal

Sec. 611. Additional reductions of estate and gift tax rates.

   Subtitle C--Unified Credit Replaced With Unified Exemption Amount

Sec. 621. Unified credit against estate and gift taxes replaced with 
              unified exemption amount.

     Subtitle D--Modifications of Generation-Skipping Transfer Tax

Sec. 631. Deemed allocation of GST exemption to lifetime transfers to 
              trusts; retroactive allocations.

[[Page 17144]]

Sec. 632. Severing of trusts.
Sec. 633. Modification of certain valuation rules.
Sec. 634. Relief provisions.

    TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

Sec. 701. Short title.
Sec. 702. Designation of and tax incentives for renewal communities.
Sec. 703. Extension of expensing of environmental remediation costs to 
              renewal communities.
Sec. 704. Extension of work opportunity tax credit for renewal 
              communities
Sec. 705. Conforming and clerical amendments.
Sec. 706. Evaluation and reporting requirements.

                     Subtitle B--Farming Incentive

Sec. 711. Production flexibility contract payments.

                   Subtitle C--Oil and Gas Incentives

Sec. 721. 5-year net operating loss carryback for losses attributable 
              to operating mineral interests of independent oil and gas 
              producers.
Sec. 722. Deduction for delay rental payments.
Sec. 723. Election to expense geological and geophysical expenditures.
Sec. 724. Temporary suspension of limitation based on 65 percent of 
              taxable income.
Sec. 725. Determination of small refiner exception to oil depletion 
              deduction.

                     Subtitle D--Timber Incentives

Sec. 731. Temporary suspension of maximum amount of amortizable 
              reforestation expenditures.
Sec. 732. Capital gain treatment under section 631(b) to apply to 
              outright sales by land owner.

                  Subtitle E--Steel Industry Incentive

Sec. 741. Minimum tax relief for steel industry.

                TITLE VIII--RELIEF FOR SMALL BUSINESSES

Sec. 801. Deduction for 100 percent of health insurance costs of self-
              employed individuals.
Sec. 802. Increase in expense treatment for small businesses.
Sec. 803. Repeal of Federal unemployment surtax.
Sec. 804. Restoration of 80 percent deduction for meal expenses.

                   TITLE IX--INTERNATIONAL TAX RELIEF

Sec. 901. Interest allocation rules.
Sec. 902. Look-thru rules to apply to dividends from noncontrolled 
              section 902 corporations.
Sec. 903. Clarification of treatment of pipeline transportation income.
Sec. 904. Subpart F treatment of income from transmission of high 
              voltage electricity.
Sec. 905. Recharacterization of overall domestic loss.
Sec. 906. Treatment of military property of foreign sales corporations.
Sec. 907. Treatment of certain dividends of regulated investment 
              companies.
Sec. 908. Repeal of special rules for applying foreign tax credit in 
              case of foreign oil and gas income.
Sec. 909. Study of proper treatment of European Union under same 
              country exceptions.
Sec. 910. Application of denial of foreign tax credit with respect to 
              certain foreign countries.
Sec. 911. Advance pricing agreements treated as confidential taxpayer 
              information.
Sec. 912. Increase in dollar limitation on section 911 exclusion.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

Sec. 1001. Exemption from income tax for State-created organizations 
              providing property and casualty insurance for property 
              for which such coverage is otherwise unavailable.
Sec. 1002. Modification of special arbitrage rule for certain funds.
Sec. 1003. Charitable split-dollar life insurance, annuity, and 
              endowment contracts.
Sec. 1004. Exemption procedure from taxes on self-dealing.
Sec. 1005. Expansion of declaratory judgment remedy to tax-exempt 
              organizations.
Sec. 1006. Modifications to section 512(b)(13).

                    TITLE XI--REAL ESTATE PROVISIONS

    Subtitle A--Provisions Relating to Real Estate Investment Trusts

   Part I--Treatment of Income and Services Provided by Taxable REIT 
                              Subsidiaries

Sec. 1101. Modifications to asset diversification test.
Sec. 1102. Treatment of income and services provided by taxable REIT 
              subsidiaries.
Sec. 1103. Taxable REIT subsidiary.
Sec. 1104. Limitation on earnings stripping.
Sec. 1105. 100 percent tax on improperly allocated amounts.
Sec. 1106. Effective date.

                       Part II--Health Care REITs

Sec. 1111. Health care REITs.

      Part III--Conformity With Regulated Investment Company Rules

Sec. 1121. Conformity with regulated investment company rules.

 Part IV--Clarification of Exception From Impermissible Tenant Service 
                                 Income

Sec. 1131. Clarification of exception for independent operators.

           Part V--Modification of Earnings and Profits Rules

Sec. 1141. Modification of earnings and profits rules.

          Part VI--Study Relating to Taxable REIT Subsidiaries

Sec. 1151. Study relating to taxable REIT subsidiaries.

     Subtitle B--Modification of At-Risk Rules for Publicly Traded 
                            Nonrecourse Debt

Sec. 1161. Treatment under at-risk rules of publicly traded nonrecourse 
              debt.

     Subtitle C--Treatment of Construction Allowances and Certain 
                 Contributions to Capital of Retailers

Sec. 1171. Exclusion from gross income of qualified lessee construction 
              allowances not limited for certain retailers to short-
              term leases.
Sec. 1172. Exclusion from gross income for certain contributions to the 
              capital of certain retailers.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

Sec. 1201. Increase in benefit and contribution limits.
Sec. 1202. Plan loans for subchapter S owners, partners, and sole 
              proprietors.
Sec. 1203. Modification of top-heavy rules.
Sec. 1204. Elective deferrals not taken into account for purposes of 
              deduction limits.
Sec. 1205. Repeal of coordination requirements for deferred 
              compensation plans of State and local governments and 
              tax-exempt organizations.
Sec. 1206. Elimination of user fee for requests to IRS regarding 
              pension plans.
Sec. 1207. Deduction limits.
Sec. 1208. Option to treat elective deferrals as after-tax 
              contributions.
Sec. 1209. Increase in minimum defined benefit limit under section 415.

                Subtitle B--Enhancing Fairness for Women

Sec. 1221. Additional salary reduction catch-up contributions.
Sec. 1222. Equitable treatment for contributions of employees to 
              defined contribution plans.
Sec. 1223. Faster vesting of certain employer matching contributions.
Sec. 1224. Simplify and update the minimum distribution rules.
Sec. 1225. Clarification of tax treatment of division of section 457 
              plan benefits upon divorce.

          Subtitle C--Increasing Portability for Participants

Sec. 1231. Rollovers allowed among various types of plans.
Sec. 1232. Rollovers of IRAs into workplace retirement plans.
Sec. 1233. Rollovers of after-tax contributions.
Sec. 1234. Hardship exception to 60-day rule.
Sec. 1235. Treatment of forms of distribution.
Sec. 1236. Rationalization of restrictions on distributions.
Sec. 1237. Purchase of service credit in governmental defined benefit 
              plans.
Sec. 1238. Employers may disregard rollovers for purposes of cash-out 
              amounts.
Sec. 1239. Minimum distribution and inclusion requirements for section 
              457 plans.

       Subtitle D--Strengthening Pension Security and Enforcement

Sec. 1241. Repeal of 150 percent of current liability funding limit.
Sec. 1242. Maximum contribution deduction rules modified and applied to 
              all defined benefit plans.
Sec. 1243. Excise tax relief for sound pension funding.
Sec. 1244. Excise tax on failure to provide notice by defined benefit 
              plans significantly reducing future benefit accruals.

                Subtitle E--Reducing Regulatory Burdens

Sec. 1251. Repeal of the multiple use test.
Sec. 1252. Modification of timing of plan valuations.
Sec. 1253. Flexibility and nondiscrimination and line of business 
              rules.
Sec. 1254. ESOP dividends may be reinvested without loss of dividend 
              deduction.
Sec. 1255. Notice and consent period regarding distributions.
Sec. 1256. Repeal of transition rule relating to certain highly 
              compensated employees.
Sec. 1257. Employees of tax-exempt entities.
Sec. 1258. Clarification of treatment of employer-provided retirement 
              advice.
Sec. 1259. Provisions relating to plan amendments.
Sec. 1260. Model plans for small businesses.
Sec. 1261. Simplified annual filing requirement for plans with fewer 
              than 25 employees.
Sec. 1262. Improvement of Employee Plans Compliance Resolution System.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

Sec. 1301. Exclusion for foster care payments to apply to payments by 
              qualified placement agencies.
Sec. 1302. Mileage reimbursements to charitable volunteers excluded 
              from gross income.

[[Page 17145]]

Sec. 1303. W-2 to include employer social security taxes.
Sec. 1304. Consistent treatment of survivor benefits for public safety 
              officers killed in the line of duty.

         Subtitle B--Provisions Primarily Affecting Businesses

Sec. 1311. Distributions from publicly traded partnerships treated as 
              qualifying income of regulated investment companies.
Sec. 1312. Special passive activity rule for publicly traded 
              partnerships to apply to regulated investment companies.
Sec. 1313. Large electric trucks, vans, and buses eligible for 
              deduction for clean-fuel vehicles in lieu of credit. 
Sec. 1314. Modifications to special rules for nuclear decommissioning 
              costs.
Sec. 1315. Consolidation of life insurance companies with other 
              corporations.

            Subtitle C--Provisions Relating to Excise Taxes

Sec. 1321. Consolidation of Hazardous Substance Superfund and Leaking 
              Underground Storage Tank Trust Fund.
Sec. 1322. Repeal of certain motor fuel excise taxes on fuel used by 
              railroads and on inland waterway transportation.
Sec. 1323. Repeal of excise tax on fishing tackle boxes.
Sec. 1324. Clarification of excise tax imposed on arrow components.

         Subtitle D--Improvements in Low-Income Housing Credit

Sec. 1331. Increase in State ceiling on low-income housing credit.
Sec. 1332. Modification of criteria for allocating housing credits 
              among projects.
Sec. 1333. Additional responsibilities of housing credit agencies.
Sec. 1334. Modifications to rules relating to basis of building which 
              is eligible for credit.
Sec. 1335. Other modifications.
Sec. 1336. Carryforward rules.
Sec. 1337. Effective date.

          Subtitle E--Entrepreneurial Equity Capital Formation

 Part I--Tax-free Conversions of Specialized Small Business Investment 
                   Companies Into Pass-thru Entities

Sec. 1341. Modifications to provisions relating to regulated investment 
              companies.
Sec. 1342. Tax-free reorganization of specialized small business 
              investment company as a partnership.

  Part II--Additional Incentives Related to Investing in Specialized 
                  Small Business Investment Companies

Sec. 1346. Expansion of nonrecognition treatment for securities gain 
              rolled over into specialized small business investment 
              companies.
Sec. 1347. Modifications to exclusion for gain from qualified small 
              business stock.

                      Subtitle F--Other Provisions

Sec. 1351. Increase in volume cap on private activity bonds.
Sec. 1352. Tax treatment of Alaska Native Settlement Trusts.
Sec. 1353. Increase in threshold for Joint Committee reports on refunds 
              and credits.
Sec. 1354. Clarification of depreciation study.

                    Subtitle G--Tax Court Provisions

Sec. 1361. Tax Court filing fee in all cases commenced by filing 
              petition.
Sec. 1362. Expanded use of Tax Court practice fee.
Sec. 1363. Confirmation of authority of Tax Court to apply doctrine of 
              equitable recoupment.

 Subtitle H--Tax-Free Transfer of Bottled Distilled Spirits to Bonded 
                                Dealers

Sec. 1371. Tax-free transfer of bottled distilled spirits from 
              distilled spirits plant to bonded dealer.
Sec. 1372. Establishment of distilled spirits plant.
Sec. 1373. Distilled spirits plants.
Sec. 1374. Bonded dealers.
Sec. 1375. Time for collecting tax on distilled spirits.
Sec. 1376. Exemption from occupational tax not applicable.
Sec. 1377. Technical, conforming, and clerical amendments.
Sec. 1378. Cooperative agreements.
Sec. 1379. Effective date.
Sec. 1380. Study.

              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

Sec. 1401. Research credit.
Sec. 1402. Subpart F exemption for active financing income.
Sec. 1403. Taxable income limit on percentage depletion for marginal 
              production.
Sec. 1404. Work opportunity credit and welfare-to-work credit.

                       TITLE XV--REVENUE OFFSETS

Sec. 1501. Returns relating to cancellations of indebtedness by 
              organizations lending money.
Sec. 1502. Extension of Internal Revenue Service user fees.
Sec. 1503. Limitations on welfare benefit funds of 10 or more employer 
              plans.
Sec. 1504. Increase in elective withholding rate for nonperiodic 
              distributions from deferred compensation plans.
Sec. 1505. Controlled entities ineligible for REIT status.
Sec. 1506. Treatment of gain from constructive ownership transactions.
Sec. 1507. Transfer of excess defined benefit plan assets for retiree 
              health benefits.
Sec. 1508. Modification of installment method and repeal of installment 
              method for accrual method taxpayers.
Sec. 1509. Limitation on use of nonaccrual experience method of 
              accounting.
Sec. 1510. Exclusion of like-kind exchange property from nonrecognition 
              treatment on the sale of a principal residence.

                    TITLE XVI--TECHNICAL CORRECTIONS

Sec. 1601. Amendments related to Tax and Trade Relief Extension Act of 
              1998.
Sec. 1602. Amendments related to Internal Revenue Service Restructuring 
              and Reform Act of 1998.
Sec. 1603. Amendments related to Taxpayer Relief Act of 1997.
Sec. 1604. Other technical corrections.
Sec. 1605. Clerical changes.

                TITLE XVII--COMMITMENT TO DEBT REDUCTION

Sec. 1701. Commitment to Debt Reduction.

                    TITLE XVIII--BUDGETARY TREATMENT

Sec. 1801. Exclusion of Effects of This Act from Paygo Scorecard.
                    TITLE I--BROAD-BASED TAX RELIEF
    Subtitle A--10-Percent Reduction in Individual Income Tax Rates

     SEC. 101. 10-PERCENT REDUCTION IN INDIVIDUAL INCOME TAX 
                   RATES.

       (a) Regular Income Tax Rates.--
       (1) In general.--Subsection (f) of section 1 is amended by 
     adding at the end the following new paragraph:
       ``(8) Rate reductions.--In prescribing the tables under 
     paragraph (1) which apply with respect to taxable years 
     beginning in a calendar year after 2000, each rate in such 
     tables (without regard to this paragraph) shall be reduced by 
     the number of percentage points (rounded to the next lowest 
     tenth) equal to the applicable percentage (determined in 
     accordance with the following table) of such rate:

``For taxable years beginning in calendarThe applicable percentage is--
  2001 through 2003............................................1.0 ....

  2004.........................................................2.5 ....

  2005 through 2007............................................5.0 ....

  2008.........................................................7.5 ....

  2009 and thereafter......................................10.0.''.....

     In the case of taxable years beginning in calendar year 2001, 
     the rounding referred to in the preceding sentence shall be 
     to the next highest tenth.
       ``(9) Post-2001 rate reductions contingent on no increase 
     in interest on total united states debt.--
       ``(A) In general.--In the case of taxable years beginning 
     after December 31, 2002, paragraph (8) shall apply only to 
     taxable years beginning after the first debt reduction 
     calendar year.
       ``(B) Delay of further rate reductions if increase in 
     interest on total united states debt.--For each calendar year 
     after 2000 which is not a debt reduction calendar year, the 
     table in paragraph (8) shall be applied for each subsequent 
     calendar year by substituting the calendar year which is 1 
     year later. The preceding sentence shall cease to apply after 
     the earliest calendar year with respect to which the 
     applicable percentage under paragraph (8) is 10 percent 
     (after the application of the preceding sentence).
       ``(C) Debt reduction calendar year.--For purposes of this 
     paragraph, the term `debt reduction calendar year' means any 
     calendar year after 2000 if, for the 12-month period ending 
     July 31 of such calendar year, the interest expense on the 
     total United States debt is not greater than such interest 
     expense for the 12-month period ending on July 31 of the 
     preceding calendar year.
       ``(D) Total united states debt.--For purposes of this 
     paragraph, the term `total United States debt' means 
     obligations which are subject to the public debt limit in 
     section 3101 of title 31, United States Code.''
       (2) Technical amendments.--
       (A) Subparagraph (B) of section 1(f)(2) is amended by 
     inserting ``except as provided in paragraph (8),'' before 
     ``by not changing''.
       (B) Subparagraph (C) of section 1(f)(2) is amended by 
     inserting ``and the reductions under paragraph (8) in the 
     rates of tax'' before the period.
       (C) The heading for subsection (f) of section 1 is amended 
     by inserting ``Rate Reductions;'' before ``Adjustments''.
       (D) Section 1(g)(7)(B)(ii)(II) is amended by striking ``15 
     percent'' and inserting ``the percentage applicable to the 
     lowest income bracket in subsection (c)''.
       (E) Subparagraphs (A)(ii)(I) and (B)(i) of section 1(h)(1) 
     are each amended by striking ``28 percent'' and inserting 
     ``25.2 percent''.
       (F) Section 531 is amended by striking ``39.6 percent of 
     the accumulated taxable income'' and inserting ``the product 
     of the accumulated taxable income and the percentage 
     applicable to the highest income bracket in section 1(c)''.
       (G) Section 541 is amended by striking ``39.6 percent of 
     the undistributed personal holding company income'' and 
     inserting ``the product of

[[Page 17146]]

     the undistributed personal holding company income and the 
     percentage applicable to the highest income bracket in 
     section 1(c)''.
       (H) Section 3402(p)(1)(B) is amended by striking 
     ``specified is 7, 15, 28, or 31 percent'' and all that 
     follows and inserting ``specified is--
       ``(i) 7 percent,
       ``(ii) a percentage applicable to 1 of the 3 lowest income 
     brackets in section 1(c), or
       ``(iii) such other percentage as is permitted under 
     regulations prescribed by the Secretary.''
       (I) Section 3402(p)(2) is amended by striking ``15 percent 
     of such payment'' and inserting ``the product of such payment 
     and the percentage applicable to the lowest income bracket in 
     section 1(c)''.
       (J) Section 3402(q)(1) is amended by striking ``28 percent 
     of such payment'' and inserting ``the product of such payment 
     and the percentage applicable to the next to the lowest 
     income bracket in section 1(c)''.
       (K) Section 3402(r)(3) is amended by striking ``31 
     percent'' and inserting ``the rate applicable to the third 
     income bracket in such section''.
       (L) Section 3406(a)(1) is amended by striking ``31 percent 
     of such payment'' and inserting ``the product of such payment 
     and the percentage applicable to the third income bracket in 
     section 1(c)''.
       (b) Minimum Tax Rates.--Subparagraph (A) of section 
     55(b)(1) is amended by adding at the end the following new 
     clause:
       ``(iv) Rate reduction.--In the case of taxable years 
     beginning after 2000, each rate in clause (i) (without regard 
     to this clause) shall be reduced by the number of percentage 
     points (rounded to the next lowest tenth) equal to the 
     applicable percentage (determined in accordance with section 
     1(f)(8)) of such rate.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.
                Subtitle B--Marriage Penalty Tax Relief

     SEC. 111. ELIMINATION OF MARRIAGE PENALTY IN STANDARD 
                   DEDUCTION.

       (a) In General.--Paragraph (2) of section 63(c) (relating 
     to standard deduction) is amended--
       (1) by striking ``$5,000'' in subparagraph (A) and 
     inserting ``twice the dollar amount in effect under 
     subparagraph (C) for the taxable year'',
       (2) by adding ``or'' at the end of subparagraph (B),
       (3) by striking ``in the case of'' and all that follows in 
     subparagraph (C) and inserting ``in any other case.'', and
       (4) by striking subparagraph (D).
       (b) Phase-in.--Subsection (c) of section 63 is amended by 
     adding at the end the following new paragraph:
       ``(7) Phase-in of increase in basic standard deduction.--In 
     the case of taxable years beginning before January 1, 2003--
       ``(A) paragraph (2)(A) shall be applied by substituting for 
     `twice'--
       ``(i) `1.778 times' in the case of taxable years beginning 
     during 2001, and
       ``(ii) `1.889 times' in the case of taxable years beginning 
     during 2002, and
       ``(B) the basic standard deduction for a married individual 
     filing a separate return shall be one-half of the amount 
     applicable under paragraph (2)(A).
     If any amount determined under subparagraph (A) is not a 
     multiple of $50, such amount shall be rounded to the next 
     lowest multiple of $50.''.
       (c) Technical Amendments.--
       (1) Subparagraph (B) of section 1(f)(6) is amended by 
     striking ``(other than with'' and all that follows through 
     ``shall be applied'' and inserting ``(other than with respect 
     to sections 63(c)(4) and 151(d)(4)(A)) shall be applied''.
       (2) Paragraph (4) of section 63(c) is amended by adding at 
     the end the following flush sentence:
     ``The preceding sentence shall not apply to the amount 
     referred to in paragraph (2)(A).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 112. ELIMINATION OF MARRIAGE PENALTY IN DEDUCTION FOR 
                   INTEREST ON EDUCATION LOANS.

       (a) In General.--Subparagraph (B) of section 221(b)(2) 
     (relating to limitation based on modified adjusted gross 
     income) is amended--
       (1) by striking ``$60,000'' in clause (i)(II) and inserting 
     ``twice such amount'', and
       (2) by inserting ``($30,000 in the case of a joint 
     return)'' after ``$15,000'' in clause (ii).
       (b) Conforming Amendment.--Paragraph (1) of section 221(g) 
     is amended by striking ``and $60,000 amounts in subsection 
     (b)(2) shall each'' and inserting ``amount in subsection 
     (b)(2) shall''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 113. ROLLOVER FROM REGULAR IRA TO ROTH IRA.

       (a) In General.--Clause (i) of section 408A(c)(3)(B) is 
     amended by inserting ``($160,000 in the case of a joint 
     return)'' after ``$100,000''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.
      Subtitle C--Repeal of Alternative Minimum Tax on Individuals

     SEC. 121. REPEAL OF ALTERNATIVE MINIMUM TAX ON INDIVIDUALS.

       (a) In General.--Subsection (a) of section 55 is amended by 
     adding at the end the following new flush sentence:
     ``For purposes of this title, the tentative minimum tax on 
     any taxpayer other than a corporation for any taxable year 
     beginning after December 31, 2008, shall be zero.''
       (b) Reduction of Tax on Individuals Prior to Repeal.--
     Section 55 is amended by adding at the end the following new 
     subsection:
       ``(f) Phaseout of Tax on Individuals.--
       ``(1) In general.--The tax imposed by this section on a 
     taxpayer other than a corporation for any taxable year 
     beginning after December 31, 2004, and before January 1, 
     2009, shall be the applicable percentage of the tax which 
     would be imposed but for this subsection.
       ``(2) Applicable percentage.--For purposes of paragraph 
     (1), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning in calendarThe applicable percentage is--
  2005.........................................................80  ....

  2006.........................................................70  ....

  2007.........................................................60  ....

  2008........................................................50.''....

       (c) Nonrefundable Personal Credits Fully Allowed Against 
     Regular Tax Liability.--
       (1) In general.--Subsection (a) of section 26 (relating to 
     limitation based on amount of tax) is amended to read as 
     follows:
       ``(a) Limitation Based on Amount of Tax.--The aggregate 
     amount of credits allowed by this subpart for the taxable 
     year shall not exceed the taxpayer's regular tax liability 
     for the taxable year.''
       (2) Child credit.--Subsection (d) of section 24 is amended 
     by striking paragraph (2) and by redesignating paragraph (3) 
     as paragraph (2).
       (d) Limitation on Use of Credit for Prior Year Minimum Tax 
     Liability.--Subsection (c) of section 53 is amended to read 
     as follows:
       ``(c) Limitation.--
       ``(1) In general.--Except as otherwise provided in this 
     subsection, the credit allowable under subsection (a) for any 
     taxable year shall not exceed the excess (if any) of--
       ``(A) the regular tax liability of the taxpayer for such 
     taxable year reduced by the sum of the credits allowable 
     under subparts A, B, D, E, and F of this part, over
       ``(B) the tentative minimum tax for the taxable year.
       ``(2) Taxable years beginning after 2008.--In the case of 
     any taxable year beginning after 2008, the credit allowable 
     under subsection (a) to a taxpayer other than a corporation 
     for any taxable year shall not exceed 90 percent of the 
     excess (if any) of--
       ``(A) regular tax liability of the taxpayer for such 
     taxable year, over
       ``(B) the sum of the credits allowable under subparts A, B, 
     D, E, and F of this part.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.
       TITLE II--RELIEF FROM TAXATION ON SAVINGS AND INVESTMENTS

     SEC. 201. EXEMPTION OF CERTAIN INTEREST AND DIVIDEND INCOME 
                   FROM TAX.

       (a) In General.--Part III of subchapter B of chapter 1 
     (relating to amounts specifically excluded from gross income) 
     is amended by inserting after section 115 the following new 
     section:

     ``SEC. 116. PARTIAL EXCLUSION OF DIVIDENDS AND INTEREST 
                   RECEIVED BY INDIVIDUALS.

       ``(a) Exclusion From Gross Income.--Gross income does not 
     include dividends and interest otherwise includible in gross 
     income which are received during the taxable year by an 
     individual.
       ``(b) Limitations.--
       ``(1) Maximum amount.--The aggregate amount excluded under 
     subsection (a) for any taxable year shall not exceed--
       ``(A) in the case of any taxable year beginning in 2001 or 
     2002, $50 ($100 in the case of a joint return),
       ``(B) in the case of any taxable year beginning in 2003 or 
     2004, $100 ($200 in the case of a joint return), and
       ``(C) in the case of any taxable year beginning after 2004, 
     $200 ($400 in the case of a joint return).
       ``(2) Certain dividends excluded.--Subsection (a) shall not 
     apply to any dividend from a corporation which for the 
     taxable year of the corporation in which the distribution is 
     made is a corporation exempt from tax under section 521 
     (relating to farmers' cooperative associations).
       ``(c) Special Rules.--For purposes of this section--
       ``(1) Exclusion not to apply to capital gain dividends from 
     regulated investment companies and real estate investment 
     trusts.--

  ``For treatment of capital gain dividends, see sections 854(a) and 
857(c).
       ``(2) Certain nonresident aliens ineligible for 
     exclusion.--In the case of a nonresident alien individual, 
     subsection (a) shall apply only in determining the taxes 
     imposed for the taxable year pursuant to sections 871(b)(1) 
     and 877(b).
       ``(3) Dividends from employee stock ownership plans.--
     Subsection (a) shall not apply to any dividend described in 
     section 404(k).''.
       (b) Conforming Amendments.--
       (1) Subparagraph (C) of section 32(c)(5) is amended by 
     striking ``or'' at the end of clause (i), by striking the 
     period at the end of clause (ii) and inserting ``; or'', and 
     by inserting after clause (ii) the following new clause:
       ``(iii) interest and dividends received during the taxable 
     year which are excluded from gross income under section 
     116.''.
       (2) Subparagraph (A) of section 32(i)(2) is amended by 
     inserting ``(determined without regard to section 116)'' 
     before the comma.
       (3) Subparagraph (B) of section 86(b)(2) is amended to read 
     as follows:

[[Page 17147]]

       ``(B) increased by the sum of--
       ``(i) the amount of interest received or accrued by the 
     taxpayer during the taxable year which is exempt from tax, 
     and
       ``(ii) the amount of interest and dividends received during 
     the taxable year which are excluded from gross income under 
     section 116.''.
       (4) Subsection (d) of section 135 is amended by 
     redesignating paragraph (4) as paragraph (5) and by inserting 
     after paragraph (3) the following new paragraph:
       ``(4) Coordination with section 116.--This section shall be 
     applied before section 116.''.
       (5) Paragraph (2) of section 265(a) is amended by inserting 
     before the period ``, or to purchase or carry obligations or 
     shares, or to make deposits, to the extent the interest 
     thereon is excludable from gross income under section 116''.
       (6) Subsection (c) of section 584 is amended by adding at 
     the end the following new flush sentence:
     ``The proportionate share of each participant in the amount 
     of dividends or interest received by the common trust fund 
     and to which section 116 applies shall be considered for 
     purposes of such section as having been received by such 
     participant.''.
       (7) Subsection (a) of section 643 is amended by 
     redesignating paragraph (7) as paragraph (8) and by inserting 
     after paragraph (6) the following new paragraph:
       ``(7) Dividends or interest.--There shall be included the 
     amount of any dividends or interest excluded from gross 
     income pursuant to section 116.''.
       (8) Section 854(a) is amended by inserting ``section 116 
     (relating to partial exclusion of dividends and interest 
     received by individuals) and'' after ``For purposes of''.
       (9) Section 857(c) is amended to read as follows:
       ``(c) Restrictions Applicable to Dividends Received From 
     Real Estate Investment Trusts.--
       ``(1) Treatment for section 116.--For purposes of section 
     116 (relating to partial exclusion of dividends and interest 
     received by individuals), a capital gain dividend (as defined 
     in subsection (b)(3)(C)) received from a real estate 
     investment trust which meets the requirements of this part 
     shall not be considered as a dividend.
       ``(2) Treatment for section 243.--For purposes of section 
     243 (relating to deductions for dividends received by 
     corporations), a dividend received from a real estate 
     investment trust which meets the requirements of this part 
     shall not be considered as a dividend.''.
       (10) The table of sections for part III of subchapter B of 
     chapter 1 is amended by inserting after the item relating to 
     section 115 the following new item:

``Sec. 116. Partial exclusion of dividends and interest received by 
              individuals.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 202. REDUCTION IN INDIVIDUAL CAPITAL GAIN TAX RATES.

       (a) In General.--
       (1) Sections 1(h)(1)(B) and 55(b)(3)(B) are each amended by 
     striking ``10 percent'' and inserting ``7.5 percent''.
       (2) The following sections are each amended by striking 
     ``20 percent'' and inserting ``15 percent'':
       (A) Section 1(h)(1)(C).
       (B) Section 55(b)(3)(C).
       (C) Section 1445(e)(1).
       (D) The second sentence of section 7518(g)(6)(A).
       (E) The second sentence of section 607(h)(6)(A) of the 
     Merchant Marine Act, 1936.
       (3) Sections 1(h)(1)(D) and 55(b)(3)(D) are each amended by 
     striking ``25 percent'' and inserting ``20 percent''.
       (b) Conforming Amendments.--
       (1) Section 311 of the Taxpayer Relief Act of 1997 is 
     amended by striking subsection (e).
       (2) Section 1(h) is amended--
       (A) by striking paragraphs (2), (9), and (13),
       (B) by redesignating paragraphs (3) through (8) as 
     paragraphs (2) through (7), respectively, and
       (C) by redesignating paragraphs (10), (11), and (12) as 
     paragraphs (8), (9), and (10), respectively.
       (3) Paragraph (3) of section 55(b) is amended by striking 
     ``In the case of taxable years beginning after December 31, 
     2000, rules similar to the rules of section 1(h)(2) shall 
     apply for purposes of subparagraphs (B) and (C).''.
       (4) Paragraph (7) of section 57(a) is amended--
       (A) by striking ``42 percent'' and inserting ``6 percent'', 
     and
       (B) by striking the last sentence.
       (c) Transitional Rules for Taxable Years Which Include July 
     1, 1999.--For purposes of applying section 1(h) of the 
     Internal Revenue Code of 1986 in the case of a taxable year 
     which includes July 1, 1999--
       (1) The amount of tax determined under subparagraph (B) of 
     section 1(h)(1) of such Code shall be the sum of--
       (A) 7.5 percent of the lesser of--
       (i) the net capital gain taking into account only gain or 
     loss properly taken into account for the portion of the 
     taxable year on or after such date (determined without regard 
     to collectibles gain or loss, gain described in section 
     (1)(h)(6)(A)(i) of such Code, and section 1202 gain), or
       (ii) the amount on which a tax is determined under such 
     subparagraph (without regard to this subsection), plus
       (B) 10 percent of the excess (if any) of--
       (i) the amount on which a tax is determined under such 
     subparagraph (without regard to this subsection), over
       (ii) the amount on which a tax is determined under 
     subparagraph (A).
       (2) The amount of tax determined under subparagraph (C) of 
     section (1)(h)(1) of such Code shall be the sum of--
       (A) 15 percent of the lesser of--
       (i) the excess (if any) of the amount of net capital gain 
     determined under subparagraph (A)(i) of paragraph (1) of this 
     subsection over the amount on which a tax is determined under 
     subparagraph (A) of paragraph (1) of this subsection, or
       (ii) the amount on which a tax is determined under such 
     subparagraph (C) (without regard to this subsection), plus
       (B) 20 percent of the excess (if any) of--
       (i) the amount on which a tax is determined under such 
     subparagraph (C) (without regard to this subsection), over
       (ii) the amount on which a tax is determined under 
     subparagraph (A) of this paragraph.
       (3) The amount of tax determined under subparagraph (D) of 
     section (1)(h)(1) of such Code shall be the sum of--
       (A) 20 percent of the lesser of--
       (i) the amount which would be determined under section 
     1(h)(6)(A)(i) of such Code taking into account only gain 
     properly taken into account for the portion of the taxable 
     year on or after such date, or
       (ii) the amount on which a tax is determined under such 
     subparagraph (D) (without regard to this subsection), plus  
       (B) 25 percent of the excess (if any) of--
       (i) the amount on which a tax is determined under such 
     subparagraph (D) (without regard to this subsection), over
       (ii) the amount on which a tax is determined under 
     subparagraph (A) of this paragraph.  
       (4) For purposes of applying section 55(b)(3) of such Code, 
     rules similar to the rules of paragraphs (1), (2), and (3) of 
     this subsection shall apply.
       (5) In applying this subsection with respect to any pass-
     thru entity, the determination of when gains and loss are 
     properly taken into account shall be made at the entity 
     level.
       (6) Terms used in this subsection which are also used in 
     section 1(h) of such Code shall have the respective meanings 
     that such terms have in such section.
       (d) Effective Dates.--
       (1) In general.--Except as otherwise provided by this 
     subsection, the amendments made by this section shall apply 
     to taxable years ending after June 30, 1999.
       (2) Withholding.--The amendment made by subsection 
     (a)(2)(C) shall apply to amounts paid after the date of the 
     enactment of this Act.
       (3) Small business stock.--The amendments made by 
     subsection (b)(4) shall apply to dispositions on or after 
     July 1, 1999.

     SEC. 203. CAPITAL GAINS TAX RATES APPLIED TO CAPITAL GAINS OF 
                   DESIGNATED SETTLEMENT FUNDS.

       (a) In General.--Paragraph (1) of section 468B(b) (relating 
     to taxation of designated settlement funds) is amended by 
     inserting ``(subject to section 1(h))'' after ``maximum 
     rate''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 204. SPECIAL RULE FOR MEMBERS OF UNIFORMED SERVICES AND 
                   FOREIGN SERVICE, AND OTHER EMPLOYEES, IN 
                   DETERMINING EXCLUSION OF GAIN FROM SALE OF 
                   PRINCIPAL RESIDENCE.

       (a) In General.--Subsection (d) of section 121 (relating to 
     exclusion of gain from sale of principal residence) is 
     amended by adding at the end the following new paragraphs:
       ``(9) Members of uniformed services and foreign service.--
       ``(A) In general.--The running of the 5-year period 
     described in subsection (a) shall be suspended with respect 
     to an individual during any time that such individual or such 
     individual's spouse is serving on qualified official extended 
     duty as a member of the uniformed services or of the Foreign 
     Service.
       ``(B) Qualified official extended duty.--For purposes of 
     this paragraph--
       ``(i) In general.--The term `qualified official extended 
     duty' means any period of extended duty as a member of the 
     uniformed services or a member of the Foreign Service during 
     which the member serves at a duty station which is at least 
     50 miles from such property or is under Government orders to 
     reside in Government quarters.
       ``(ii) Uniformed services.--The term `uniformed services' 
     has the meaning given such term by section 101(a)(5) of title 
     10, United States Code, as in effect on the date of the 
     enactment of the Financial Freedom Act of 1999.
       ``(iii) Foreign service of the united states.--The term 
     `member of the Foreign Service' has the meaning given the 
     term `member of the Service' by paragraph (1), (2), (3), (4), 
     or (5) of section 103 of the Foreign Service Act of 1980, as 
     in effect on the date of the enactment of the Financial 
     Freedom Act of 1999.
       ``(iv) Extended duty.--The term `extended duty' means any 
     period of active duty pursuant to a call or order to such 
     duty for a period in excess of 90 days or for an indefinite 
     period.
       ``(10) Other employees.--
       ``(A) In general.--The running of the 5-year period 
     described in subsection (a) shall be suspended with respect 
     to an individual during any time that such individual or such 
     individual's spouse is serving as an employee for a period in

[[Page 17148]]

     excess of 90 days in an assignment by the such employee's 
     employer outside the United States.
       ``(B) Limitations and special rules.--
       ``(i) Maximum period of suspension.--The suspension under 
     subparagraph (A) with respect to a principal residence shall 
     not exceed (in the aggregate) 5 years.
       ``(ii) Members of uniformed services and foreign service.--
     Subparagraph (A) shall not apply to an individual to whom 
     paragraph (9) applies.
       ``(iii) Self-employed individual not considered an 
     employee.--For purposes of this paragraph, the term 
     `employee' does not include an individual who is an employee 
     within the meaning of section 401(c)(1) (relating to self-
     employed individuals).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales and exchanges after the date of the 
     enactment of this Act.

     SEC. 205. TREATMENT OF CERTAIN DEALER DERIVATIVE FINANCIAL 
                   INSTRUMENTS, HEDGING TRANSACTIONS, AND SUPPLIES 
                   AS ORDINARY ASSETS.

       (a) In General.--Section 1221 (defining capital assets) is 
     amended--
       (1) by striking ``For purposes'' and inserting the 
     following:
       ``(a) In General.--For purposes'',
       (2) by striking the period at the end of paragraph (5) and 
     inserting a semicolon, and
       (3) by adding at the end the following:
       ``(6) any commodities derivative financial instrument held 
     by a commodities derivatives dealer, unless--
       ``(A) it is established to the satisfaction of the 
     Secretary that such instrument has no connection to the 
     activities of such dealer as a dealer, and
       ``(B) such instrument is clearly identified in such 
     dealer's records as being described in subparagraph (A) 
     before the close of the day on which it was acquired, 
     originated, or entered into (or such other time as the 
     Secretary may by regulations prescribe);
       ``(7) any hedging transaction which is clearly identified 
     as such before the close of the day on which it was acquired, 
     originated, or entered into (or such other time as the 
     Secretary may by regulations prescribe); or
       ``(8) supplies of a type regularly used or consumed by the 
     taxpayer in the ordinary course of a trade or business of the 
     taxpayer.
       ``(b) Definitions and Special Rules.--
       ``(1) Commodities derivative financial instruments.--For 
     purposes of subsection (a)(6)--
       ``(A) Commodities derivatives dealer.--The term 
     `commodities derivatives dealer' means a person which 
     regularly offers to enter into, assume, offset, assign, or 
     terminate positions in commodities derivative financial 
     instruments with customers in the ordinary course of a trade 
     or business.
       ``(B) Commodities derivative financial instrument.--
       ``(i) In general.--The term `commodities derivative 
     financial instrument' means any contract or financial 
     instrument with respect to commodities (other than a share of 
     stock in a corporation, a beneficial interest in a 
     partnership or trust, a note, bond, debenture, or other 
     evidence of indebtedness, or a section 1256 contract (as 
     defined in section 1256(b)) the value or settlement price of 
     which is calculated by or determined by reference to a 
     specified index.
       ``(ii) Specified index.--The term `specified index' means 
     any one or more or any combination of--

       ``(I) a fixed rate, price, or amount, or
       ``(II) a variable rate, price, or amount,

     which is based on any current, objectively determinable 
     financial or economic information with respect to commodities 
     which is not within the control of any of the parties to the 
     contract or instrument and is not unique to any of the 
     parties' circumstances.
       ``(2) Hedging transaction.--
       ``(A) In general.--For purposes of this section, the term 
     `hedging transaction' means any transaction entered into by 
     the taxpayer in the normal course of the taxpayer's trade or 
     business primarily--
       ``(i) to manage risk of price changes or currency 
     fluctuations with respect to ordinary property which is held 
     or to be held by the taxpayer, or
       ``(ii) to manage risk of interest rate or price changes or 
     currency fluctuations with respect to borrowings made or to 
     be made, or ordinary obligations incurred or to be incurred, 
     by the taxpayer.
       ``(B) Treatment of nonidentification or improper 
     identification of hedging transactions.--Notwithstanding 
     subsection (a)(7), the Secretary shall prescribe regulations 
     to properly characterize of any income, gain, expense, or 
     loss arising from a transaction--
       ``(i) which is a hedging transaction but which was not 
     identified as such in accordance with subsection (a)(7), or
       ``(ii) which was so identified but is not a hedging 
     transaction.
       ``(3) Regulations.--The Secretary shall prescribe such 
     regulations as are appropriate to carry out the purposes of 
     paragraph (6) and (7) of subsection (a) in the case of 
     transactions involving related parties.''.
       (b) Management of Risk.--
       (1) Section 475(c)(3) is amended by striking ``reduces'' 
     and inserting ``manages''.
       (2) Section 871(h)(4)(C)(iv) is amended by striking ``to 
     reduce'' and inserting ``to manage''.
       (3) Clauses (i) and (ii) of section 988(d)(2)(A) are each 
     amended by striking ``to reduce'' and inserting ``to 
     manage''.
       (4) Paragraph (2) of section 1256(e) is amended to read as 
     follows:
       ``(2) Definition of hedging transaction.--For purposes of 
     this subsection, the term `hedging transaction' means any 
     hedging transaction (as defined in section 1221(b)(2)(A)) if, 
     before the close of the day on which such transaction was 
     entered into (or such earlier time as the Secretary may 
     prescribe by regulations), the taxpayer clearly identifies 
     such transaction as being a hedging transaction.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to any instrument held, acquired, or entered 
     into, any transaction entered into, and supplies held or 
     acquired on or after the date of enactment of this Act.

     SEC. 206. WORTHLESS SECURITIES OF FINANCIAL INSTITUTIONS.

       (a) In General.--The first sentence following section 
     165(g)(3)(B) (relating to securities of affiliated 
     corporation) is amended to read as follows: ``In computing 
     gross receipts for purposes of the preceding sentence, (i) 
     gross receipts from sales or exchanges of stocks and 
     securities shall be taken into account only to the extent of 
     gains therefrom, and (ii) gross receipts from royalties, 
     rents, dividends, interest, annuities, and gains from sales 
     or exchanges of stocks and securities derived from (or 
     directly related to) the conduct of an active trade or 
     business of an insurance company subject to tax under 
     subchapter L or a qualified financial institution (as defined 
     in subsection (l)(3)) shall be treated as from such sources 
     other than royalties, rents, dividends, interest, annuities, 
     and gains.''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to securities which become worthless in taxable 
     years beginning after December 31, 1999.
     TITLE III--INCENTIVES FOR BUSINESS INVESTMENT AND JOB CREATION

     SEC. 301. REDUCTION IN CORPORATE CAPITAL GAIN TAX RATE.

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

     ``SEC. 1201. ALTERNATIVE TAX FOR CORPORATIONS.

       ``(a) General Rule.--If for any taxable year a corporation 
     has a net capital gain, then, in lieu of the tax imposed by 
     sections 11, 511, or 831(a) or (b), there is hereby imposed a 
     tax (if such tax is less than the tax imposed by such 
     sections) which shall consist of the sum of--
       ``(1) a tax computed on the taxable income reduced by the 
     net capital gain, at the rates and in the manner as if this 
     subsection had not been enacted, plus
       ``(2) a tax of 30 percent of the net capital gain (or, if 
     less, taxable income).
       ``(b) Cross Refercences.--For computation of the 
     alternative tax--
       ``(1) in the case of life insurance companies, see section 
     801(a)(2),
       ``(2) in the case of regulated investment companies and 
     their shareholders, see section 852(b)(3) (A) and (D), and
       ``(3) in the case of real estate investment trusts, see 
     section 857(b)(3)(A).''
       (b) Technical Amendments.--
       (1) Paragraphs (1) and (2) of section 1445(e) are each 
     amended by striking ``35 percent'' and inserting ``30 
     percent''.
       (2)(A) The second sentence of section 7518(g)(6)(A) is 
     amended by striking ``34 percent'' and inserting ``30 
     percent''.
       (B) The second sentence of section 607(h)(6)(A) of the 
     Merchant Marine Act, 1936, is amended by striking ``34 
     percent'' and inserting ``30 percent''.
       (c) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2004.
       (2) Withholding.--The amendment made by subsection (b)(1) 
     shall apply to amounts paid after December 31, 2004.

     SEC. 302. REPEAL OF ALTERNATIVE MINIMUM TAX ON CORPORATIONS.

       (a) In General.--The last sentence of section 55(a), as 
     amended by section 121, is amended by striking ``on any 
     taxpayer other than a corporation''.
       (b) Repeal of 90 Percent Limitation on Foreign Tax 
     Credit.--
       (1) In general.--Section 59(a) (relating to alternative 
     minimum tax foreign tax credit) is amended by striking 
     paragraph (2) and by redesignating paragraphs (3) and (4) as 
     paragraphs (2) and (3), respectively.
       (2) Conforming amendment.--Section 53(d)(1)(B)(i)(II) is 
     amended by striking ``and if section 59(a)(2) did not 
     apply''.
       (c) Limitation on Use of Credit for Prior Year Minimum Tax 
     Liability.--
       (1) In general.--Subsection (c) of section 53, as amended 
     by section 121, is amended by redesignating paragraph (2) as 
     paragraph (3) and by inserting after paragraph (1) the 
     following new paragraph:
       ``(2) Corporations for taxable years beginning after 
     2004.--In the case of a corporation for any taxable year 
     beginning after 2004 and before 2009, the limitation under 
     paragraph (1) shall be increased by the applicable percentage 
     (determined in accordance with the following table) of the 
     tentative minimum tax for the taxable year.

``For taxable years beginning in calendarThe applicable percentage is--
  2005.........................................................20  ....

  2006.........................................................30  ....

  2007.........................................................40  ....

  2008........................................................50.  ....

     In no event shall the limitation determined under this 
     paragraph be greater than the sum of the tax imposed by 
     section 55 and the regular tax reduced by the sum of the 
     credits allowed under subparts A, B, D, E, and F of this 
     part.''

[[Page 17149]]

       (2) Conforming amendments.--
       (A) Section 55(e) is amended by striking paragraph (5).
       (B) Paragraph (3) of section 53(c), as redesignated by 
     paragraph (1), is amended by striking ``to a taxpayer other 
     than a corporation''.
       (d) Effective Date.--
       (1) In general.--Except as provided in paragraphs (2) and 
     (3), the amendments made by this section shall apply to 
     taxable years beginning after December 31, 2004.
       (2) Repeal of 90 percent limitation on foreign tax 
     credit.--The amendments made by subsection (b) shall apply to 
     taxable years beginning after December 31, 2001.
       (3) Subsection (c)(2)(a).--The amendment made by subsection 
     (c)(2)(A) shall apply to taxable years beginning after 
     December 31, 2008.
                 TITLE IV--EDUCATION SAVINGS INCENTIVES

     SEC. 401. MODIFICATIONS TO EDUCATION INDIVIDUAL RETIREMENT 
                   ACCOUNTS.

       (a) Maximum Annual Contributions.--
       (1) In general.--Section 530(b)(1)(A)(iii) (defining 
     education individual retirement account) is amended by 
     striking ``$500'' and inserting ``$2,000''.
       (2) Conforming amendment.--Section 4973(e)(1)(A) is amended 
     by striking ``$500'' and inserting ``$2,000''.
       (b) Tax-Free Expenditures for Elementary and Secondary 
     School Expenses.--
       (1) In general.--Section 530(b)(2) (defining qualified 
     higher education expenses) is amended to read as follows:
       ``(2) Qualified education expenses.--
       ``(A) In general.--The term `qualified education expenses' 
     means--
       ``(i) qualified higher education expenses (as defined in 
     section 529(e)(3)), and
       ``(ii) qualified elementary and secondary education 
     expenses (as defined in paragraph (4)).
       ``(B) Qualified state tuition programs.--Such term shall 
     include any contribution to a qualified State tuition program 
     (as defined in section 529(b)) on behalf of the designated 
     beneficiary (as defined in section 529(e)(1)); but there 
     shall be no increase in the investment in the contract for 
     purposes of applying section 72 by reason of any portion of 
     such contribution which is not includible in gross income by 
     reason of subsection (d)(2).''
       (2) Qualified elementary and secondary education 
     expenses.--Section 530(b) (relating to definitions and 
     special rules) is amended by adding at the end the following 
     new paragraph:
       ``(4) Qualified elementary and secondary education 
     expenses.--
       ``(A) In general.--The term `qualified elementary and 
     secondary education expenses' means--
       ``(i) expenses for tuition, fees, academic tutoring, 
     special needs services, books, supplies, computer equipment 
     (including related software and services), and other 
     equipment which are incurred in connection with the 
     enrollment or attendance of the designated beneficiary of the 
     trust as an elementary or secondary school student at a 
     public, private, or religious school, and
       ``(ii) expenses for room and board, uniforms, 
     transportation, and supplementary items and services 
     (including extended day programs) which are required or 
     provided by a public, private, or religious school in 
     connection with such enrollment or attendance.
       ``(B) Special rule for homeschooling.--Such term shall 
     include expenses described in subparagraph (A)(i) in 
     connection with education provided by homeschooling if the 
     requirements of any applicable State or local law are met 
     with respect to such education.
       ``(C) School.--The term `school' means any school which 
     provides elementary education or secondary education 
     (kindergarten through grade 12), as determined under State 
     law.''
       (3) Conforming amendments.--Section 530 is amended--
       (A) by striking ``higher'' each place it appears in 
     subsections (b)(1) and (d)(2), and
       (B) by striking ``higher'' in the heading for subsection 
     (d)(2).
       (c) Waiver of Age Limitations for Children With Special 
     Needs.--Section 530(b)(1) (defining education individual 
     retirement account) is amended by adding at the end the 
     following flush sentence:
     ``The age limitations in subparagraphs (A)(ii) and (E) and 
     paragraphs (5) and (6) of subsection (d) shall not apply to 
     any designated beneficiary with special needs (as determined 
     under regulations prescribed by the Secretary).''
       (d) Entities Permitted To Contribute to Accounts.--Section 
     530(c)(1) (relating to reduction in permitted contributions 
     based on adjusted gross income) is amended by striking ``The 
     maximum amount which a contributor'' and inserting ``In the 
     case of a contributor who is an individual, the maximum 
     amount the contributor''.
       (e) Time When Contributions Deemed Made.--
       (1) In general.--Section 530(b) (relating to definitions 
     and special rules), as amended by subsection (b)(2), is 
     amended by adding at the end the following new paragraph:
       ``(5) Time when contributions deemed made.--An individual 
     shall be deemed to have made a contribution to an education 
     individual retirement account on the last day of the 
     preceding taxable year if the contribution is made on account 
     of such taxable year and is made not later than the time 
     prescribed by law for filing the return for such taxable year 
     (not including extensions thereof).''
       (2) Extension of time to return excess contributions.--
     Subparagraph (C) of section 530(d)(4) (relating to additional 
     tax for distributions not used for educational expenses) is 
     amended--
       (A) by striking clause (i) and inserting the following new 
     clause:
       ``(i) such distribution is made before the 1st day of the 
     6th month of the taxable year following the taxable year, 
     and'', and
       (B) by striking ``due date of return'' in the heading and 
     inserting ``certain date''.
       (f) Coordination With Hope and Lifetime Learning Credits 
     and Qualified Tuition Programs.--
       (1) In general.--Section 530(d)(2)(C) is amended to read as 
     follows:
       ``(C) Coordination with hope and lifetime learning credits 
     and qualified tuition programs.--For purposes of subparagraph 
     (A)--
       ``(i) Credit coordination.--The total amount of qualified 
     higher education expenses with respect to an individual for 
     the taxable year shall be reduced--

       ``(I) as provided in section 25A(g)(2), and
       ``(II) by the amount of such expenses which were taken into 
     account in determining the credit allowed to the taxpayer or 
     any other person under section 25A.

       ``(ii) Coordination with qualified tuition programs.--If, 
     with respect to an individual for any taxable year--

       ``(I) the aggregate distributions during such year to which 
     subparagraph (A) and section 529(c)(3)(B) apply, exceed
       ``(II) the total amount of qualified education expenses 
     (after the application of clause (i)) for such year,

     the taxpayer shall allocate such expenses among such 
     distributions for purposes of determining the amount of the 
     exclusion under subparagraph (A) and section 529(c)(3)(B).''
       (2) Conforming amendments.--
       (A) Subsection (e) of section 25A is amended to read as 
     follows:
       ``(e) Election Not To Have Section Apply.--A taxpayer may 
     elect not to have this section apply with respect to the 
     qualified tuition and related expenses of an individual for 
     any taxable year.''
       (B) Section 135(d)(2)(A) is amended by striking 
     ``allowable'' and inserting ``allowed''.
       (C) Section 530(d)(2)(D) is amended--
       (i) by striking ``or credit'', and
       (ii) by striking ``credit or'' in the heading.
       (D) Section 4973(e)(1) is amended by adding ``and'' at the 
     end of subparagraph (A), by striking subparagraph (B), and by 
     redesignating subparagraph (C) as subparagraph (B).
       (g) Renaming Education Individual Retirement Accounts as 
     Education Savings Accounts.--
       (1) In general.--
       (A) Section 530 (as amended by the preceding provisions of 
     this section) is amended by striking ``education individual 
     retirement account'' each place it appears and inserting 
     ``education savings account''.
       (B) The heading for paragraph (1) of section 530(b) is 
     amended by striking ``Education individual retirement 
     account'' and inserting ``Education savings account''.
       (C) The heading for section 530 is amended to read as 
     follows:

     ``SEC. 530. EDUCATION SAVINGS ACCOUNTS.''.

       (D) The item in the table of contents for part VII of 
     subchapter F of chapter 1 relating to section 530 is amended 
     to read as follows:

``Sec. 530. Education savings accounts.''.
       (2) Conforming amendments.--
       (A) The following provisions are each amended by striking 
     ``education individual retirement'' each place it appears and 
     inserting ``education savings'':
       (i) Section 25A(e)(2).
       (ii) Section 26(b)(2)(E).
       (iii) Section 72(e)(9).
       (iv) Section 135(c)(2)(C).
       (v) Subsections (a) and (e) of section 4973.
       (vi) Subsections (c) and (e) of section 4975.
       (vii) Section 6693(a)(2)(D).
       (B) The headings for each of the following provisions are 
     amended by striking ``education individual retirement 
     accounts'' each place it appears and inserting ``education 
     savings accounts''.
       (i) Section 72(e)(9).
       (ii) Section 135(c)(2)(C).
       (iii) Section 4973(e).
       (iv) Section 4975(c)(5).
       (h) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2000.
       (2) Subsection (g).--The amendments made by subsection (g) 
     shall take effect on the date of the enactment of this Act.

     SEC. 402. MODIFICATIONS TO QUALIFIED TUITION PROGRAMS.

       (a) Eligible Educational Institutions Permitted To Maintain 
     Qualified Tuition Programs.--
       (1) In general.--Section 529(b)(1) (defining qualified 
     State tuition program) is amended by inserting ``or by 1 or 
     more eligible educational institutions'' after ``maintained 
     by a State or agency or instrumentality thereof ''.
       (2) Private qualified tuition programs limited to benefit 
     plans.--Clause (ii) of section 529(b)(1)(A) is amended by 
     inserting ``in the case of a program established and 
     maintained by a State or agency or instrumentality thereof,'' 
     before ``may make''.
       (3) Conforming amendments.--
       (A) Sections 72(e)(9), 135(c)(2)(C), 135(d)(1)(D), 529, 
     530(b)(2)(B), 4973(e), and 6693(a)(2)(C) are

[[Page 17150]]

     each amended by striking ``qualified State tuition'' each 
     place it appears and inserting ``qualified tuition''.
       (B) The headings for sections 72(e)(9) and 135(c)(2)(C) are 
     each amended by striking ``qualified state tuition'' and 
     inserting ``qualified tuition''.
       (C) The headings for sections 529(b) and 530(b)(2)(B) are 
     each amended by striking ``Qualified state tuition'' and 
     inserting ``Qualified tuition''.
       (D) The heading for section 529 is amended by striking 
     ``STATE''.
       (E) The item relating to section 529 in the table of 
     sections for part VIII of subchapter F of chapter 1 is 
     amended by striking ``State''.
       (b) Exclusion From Gross Income of Education Distributions 
     From Qualified Tuition Programs.--
       (1) In general.--Section 529(c)(3)(B) (relating to 
     distributions) is amended to read as follows:
       ``(B) Distributions for qualified higher education 
     expenses.--
       ``(i) In general.--For purposes of this paragraph--

       ``(I) no amount shall be includible in gross income under 
     subparagraph (A) by reason of a distribution which consists 
     of providing a benefit to the distributee which, if paid for 
     by the distributee, would constitute payment of a qualified 
     higher education expense, and
       ``(II) in the case of distributions not described in 
     subclause (I), the amount otherwise includible in gross 
     income under subparagraph (A) shall be reduced by an amount 
     which bears the same ratio to the otherwise includible amount 
     as the qualified higher education expenses (other than 
     expenses paid by distributions described in subclause (I)) 
     bear to the aggregate of such distributions.

       ``(ii) Exception for institutional programs.--In the case 
     of any taxable year beginning before January 1, 2004, clause 
     (i) shall not apply with respect to any distribution during 
     such taxable year under a qualified tuition program 
     established and maintained by 1 or more eligible educational 
     institutions.
       ``(iii) In-kind distributions.--Any benefit furnished to a 
     designated beneficiary under a qualified tuition program 
     shall be treated as a distribution to the beneficiary for 
     purposes of this paragraph.
       ``(iv) Coordination with hope and lifetime learning 
     credits.--The total amount of qualified higher education 
     expenses with respect to an individual for the taxable year 
     shall be reduced--

       ``(I) as provided in section 25A(g)(2), and
       ``(II) by the amount of such expenses which were taken into 
     account in determining the credit allowed to the taxpayer or 
     any other person under section 25A.

       ``(v) Coordination with education savings accounts.--If, 
     with respect to an individual for any taxable year--

       ``(I) the aggregate distributions to which clause (i) and 
     section 530(d)(2)(A) apply, exceed
       ``(II) the total amount of qualified higher education 
     expenses otherwise taken into account under clause (i) (after 
     the application of clause (iv)) for such year,

     the taxpayer shall allocate such expenses among such 
     distributions for purposes of determining the amount of the 
     exclusion under clause (i) and section 530(d)(2)(A).''
       (2) Conforming amendments.--
       (A) Section 135(d)(2)(B) is amended by striking ``the 
     exclusion under section 530(d)(2)'' and inserting ``the 
     exclusions under sections 529(c)(3)(B)(i) and 530(d)(2)''.
       (B) Section 221(e)(2)(A) is amended by inserting ``529,'' 
     after ``135,''.
       (c) Rollover to Different Program for Benefit of Same 
     Designated Beneficiary.--Section 529(c)(3)(C) (relating to 
     change in beneficiaries) is amended--
       (1) by striking ``transferred to the credit'' in clause (i) 
     and inserting ``transferred--

       ``(I) to another qualified tuition program for the benefit 
     of the designated beneficiary, or
       ``(II) to the credit'',

       (2) by adding at the end the following new clause:
       ``(iii) Limitation on certain rollovers.--Clause (i)(I) 
     shall not apply to any amount transferred with respect to a 
     designated beneficiary if, at any time during the 1-year 
     period ending on the day of such transfer, any other amount 
     was transferred which was not includible in gross income by 
     reason of clause (i)(I).'', and
       (3) by inserting ``or programs'' after ``beneficiaries'' in 
     the heading.
       (d) Member of Family Includes First Cousin.--Section 
     529(e)(2) (defining member of family) is amended by striking 
     ``and'' at the end of subparagraph (B), by striking the 
     period at the end of subparagraph (C) and by inserting ``; 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(D) any first cousin of such beneficiary.''
       (e) Definition of Qualified Higher Education Expenses.--
       (1) In general.--Subparagraph (A) of section 529(e)(3) 
     (relating to definition of qualified higher education 
     expenses) is amended to read as follows:
       ``(A) In general.--The term `qualified higher education 
     expenses' means--
       ``(i) tuition and fees required for the enrollment or 
     attendance of a designated beneficiary at an eligible 
     educational institution for courses of instruction of such 
     beneficiary at such institution, and
       ``(ii) expenses for books, supplies, and equipment which 
     are incurred in connection with such enrollment or 
     attendance, but not to exceed the allowance for books and 
     supplies included in the cost of attendance (as defined in 
     section 472 of the Higher Education Act of 1965 (20 U.S.C. 
     1087ll), as in effect on the date of enactment of the 
     Financial Freedom Act of 1999) as determined by the eligible 
     educational institution.''.
       (2) Exception for education involving sports, etc..--
     Paragraph (3) of section 529(e) (relating to qualified higher 
     education expenses) is amended by adding at the end the 
     following new subparagraph:
       ``(C) Exception for education involving sports, etc..--The 
     term `qualified higher education expenses' shall not include 
     expenses with respect to any course or other education 
     involving sports, games, or hobbies unless such course or 
     other education is part of the beneficiary's degree program 
     or is taken to acquire or improve job skills of the 
     beneficiary.''.
       (f) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to taxable years 
     beginning after December 31, 2000.
       (2) Qualified higher education expenses.--The amendments 
     made by subsection (e) shall apply to amounts paid for 
     education furnished after December 31, 1999.

     SEC. 403. EXCLUSION OF CERTAIN AMOUNTS RECEIVED UNDER THE 
                   NATIONAL HEALTH SERVICE CORPS SCHOLARSHIP 
                   PROGRAM, THE F. EDWARD HEBERT ARMED FORCES 
                   HEALTH PROFESSIONS SCHOLARSHIP AND FINANCIAL 
                   ASSISTANCE PROGRAM, AND CERTAIN OTHER PROGRAMS.

       (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,
       ``(B) the Armed Forces Health Professions Scholarship and 
     Financial Assistance program under subchapter I of chapter 
     105 of title 10, United States Code,
       ``(C) the National Institutes of Health Undergraduate 
     Scholarship program under section 487D of the Public Health 
     Service Act, or
       ``(D) any State program determined by the Secretary to have 
     substantially similar objectives as such programs.''
       (b) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by subsection (a) shall apply to amounts 
     received in taxable years beginning after December 31, 1993.
       (2) State programs.--Section 117(c)(2)(D) of the Internal 
     Revenue Code of 1986 (as added by the amendments made by 
     subsection (a)) shall apply to amounts received in taxable 
     years beginning after December 31, 1999.

     SEC. 404. ADDITIONAL INCREASE IN ARBITRAGE REBATE EXCEPTION 
                   FOR GOVERNMENTAL BONDS USED TO FINANCE 
                   EDUCATIONAL FACILITIES.

       (a) In General.--Section 148(f)(4)(D)(vii) (relating to 
     increase in exception for bonds financing public school 
     capital expenditures) is amended by striking ``$5,000,000'' 
     the second place it appears and inserting ``$10,000,000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to obligations issued in calendar years beginning 
     after December 31, 1999.

     SEC. 405. MODIFICATION OF ARBITRAGE REBATE RULES APPLICABLE 
                   TO PUBLIC SCHOOL CONSTRUCTION BONDS.

       (a) In General.--Subparagraph (C) of section 148(f)(4) is 
     amended by adding at the end the following new clause:
       ``(xviii) 4-year spending requirement for public school 
     construction issue.--

       ``(I) In general.--In the case of a public school 
     construction issue, the spending requirements of clause (ii) 
     shall be treated as met if at least 10 percent of the 
     available construction proceeds of the construction issue are 
     spent for the governmental purposes of the issue within the 
     1-year period beginning on the date the bonds are issued, 30 
     percent of such proceeds are spent for such purposes within 
     the 2-year period beginning on such date, 60 percent of such 
     proceeds are spent for such purposes within the 3-year period 
     beginning on such date, and 100 percent of such proceeds are 
     spent for such purposes within the 4-year period beginning on 
     such date.
       ``(II) Public school construction issue.--For purposes of 
     this clause, the term `public school construction issue' 
     means any construction issue if no bond which is part of such 
     issue is a private activity bond and all of the available 
     construction proceeds of such issue are to be used for the 
     construction (as defined in clause (iv)) of public school 
     facilities to provide education or training below the 
     postsecondary level or for the acquisition of land that is 
     functionally related and subordinate to such facilities.
       ``(III) Other rules to apply.--Rules similar to the rules 
     of the preceding provisions of this subparagraph which apply 
     to clause (ii) also apply to this clause.''.

       (b) Effective Date.--The amendment made by this section 
     shall apply to obligations issued after December 31, 1999.

[[Page 17151]]



     SEC. 406. REPEAL OF 60-MONTH LIMITATION ON DEDUCTION FOR 
                   INTEREST ON EDUCATION LOANS.

       (a) In General.--Section 221 (relating to interest on 
     education loans) is amended by striking subsection (d) and by 
     redesignating subsections (e), (f), and (g) as subsections 
     (d), (e), and (f), respectively.
       (b) Conforming Amendment.--Subsection (e) of section 6050S 
     is amended by striking ``section 221(e)(1)'' and inserting 
     ``section 221(d)(1)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to loan interest payments made after December 31, 
     1999, in taxable years ending after such date.
                    TITLE V--HEALTH CARE PROVISIONS

     SEC. 501. DEDUCTION FOR HEALTH AND LONG-TERM CARE INSURANCE 
                   COSTS OF INDIVIDUALS NOT PARTICIPATING IN 
                   EMPLOYER-SUBSIDIZED HEALTH PLANS.

       (a) In General.--Part VII of subchapter B of chapter 1 is 
     amended by redesignating section 222 as section 223 and by 
     inserting after section 221 the following new section:

     ``SEC. 222. HEALTH AND LONG-TERM CARE INSURANCE COSTS.

       ``(a) In General.--In the case of an individual, there 
     shall be allowed as a deduction an amount equal to the 
     applicable percentage of the amount paid during the taxable 
     year for insurance which constitutes medical care for the 
     taxpayer, the taxpayer's spouse, and dependents.
       ``(b) Applicable Percentage.--For purposes of subsection 
     (a), the applicable percentage shall be determined in 
     accordance with the following table:

``For taxable years beginning                            The applicable
  in calendar year--                                    percentage is--
  2001.............................................................25  
  2002.............................................................40  
  2003, 2004, 2005, and 2006.......................................50  
  2007.............................................................75  
  2008 and thereafter............................................100.  
       ``(c) Limitation Based on Other Coverage.--
       ``(1) Coverage under certain subsidized employer plans.--
       ``(A) In general.--Subsection (a) shall not apply to any 
     taxpayer for any calendar month for which the taxpayer 
     participates in any health plan maintained by any employer of 
     the taxpayer or of the spouse of the taxpayer if 50 percent 
     or more of the cost of coverage under such plan (determined 
     under section 4980B) is paid or incurred by the employer.
       ``(B) Employer contributions to cafeteria plans, flexible 
     spending arrangements, and medical savings accounts.--
     Employer contributions to a cafeteria plan, a flexible 
     spending or similar arrangement, or a medical savings account 
     which are excluded from gross income under section 106 shall 
     be treated for purposes of subparagraph (A) as paid by the 
     employer.
       ``(C) Aggregation of plans of employer.--A health plan 
     which is not otherwise described in subparagraph (A) shall be 
     treated as described in such subparagraph if such plan would 
     be so described if all health plans of persons treated as a 
     single employer under subsections (b), (c), (m), or (o) of 
     section 414 were treated as one health plan.
       ``(D) Separate application to health insurance and long-
     term care insurance.--Subparagraphs (A) and (C) shall be 
     applied separately with respect to--
       ``(i) plans which include primarily coverage for qualified 
     long-term care services or are qualified long-term care 
     insurance contracts, and
       ``(ii) plans which do not include such coverage and are not 
     such contracts.
       ``(2) Coverage under certain federal programs.--
       ``(A) In general.--Subsection (a) shall not apply to any 
     amount paid for any coverage for an individual for any 
     calendar month if, as of the first day of such month, the 
     individual is covered under any medical care program 
     described in--
       ``(i) title XVIII, XIX, or XXI of the Social Security Act,
       ``(ii) chapter 55 of title 10, United States Code,
       ``(iii) chapter 17 of title 38, United States Code,
       ``(iv) chapter 89 of title 5, United States Code, or
       ``(v) the Indian Health Care Improvement Act.
       ``(B) Exceptions.--
       ``(i) Qualified long-term care.--Subparagraph (A) shall not 
     apply to amounts paid for coverage under a qualified long-
     term care insurance contract.
       ``(ii) Continuation coverage of fehbp.--Subparagraph 
     (A)(iv) shall not apply to coverage which is comparable to 
     continuation coverage under section 4980B.
       ``(d) Long-Term Care Deduction Limited to Qualified Long-
     Term Care Insurance Contracts.--In the case of a qualified 
     long-term care insurance contract, only eligible long-term 
     care premiums (as defined in section 213(d)(10)) may be taken 
     into account under subsection (a).
       ``(e) Special Rules.--
       ``(1) Coordination with deduction for health insurance 
     costs of self-employed individuals.--The amount taken into 
     account by the taxpayer in computing the deduction under 
     section 162(l) shall not be taken into account under this 
     section.
       ``(2) Coordination with medical expense deduction.--The 
     amount taken into account by the taxpayer in computing the 
     deduction under this section shall not be taken into account 
     under section 213.
       ``(f) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this section, 
     including regulations requiring employers to report to their 
     employees and the Secretary such information as the Secretary 
     determines to be appropriate.''
       (b) Deduction Allowed Whether or Not Taxpayer Itemizes 
     Other Deductions.--Subsection (a) of section 62 is amended by 
     inserting after paragraph (17) the following new item:
       ``(18) Health and long-term care insurance costs.--The 
     deduction allowed by section 222.''
       (c) Clerical Amendment.--The table of sections for part VII 
     of subchapter B of chapter 1 is amended by striking the last 
     item and inserting the following new items:

``Sec. 222. Health and long-term care insurance costs.
``Sec. 223. Cross reference.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 502. LONG-TERM CARE INSURANCE PERMITTED TO BE OFFERED 
                   UNDER CAFETERIA PLANS AND FLEXIBLE SPENDING 
                   ARRANGEMENTS.

       (a) Cafeteria Plans.--Subsection (f) of section 125 
     (defining qualified benefits) is amended by inserting before 
     the period at the end ``unless such product is a qualified 
     long-term care insurance contract (as defined in section 
     7702B)''.
       (b) Flexible Spending Arrangements.--Section 106 (relating 
     to contributions by employer to accident and health plans) is 
     amended by striking subsection (c).
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 503. EXPANSION OF AVAILABILITY OF MEDICAL SAVINGS 
                   ACCOUNTS.

       (a) Repeal of Limitations on Number of Medical Savings 
     Accounts.--
       (1) In general.--Subsections (i) and (j) of section 220 are 
     hereby repealed.
       (2) Conforming amendment.--Paragraph (1) of section 220(c) 
     is amended by striking subparagraph (D).
       (b) All Employers May Offer Medical Savings Accounts.--
       (1) In general.--Subclause (I) of section 220(c)(1)(A)(iii) 
     (defining eligible individual) is amended by striking ``and 
     such employer is a small employer''.
       (2) Conforming amendments.--
       (A) Paragraph (1) of section 220(c) is amended by striking 
     subparagraph (C).
       (B) Subsection (c) of section 220 is amended by striking 
     paragraph (4) and by redesignating paragraph (5) as paragraph 
     (4).
       (c) Increase in Amount of Deduction Allowed for 
     Contributions to Medical Savings Accounts.--
       (1) In general.--Paragraph (2) of section 220(b) is amended 
     to read as follows:
       ``(2) Monthly limitation.--The monthly limitation for any 
     month is the amount equal to \1/12\ of the annual deductible 
     (as of the first day of such month) of the individual's 
     coverage under the high deductible health plan.''.
       (2) Conforming amendment.--Clause (ii) of section 
     220(d)(1)(A) is amended by striking ``75 percent of''.
       (d) Both Employers and Employees May Contribute to Medical 
     Savings Accounts.--Paragraph (5) of section 220(b) is amended 
     to read as follows:
       ``(5) Coordination with exclusion for employer 
     contributions.--The limitation which would (but for this 
     paragraph) apply under this subsection to the taxpayer for 
     any taxable year shall be reduced (but not below zero) by the 
     amount which would (but for section 106(b)) be includible in 
     the taxpayer's gross income for such taxable year.''.
       (e) Reduction of Permitted Deductibles Under High 
     Deductible Health Plans.--
       (1) In general.--Subparagraph (A) of section 220(c)(2) 
     (defining high deductible health plan) is amended--
       (A) by striking ``$1,500'' in clause (i) and inserting 
     ``$1,000'', and
       (B) by striking ``$3,000'' in clause (ii) and inserting 
     ``$2,000''.
       (2) Conforming amendment.--Subsection (g) of section 220 is 
     amended to read as follows:
       ``(g) Cost-of-Living Adjustment.--
       ``(1) In general.--In the case of any taxable year 
     beginning in a calendar year after 1998, each dollar amount 
     in subsection (c)(2) 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 the calendar year in which such taxable 
     year begins by substituting `calendar year 1997' for 
     `calendar year 1992' in subparagraph (B) thereof.
       ``(2) Special rules.--In the case of the $1,000 amount in 
     subsection (c)(2)(A)(i) and the $2,000 amount in subsection 
     (c)(2)(A)(ii), paragraph (1)(B) shall be applied by 
     substituting `calendar year 1999' for `calendar year 1997'.
       ``(3) Rounding.--If any increase under paragraph (1) or (2) 
     is not a multiple of $50, such increase shall be rounded to 
     the nearest multiple of $50.
       (f) Medical Savings Accounts May Be Offered Under Cafeteria 
     Plans.--Subsection (f) of section 125 is amended by striking 
     ``106(b),''.
       (g) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 504. ADDITIONAL PERSONAL EXEMPTION FOR TAXPAYER CARING 
                   FOR ELDERLY FAMILY MEMBER IN TAXPAYER'S HOME.

       (a) In General.--Section 151 (relating to allowance of 
     deductions for personal exemptions) is amended by adding at 
     the end redesignating subsection (e) as subsection (f) and by 
     inserting

[[Page 17152]]

     after subsection (d) the following new subsection:
       ``(e) Additional Exemption for Certain Elderly Family 
     Members Residing With Taxpayer.--
       ``(1) In general.--An exemption of the exemption amount for 
     each qualified family member of the taxpayer.
       ``(2) Qualified family member.--For purposes of this 
     subsection, the term `qualified family member' means, with 
     respect to any taxable year, any individual--
       ``(A) who is an ancestor of the taxpayer or of the 
     taxpayer's spouse or who is the spouse of any such ancestor,
       ``(B) who is a member for the entire taxable year of a 
     household maintained by the taxpayer, and
       ``(C) who has been certified, before the due date for 
     filing the return of tax for the taxable year (without 
     extensions), by a physician (as defined in section 1861(r)(1) 
     of the Social Security Act) as being an individual with long-
     term care needs described in paragraph (3) for a period--
       ``(i) which is at least 180 consecutive days, and
       ``(ii) a portion of which occurs within the taxable year.
     Such term shall not include any individual otherwise meeting 
     the requirements of the preceding sentence unless within the 
     39\1/2\ month period ending on such due date (or such other 
     period as the Secretary prescribes) a physician (as so 
     defined) has certified that such individual meets such 
     requirements.
       ``(3) Individuals with long-term care needs.--An individual 
     is described in this paragraph if the individual--
       ``(A) is unable to perform (without substantial assistance 
     from another individual) at least 2 activities of daily 
     living (as defined in section 7702B(c)(2)(B)) due to a loss 
     of functional capacity, or
       ``(B) requires substantial supervision to protect such 
     individual from threats to health and safety due to severe 
     cognitive impairment and is unable to perform, without 
     reminding or cuing assistance, at least 1 activity of at 
     least 1 activity of daily living (as so defined) or to the 
     extent provided in regulations prescribed by the Secretary 
     (in consultation with the Secretary of Health and Human 
     Services), is unable to engage in age appropriate activities.
       ``(4) Special rules.--Rules similar to the rules of 
     paragraphs (1), (2), (3), (4), and (5) of section 21(e) shall 
     apply for purposes of this subsection.''
       (b) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 505. EXPANDED HUMAN CLINICAL TRIALS QUALIFYING FOR 
                   ORPHAN DRUG CREDIT.

       (a) In General.--Subclause (I) of section 45C(b)(2)(A)(ii) 
     is amended to read as follows:

       ``(I) after the date that the application is filed for 
     designation under such section 526, and''.

       (b) Conforming Amendment.--Clause (i) of section 
     45C(b)(2)(A) is amended by inserting ``which is'' before 
     ``being'' and by inserting before the comma at the end ``and 
     which is designated under section 526 of such Act''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred after December 31, 
     1999.

     SEC. 506. INCLUSION OF CERTAIN VACCINES AGAINST STREPTOCOCCUS 
                   PNEUMONIAE TO LIST OF TAXABLE VACCINES.

       (a) In General.--Section 4132(a)(1) (defining taxable 
     vaccine) is amended by adding at the end the following new 
     subparagraph:
       ``(L) Any conjugate vaccine against streptococcus 
     pneumoniae.''
       (b) Effective Date.--
       (1) Sales.--The amendment made by this section shall apply 
     to vaccine sales beginning on the day after the date on which 
     the Centers for Disease Control makes a final recommendation 
     for routine administration to children of any conjugate 
     vaccine against streptococcus pneumoniae.
       (2) Deliveries.--For purposes of paragraph (1), in the case 
     of sales on or before the date described in such paragraph 
     for which delivery is made after such date, the delivery date 
     shall be considered the sale date.
       (c) Report.--Not later than December 31, 1999, the 
     Comptroller General of the United States shall prepare and 
     submit a report to the Committee on Ways and Means of the 
     House of Representatives and the Committee on Finance of the 
     Senate on the operation of the Vaccine Injury Compensation 
     Trust Fund and on the adequacy of such Fund to meet future 
     claims made under the Vaccine Injury Compensation Program.

     SEC. 507. ABOVE-THE-LINE DEDUCTION FOR PRESCRIPTION DRUG 
                   INSURANCE COVERAGE OF MEDICARE BENEFICIARIES IF 
                   CERTAIN MEDICARE AND LOW-INCOME ASSISTANCE 
                   PROVISIONS IN EFFECT.

       (a) In General.--Subsection (a) of section 213 is amended 
     by adding at the end the following new sentence: ``The 7.5 
     percent adjusted gross income threshold in the preceding 
     sentence shall not apply to the expenses paid during the 
     taxable year for prescription drug insurance coverage of a 
     medicare beneficiary who is the taxpayer, the taxpayer's 
     spouse, or a dependent (as defined in section 152) if--
       ``(1) the Secretary certifies that, throughout such taxable 
     year, the conditions specified in subsection (e) are met, and
       ``(2) the amount paid for such coverage is either 
     separately stated in the contract or furnished to the 
     policyholder by the insurance company in a separate 
     statement.
     Expenses to which the preceding sentence applies shall not be 
     taken into account in applying such threshold to other 
     expenses. For purposes of this subsection, the term `medicare 
     beneficiary' means an individual who is entitled to benefits 
     under part A, B, or C of title XVIII of the Social Security 
     Act.''
       (b) Conditions.--Section 213 is amended by redesignating 
     subsection (e) as subsection (f) and by inserting after 
     subsection (d) the following new subsection:
       ``(e) Conditions for Separate Deduction for Prescription 
     Drug Insurance Coverage.--For purposes of subsection (a), the 
     conditions specified in this subsection are met if all of the 
     following are in effect:
       ``(1) Assistance for prescription drugs for low-income 
     medicare beneficiaries.--
       ``(A) Low-income assistance to enable the purchase of 
     coverage of prescription drugs as described in paragraph (2) 
     or (3) for medicare beneficiaries with incomes under 135 
     percent of the applicable Federal poverty level, with such 
     assistance phasing out for beneficiaries with incomes between 
     135 percent and 150 percent of such level.
       ``(B) The Federal Government provides funding for the costs 
     of such assistance.
       ``(2) Supplemental coverage of prescription drugs.--All 
     policies supplemental to Medicare include coverage for costs 
     of prescription drugs.
       ``(3) Structural medicare reform.--Coverage for outpatient 
     prescription drugs for medicare beneficiaries is provided 
     only through integrated comprehensive health plans which 
     offer current Medicare covered services and maximum 
     limitations on out-of-pocket spending and such comprehensive 
     plans sponsored by the Health Care Financing Administration 
     compete on the same basis as private plans.''
       (c) Deduction for Prescription Drug Insurance Coverage 
     Allowed Whether or Not Taxpayer Itemizes Other Deductions.--
     Subsection (a) of section 62 (defining adjusted gross income) 
     is amended by inserting after paragraph (18) the following 
     new paragraph:
       ``(19) Prescription drug insurance coverage.--The deduction 
     allowed by section 213(a) to the extent of the expenses 
     described in the second sentence thereof.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
                      TITLE VI--ESTATE TAX RELIEF
  Subtitle A--Repeal of Estate, Gift, and Generation-Skipping Taxes; 
                  Repeal of Step Up in Basis At Death

     SEC. 601. REPEAL OF ESTATE, GIFT, AND GENERATION-SKIPPING 
                   TAXES.

       (a) In General.--Subtitle B is hereby repealed.
       (b) Effective Date.--The repeal made by subsection (a) 
     shall apply to the estates of decedents dying, and gifts and 
     generation-skipping transfers made, after December 31, 2008.

     SEC. 602. TERMINATION OF STEP UP IN BASIS AT DEATH.

       (a) Termination of Application of Section 1014.--Section 
     1014 (relating to basis of property acquired from a decedent) 
     is amended by adding at the end the following:
       ``(f) Termination.--In the case of a decedent dying after 
     December 31, 2008, this section shall not apply to property 
     for which basis is provided by section 1022.''
       (b) Conforming Amendment.--Subsection (a) of section 1016 
     (relating to adjustments to basis) 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:
       ``(28) to the extent provided in section 1022 (relating to 
     basis for certain property acquired from a decedent dying 
     after December 31, 2008).''

     SEC. 603. CARRYOVER BASIS AT DEATH.

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

     ``SEC. 1022. CARRYOVER BASIS FOR CERTAIN PROPERTY ACQUIRED 
                   FROM A DECEDENT DYING AFTER DECEMBER 31, 2008.

       ``(a) Carryover Basis.--Except as otherwise provided in 
     this section, the basis of carryover basis property in the 
     hands of a person acquiring such property from a decedent 
     shall be determined under section 1015.
       ``(b) Carryover Basis Property Defined.--
       ``(1) In general.--For purposes of this section, the term 
     `carryover basis property' means any property--
       ``(A) which is acquired from or passed from a decedent who 
     died after December 31, 2008, and
       ``(B) which is not excluded pursuant to paragraph (2).
     The property taken into account under subparagraph (A) shall 
     be determined under section 1014(b) without regard to 
     subparagraph (A) of the last sentence of paragraph (9) 
     thereof.
       ``(2) Certain property not carryover basis property.--The 
     term `carryover basis property' does not include--
       ``(A) any item of gross income in respect of a decedent 
     described in section 691,
       ``(B) property which was acquired from the decedent by the 
     surviving spouse of the decedent, the value of which would 
     have been deductible from the value of the taxable estate of 
     the decedent under section 2056, as in effect on the day 
     before the date of enactment of the Financial Freedom Act of 
     1999, and

[[Page 17153]]

       ``(C) any includible property of the decedent if the 
     aggregate adjusted fair market value of such property does 
     not exceed $2,000,000.
     For purposes of this paragraph and paragraph (3), the term 
     `adjusted fair market value' means, with respect to any 
     property, fair market value reduced by any indebtedness 
     secured by such property.
       ``(3) Phasein of carryover basis if includible property 
     exceeds $1,300,000.--
       ``(A) In general.--If the adjusted fair market value of the 
     includible property of the decedent exceeds $1,300,000, but 
     does not exceed $2,000,000, the amount of the increase in the 
     basis of such property which would (but for this paragraph) 
     result under section 1014 shall be reduced by the amount 
     which bears the same ratio to such increase as such excess 
     bears to $700,000.
       ``(B) Allocation of reduction.--The reduction under 
     subparagraph (A) shall be allocated among only the includible 
     property having net appreciation and shall be allocated in 
     proportion to the respective amounts of such net 
     appreciation. For purposes of the preceding sentence, the 
     term `net appreciation' means the excess of the adjusted fair 
     market value over the decedent's adjusted basis immediately 
     before such decedent's death.
       ``(4) Includible property.--
       ``(A) In general.--For purposes of this subsection, the 
     term `includible property' means property which would be 
     included in the gross estate of the decedent under any of the 
     following provisions as in effect on the day before the date 
     of the enactment of the Financial Freedom Act of 1999:
       ``(i) Section 2033.
       ``(ii) Section 2038.
       ``(iii) Section 2040.
       ``(iv) Section 2041.
       ``(v) Section 2042(a)(1).
       ``(B) Exclusion of property acquired by spouse.--Such term 
     shall not include property described in paragraph (2)(B).
       ``(c) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this section.''
       (b) Miscellaneous Amendments Related To Carryover Basis.--
       (1) Capital gain treatment for inherited art work or 
     similar property.--
       (A) In general.--Subparagraph (C) of section 1221(3) 
     (defining capital asset) is amended by inserting ``(other 
     than by reason of section 1022)'' after ``is determined''.
       (B) Coordination with section 170.--Paragraph (1) of 
     section 170(e) (relating to certain contributions of ordinary 
     income and capital gain property) is amended by adding at the 
     end the following: ``For purposes of this paragraph, the 
     determination of whether property is a capital asset shall be 
     made without regard to the exception contained in section 
     1221(3)(C) for basis determined under section 1022.''
       (2) Definition of Executor.--Section 7701(a) (relating to 
     definitions) is amended by adding at the end the following:
       ``(47) Executor.--The term `executor' means the executor or 
     administrator of the decedent, or, if there is no executor or 
     administrator appointed, qualified, and acting within the 
     United States, then any person in actual or constructive 
     possession of any property of the decedent.''
       (3) Clerical amendment.--The table of sections for part II 
     of subchapter O of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 1022. Carryover basis for certain property acquired from a 
              decedent dying after December 31, 2008.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to estates of decedents dying after December 31, 
     2008.

  Subtitle B--Reductions of Estate and Gift Tax Rates Prior to Repeal

     SEC. 611. ADDITIONAL REDUCTIONS OF ESTATE AND GIFT TAX RATES.

       (a) Maximum Rate of Tax Reduced to 50 Percent.--
       (1) In general.--The table contained in section 2001(c)(1) 
     is amended by striking the 2 highest brackets and inserting 
     the following:

$1,025,800, plus 50% of the excess over $2,500,000.''..................
       (2) Phase-in of reduced rate.--Subsection (c) of section 
     2001 is amended by adding at the end the following new 
     paragraph:
       ``(3) Phase-in of reduced rate.--In the case of decedents 
     dying, and gifts made, during 2001, the last item in the 
     table contained in paragraph (1) shall be applied by 
     substituting `53%' for `50%' ''
       (b) Repeal of Phaseout of Graduated Rates.--Subsection (c) 
     of section 2001 is amended by striking paragraph (2) and 
     redesignating paragraph (3), as added by subsection (a), as 
     paragraph (2).
       (c) Additional Reductions of Rates of Tax.--Subsection (c) 
     of section 2001, as so amended, is amended by adding at the 
     end the following new paragraph:
       ``(3) Phasedown of tax.--In the case of estates of 
     decedents dying, and gifts made, during any calendar year 
     after 2001 and before 2009--
       ``(A) In general.--Except as provided in subparagraph (C), 
     the tentative tax under this subsection shall be determined 
     by using a table prescribed by the Secretary (in lieu of 
     using the table contained in paragraph (1)) which is the same 
     as such table; except that--
       ``(i) each of the rates of tax shall be reduced by the 
     number of percentage points determined under subparagraph 
     (B), and
       ``(ii) the amounts setting forth the tax shall be adjusted 
     to the extent necessary to reflect the adjustments under 
     clause (i).
       ``(B) Percentage points of reduction.--

``For calendar year:                The number of percentage points is:
    2003...........................................................1.0 
    2004...........................................................2.0 
    2005...........................................................3.0 
    2006...........................................................4.0 
    2007...........................................................5.5 
    2008...........................................................7.5.

       ``(C) Coordination with income tax rates.--The reductions 
     under subparagraph (A)--
       ``(i) shall not reduce any rate under paragraph (1) below 
     the lowest rate in section 1(c), and
       ``(ii) shall not reduce the highest rate under paragraph 
     (1) below the highest rate in section 1(c).
       ``(D) Coordination with credit for state death taxes.--
     Rules similar to the rules of subparagraph (A) shall apply to 
     the table contained in section 2011(b) except that the 
     Secretary shall prescribe percentage point reductions which 
     maintain the proportionate relationship (as in effect before 
     any reduction under this paragraph) between the credit under 
     section 2011 and the tax rates under subsection (c).''
       (d) Effective Dates.--
       (1) Subsections (a) and (b).--The amendments made by 
     subsections (a) and (b) shall apply to estates of decedents 
     dying, and gifts made, after December 31, 2000.
       (2) Subsection (c).--The amendment made by subsection (c) 
     shall apply to estates of decedents dying, and gifts made, 
     after December 31, 2004.

   Subtitle C--Unified Credit Replaced With Unified Exemption Amount

     SEC. 621. UNIFIED CREDIT AGAINST ESTATE AND GIFT TAXES 
                   REPLACED WITH UNIFIED EXEMPTION AMOUNT.

       (a) In General.--
       (1) Estate tax.--Part IV of subchapter A of chapter 11 is 
     amended by inserting after section 2051 the following new 
     section:

     ``SEC. 2052. EXEMPTION.

       ``(a) In general.--For purposes of the tax imposed by 
     section 2001, the value of the taxable estate shall be 
     determined by deducting from the value of the gross estate an 
     amount equal to the excess (if any) of--
       ``(1) the exemption amount for the calendar year in which 
     the decedent died, over
       ``(2) the sum of--
       ``(A) the aggregate amount allowed as an exemption under 
     section 2521 with respect to gifts made by the decedent after 
     December 31, 2000, and
       ``(B) the aggregate amount of gifts made by the decedent 
     for which credit was allowed by section 2505 (as in effect on 
     the day before the date of the enactment of the Financial 
     Freedom Act of 1999).
     Gifts which are includible in the gross estate of the 
     decedent shall not be taken into account in determining the 
     amounts under paragraph (2).
       ``(b) Exemption Amount.--For purposes of subsection (a), 
     the term `exemption amount' means the amount determined in 
     accordance with the following table:

``In the case of calendar year:                The exemption amount is:
      2001....................................................$675,000 
      2002 and 2003...........................................$700,000 
      2004....................................................$850,000 
      2005....................................................$950,000 
      2006 or thereafter..................................$1,000,000.''

       (2) Gift tax.--Subchapter C of chapter 12 (relating to 
     deductions) is amended by inserting before section 2522 the 
     following new section:

     ``SEC. 2521. EXEMPTION.

       ``(a) In General.--In computing taxable gifts for any 
     calendar year, there shall be allowed as a deduction in the 
     case of a citizen or resident of the United States an amount 
     equal to the excess of--
       ``(1) the exemption amount determined under section 2052 
     for such calendar year, over
       ``(2) the sum of--
       ``(A) the aggregate amount allowed as an exemption under 
     this section for all preceding calendar years after 2000, and
       ``(B) the aggregate amount of gifts for which credit was 
     allowed by section 2505 (as in effect on the day before the 
     date of the enactment of the Financial Freedom Act of 
     1999).''
       (b) Repeal of Unified Credits.--
       (1) Section 2010 (relating to unified credit against estate 
     tax) is hereby repealed.
       (2) Section 2505 (relating to unified credit against gift 
     tax) is hereby repealed.
       (c) Conforming Amendments.--
       (1)(A) Subparagraph (B) of section 2001(b)(1) is amended by 
     inserting before the comma ``reduced by the amount of 
     described in section 2052(a)(2)''.
       (B) Subsection (b) of section 2001 is amended by adding at 
     the end the following new sentence: ``For purposes of 
     paragraph (2), the amount of the tax payable under chapter 12 
     shall be determined without regard to the credit provided by 
     section 2505 (as in effect on the day before the date of the 
     enactment of the Financial Freedom Act of 1999).''
       (2) Subsection (f) of section 2011 is amended by striking 
     ``, reduced by the amount of the unified credit provided by 
     section 2010''.
       (3) Subsection (a) of section 2012 is amended by striking 
     ``and the unified credit provided by section 2010''.
       (4) Subsection (b) of section 2013 is amended by inserting 
     before the period at the end of the first sentence ``and 
     increased by the exemption allowed under section 2052 or 
     2106(a)(4) (or the corresponding provisions of prior law) in 
     determining the taxable estate of the transferor for purposes 
     of the estate tax''.

[[Page 17154]]

       (5) Subparagraph (A) of section 2013(c)(1) is amended by 
     striking ``2010,''.
       (6) Paragraph (2) of section 2014(b) is amended by striking 
     ``2010,''.
       (7) Clause (ii) of section 2056A(b)(12)(C) is amended to 
     read as follows:
       ``(ii) to treat any reduction in the tax imposed by 
     paragraph (1)(A) by reason of the credit allowable under 
     section 2010 (as in effect on the day before the date of the 
     enactment of the Financial Freedom Act of 1999) or the 
     exemption allowable under section 2052 with respect to the 
     decedent as such a credit or exemption (as the case may be) 
     allowable to such surviving spouse for purposes of 
     determining the amount of the exemption allowable under 
     section 2521 with respect to taxable gifts made by the 
     surviving spouse during the year in which the spouse becomes 
     a citizen or any subsequent year,''.
       (8) Section 2102 is amended by striking subsection (c).
       (9) Subsection (a) of section 2106 is amended by adding at 
     the end the following new paragraph:
       ``(4) Exemption.--
       ``(A) In general.--An exemption of $60,000.
       ``(B) Residents of possessions of the United States.--In 
     the case of a decedent who is considered to be a nonresident 
     not a citizen of the United States under section 2209, the 
     exemption under this paragraph shall be the greater of--
       ``(i) $60,000, or
       ``(ii) that proportion of $175,000 which the value of that 
     part of the decedent's gross estate which at the time of his 
     death is situated in the United States bears to the value of 
     his entire gross estate wherever situated.
       ``(C) Special rules.--
       ``(i) Coordination with treaties.--To the extent required 
     under any treaty obligation of the United States, the 
     exemption allowed under this paragraph shall be equal to the 
     amount which bears the same ratio to the exemption amount 
     under section 2052 (for the calendar year in which the 
     decedent died) as the value of the part of the decedent's 
     gross estate which at the time of his death is situated in 
     the United States bears to the value of his entire gross 
     estate wherever situated. For purposes of the preceding 
     sentence, property shall not be treated as situated in the 
     United States if such property is exempt from the tax imposed 
     by this subchapter under any treaty obligation of the United 
     States.
       ``(ii) Coordination with gift tax exemption and unified 
     credit.--If an exemption has been allowed under section 2521 
     (or a credit has been allowed under section 2505 as in effect 
     on the day before the date of the enactment of the Financial 
     Freedom Act of 1999) with respect to any gift made by the 
     decedent, each dollar amount contained in subparagraph (A) or 
     (B) or the exemption amount applicable under clause (i) of 
     this subparagraph (whichever applies) shall be reduced by the 
     exemption so allowed under 2521 (or, in the case of such a 
     credit, by the amount of the gift for which the credit was so 
     allowed).''
       (10) Subsection (c) of section 2107 is amended--
       (A) by striking paragraph (1) and by redesignating 
     paragraphs (2) and (3) as paragraphs (1) and (2), 
     respectively, and
       (B) by striking the second sentence of paragraph (2) (as so 
     redesignated).
       (11) Section 2206 is amended by striking ``the taxable 
     estate'' in the first sentence and inserting ``the sum of the 
     taxable estate and the amount of the exemption allowed under 
     section 2052 or 2106(a)(4) in computing the taxable estate''.
       (12) Section 2207 is amended by striking ``the taxable 
     estate'' in the first sentence and inserting ``the sum of the 
     taxable estate and the amount of the exemption allowed under 
     section 2052 or 2106(a)(4) in computing the taxable estate''.
       (13) Subparagraph (B) of section 2207B(a)(1) is amended to 
     read as follows:
       ``(B) the sum of the taxable estate and the amount of the 
     exemption allowed under section 2052 or 2106(a)(4) in 
     computing the taxable estate.''
       (14) Subsection (a) of section 2503 is amended by striking 
     ``section 2522'' and inserting ``section 2521''.
       (15) Paragraph (1) of section 6018(a) is amended by 
     striking ``$600,000'' and inserting ``the exemption amount 
     under section 2052 for the calendar year which includes the 
     date of death''.
       (16) Subparagraph (A) of section 6601(j)(2) is amended to 
     read as follows:
       ``(A) the amount of the tax which would be imposed by 
     chapter 11 on an amount of taxable estate equal to the excess 
     of $1,000,000 over the exemption amount allowable under 
     section 2052, or''.
       (17) The table of sections for part II of subchapter A of 
     chapter 11 is amended by striking the item relating to 
     section 2010.
       (18) The table of sections for subchapter A of chapter 12 
     is amended by striking the item relating to section 2505.
       (d) Effective Date.--The amendments made by this section--
       (1) insofar as they relate to the tax imposed by chapter 11 
     of the Internal Revenue Code of 1986, shall apply to estates 
     of decedents dying after December 31, 2000, and
       (2) insofar as they relate to the tax imposed by chapter 12 
     of such Code, shall apply to gifts made after December 31, 
     2000.

     Subtitle D--Modifications of Generation-Skipping Transfer Tax

     SEC. 631. DEEMED ALLOCATION OF GST EXEMPTION TO LIFETIME 
                   TRANSFERS TO TRUSTS; RETROACTIVE ALLOCATIONS.

       (a) In General.--Section 2632 (relating to special rules 
     for allocation of GST exemption) is amended by redesignating 
     subsection (c) as subsection (e) and by inserting after 
     subsection (b) the following new subsections:
       ``(c) Deemed Allocation to Certain Lifetime Transfers to 
     GST Trusts.--
       ``(1) In general.--If any individual makes an indirect skip 
     during such individual's lifetime, any unused portion of such 
     individual's GST exemption shall be allocated to the property 
     transferred to the extent necessary to make the inclusion 
     ratio for such property zero. If the amount of the indirect 
     skip exceeds such unused portion, the entire unused portion 
     shall be allocated to the property transferred.
       ``(2) Unused portion.--For purposes of paragraph (1), the 
     unused portion of an individual's GST exemption is that 
     portion of such exemption which has not previously been--
       ``(A) allocated by such individual,
       ``(B) treated as allocated under subsection (b) with 
     respect to a direct skip occurring during or before the 
     calendar year in which the indirect skip is made, or
       ``(C) treated as allocated under paragraph (1) with respect 
     to a prior indirect skip.
       ``(3) Definitions.--
       ``(A) Indirect skip.--For purposes of this subsection, the 
     term `indirect skip' means any transfer of property (other 
     than a direct skip) subject to the tax imposed by chapter 12 
     made to a GST trust.
       ``(B) GST trust.--The term `GST trust' means a trust that 
     could have a generation-skipping transfer with respect to the 
     transferor unless--
       ``(i) the trust instrument provides that more than 25 
     percent of the trust corpus must be distributed to or may be 
     withdrawn by 1 or more individuals who are non-skip persons--

       ``(I) before the date that the individual attains age 46,
       ``(II) on or before 1 or more dates specified in the trust 
     instrument that will occur before the date that such 
     individual attains age 46, or
       ``(III) upon the occurrence of an event that, in accordance 
     with regulations prescribed by the Secretary, may reasonably 
     be expected to occur before the date that such individual 
     attains age 46;

       ``(ii) the trust instrument provides that more than 25 
     percent of the trust corpus must be distributed to or may be 
     withdrawn by 1 or more individuals who are non-skip persons 
     and who are living on the date of death of another person 
     identified in the instrument (by name or by class) who is 
     more than 10 years older than such individuals;
       ``(iii) the trust instrument provides that, if 1 or more 
     individuals who are non-skip persons die on or before a date 
     or event described in clause (i) or (ii), more than 25 
     percent of the trust corpus either must be distributed to the 
     estate or estates of 1 or more of such individuals or is 
     subject to a general power of appointment exercisable by 1 or 
     more of such individuals;
       ``(iv) the trust is a trust any portion of which would be 
     included in the gross estate of a non-skip person (other than 
     the transferor) if such person died immediately after the 
     transfer;
       ``(v) the trust is a charitable lead annuity trust (within 
     the meaning of section 2642(e)(3)(A)) or a charitable 
     remainder annuity trust or a charitable remainder unitrust 
     (within the meaning of section 664(d)); or
       ``(vi) the trust is a trust with respect to which a 
     deduction was allowed under section 2522 for the amount of an 
     interest in the form of the right to receive annual payments 
     of a fixed percentage of the net fair market value of the 
     trust property (determined yearly) and which is required to 
     pay principal to a non-skip person if such person is alive 
     when the yearly payments for which the deduction was allowed 
     terminate.
     For purposes of this subparagraph, the value of transferred 
     property shall not be considered to be includible in the 
     gross estate of a non-skip person or subject to a right of 
     withdrawal by reason of such person holding a right to 
     withdraw so much of such property as does not exceed the 
     amount referred to in section 2503(b) with respect to any 
     transferor, and it shall be assumed that powers of 
     appointment held by non-skip persons will not be exercised.
       ``(4) Automatic allocations to certain gst trusts.--For 
     purposes of this subsection, an indirect skip to which 
     section 2642(f) applies shall be deemed to have been made 
     only at the close of the estate tax inclusion period. The 
     fair market value of such transfer shall be the fair market 
     value of the trust property at the close of the estate tax 
     inclusion period.
       ``(5) Applicability and effect.--
       ``(A) In general.--An individual--
       ``(i) may elect to have this subsection not apply to--

       ``(I) an indirect skip, or
       ``(II) any or all transfers made by such individual to a 
     particular trust, and

       ``(ii) may elect to treat any trust as a GST trust for 
     purposes of this subsection with respect to any or all 
     transfers made by such individual to such trust.
       ``(B) Elections.--
       ``(i) Elections with respect to indirect skips.--An 
     election under subparagraph (A)(i)(I) shall be deemed to be 
     timely if filed on a timely filed gift tax return for the 
     calendar year in which the transfer was made or deemed to 
     have been made pursuant to paragraph (4) or on such later 
     date or dates as may be prescribed by the Secretary.
       ``(ii) Other elections.--An election under clause (i)(II) 
     or (ii) of subparagraph (A) may be

[[Page 17155]]

     made on a timely filed gift tax return for the calendar year 
     for which the election is to become effective.
       ``(d) Retroactive Allocations.--
       ``(1) In general.--If--
       ``(A) a non-skip person has an interest or a future 
     interest in a trust to which any transfer has been made,
       ``(B) such person--
       ``(i) is a lineal descendant of a grandparent of the 
     transferor or of a grandparent of the transferor's spouse or 
     former spouse, and
       ``(ii) is assigned to a generation below the generation 
     assignment of the transferor, and
       ``(C) such person predeceases the transferor,
     then the transferor may make an allocation of any of such 
     transferor's unused GST exemption to any previous transfer or 
     transfers to the trust on a chronological basis.
       ``(2) Special rules.--If the allocation under paragraph (1) 
     by the transferor is made on a gift tax return filed on or 
     before the date prescribed by section 6075(b) for gifts made 
     within the calendar year within which the non-skip person's 
     death occurred--
       ``(A) the value of such transfer or transfers for purposes 
     of section 2642(a) shall be determined as if such allocation 
     had been made on a timely filed gift tax return for each 
     calendar year within which each transfer was made,
       ``(B) such allocation shall be effective immediately before 
     such death, and
       ``(C) the amount of the transferor's unused GST exemption 
     available to be allocated shall be determined immediately 
     before such death.
       ``(3) Future interest.--For purposes of this subsection, a 
     person has a future interest in a trust if the trust may 
     permit income or corpus to be paid to such person on a date 
     or dates in the future.''.
       (b) Conforming Amendment.--Paragraph (2) of section 2632(b) 
     is amended by striking ``with respect to a direct skip'' and 
     inserting ``or subsection (c)(1)''.
       (c) Effective Dates.--
       (1) Deemed allocation.--Section 2632(c) of the Internal 
     Revenue Code of 1986 (as added by subsection (a)), and the 
     amendment made by subsection (b), shall apply to transfers 
     subject to chapter 11 or 12 made after December 31, 1999, and 
     to estate tax inclusion periods ending after December 31, 
     1999.
       (2) Retroactive allocations.--Section 2632(d) of the 
     Internal Revenue Code of 1986 (as added by subsection (a)) 
     shall apply to deaths of non-skip persons occurring after the 
     date of the enactment of this Act.

     SEC. 632. SEVERING OF TRUSTS.

       (a) In General.--Subsection (a) of section 2642 (relating 
     to inclusion ratio) is amended by adding at the end the 
     following new paragraph:
       ``(3) Severing of trusts.--
       ``(A) In general.--If a trust is severed in a qualified 
     severance, the trusts resulting from such severance shall be 
     treated as separate trusts thereafter for purposes of this 
     chapter.
       ``(B) Qualified severance.--For purposes of subparagraph 
     (A)--
       ``(i) In general.--The term `qualified severance' means the 
     division of a single trust and the creation (by any means 
     available under the governing instrument or under local law) 
     of 2 or more trusts if--

       ``(I) the single trust was divided on a fractional basis, 
     and
       ``(II) the terms of the new trusts, in the aggregate, 
     provide for the same succession of interests of beneficiaries 
     as are provided in the original trust.

       ``(ii) Trusts with inclusion ratio greater than zero.--If a 
     trust has an inclusion ratio of greater than zero and less 
     than 1, a severance is a qualified severance only if the 
     single trust is divided into 2 trusts, one of which receives 
     a fractional share of the total value of all trust assets 
     equal to the applicable fraction of the single trust 
     immediately before the severance. In such case, the trust 
     receiving such fractional share shall have an inclusion ratio 
     of zero and the other trust shall have an inclusion ratio of 
     1.
       ``(iii) Regulations.--The term `qualified severance' 
     includes any other severance permitted under regulations 
     prescribed by the Secretary.
       ``(C) Timing and manner of severances.--A severance 
     pursuant to this paragraph may be made at any time. The 
     Secretary shall prescribe by forms or regulations the manner 
     in which the qualified severance shall be reported to the 
     Secretary.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to severances after the date of the enactment of 
     this Act.

     SEC. 633. MODIFICATION OF CERTAIN VALUATION RULES.

       (a) Gifts for Which Gift Tax Return Filed or Deemed 
     Allocation Made.--Paragraph (1) of section 2642(b) (relating 
     to valuation rules, etc.) is amended to read as follows:
       ``(1) Gifts for which gift tax return filed or deemed 
     allocation made.--If the allocation of the GST exemption to 
     any transfers of property is made on a gift tax return filed 
     on or before the date prescribed by section 6075(b) for such 
     transfer or is deemed to be made under section 2632 (b)(1) or 
     (c)(1)--
       ``(A) the value of such property for purposes of subsection 
     (a) shall be its value as finally determined for purposes of 
     chapter 12 (within the meaning of section 2001(f)(2)), or, in 
     the case of an allocation deemed to have been made at the 
     close of an estate tax inclusion period, its value at the 
     time of the close of the estate tax inclusion period, and
       ``(B) such allocation shall be effective on and after the 
     date of such transfer, or, in the case of an allocation 
     deemed to have been made at the close of an estate tax 
     inclusion period, on and after the close of such estate tax 
     inclusion period.''.
       (b) Transfers at Death.--Subparagraph (A) of section 
     2642(b)(2) is amended to read as follows:
       ``(A) Transfers at death.--If property is transferred as a 
     result of the death of the transferor, the value of such 
     property for purposes of subsection (a) shall be its value as 
     finally determined for purposes of chapter 11; except that, 
     if the requirements prescribed by the Secretary respecting 
     allocation of post-death changes in value are not met, the 
     value of such property shall be determined as of the time of 
     the distribution concerned.''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the amendments made by 
     section 1431 of the Tax Reform Act of 1986.

     SEC. 634. RELIEF PROVISIONS.

       (a) In General.--Section 2642 is amended by adding at the 
     end the following new subsection:
       ``(g) Relief Provisions.--
       ``(1) Relief for late elections.--
       ``(A) In general.--The Secretary shall by regulation 
     prescribe such circumstances and procedures under which 
     extensions of time will be granted to make--
       ``(i) an allocation of GST exemption described in paragraph 
     (1) or (2) of subsection (b), and
       ``(ii) an election under subsection (b)(3) or (c)(5) of 
     section 2632.

     Such regulations shall include procedures for requesting 
     comparable relief with respect to transfers made before the 
     date of enactment of this paragraph.
       ``(B) Basis for determinations.--In determining whether to 
     grant relief under this paragraph, the Secretary shall take 
     into account all relevant circumstances, including evidence 
     of intent contained in the trust instrument or instrument of 
     transfer and such other factors as the Secretary deems 
     relevant. For purposes of determining whether to grant relief 
     under this paragraph, the time for making the allocation (or 
     election) shall be treated as if not expressly prescribed by 
     statute.
       ``(2) Substantial compliance.--An allocation of GST 
     exemption under section 2632 that demonstrates an intent to 
     have the lowest possible inclusion ratio with respect to a 
     transfer or a trust shall be deemed to be an allocation of so 
     much of the transferor's unused GST exemption as produces the 
     lowest possible inclusion ratio. In determining whether there 
     has been substantial compliance, all relevant circumstances 
     shall be taken into account, including evidence of intent 
     contained in the trust instrument or instrument of transfer 
     and such other factors as the Secretary deems relevant.''.
       (b) Effective Dates.--
       (1) Relief for late elections.--Section 2642(g)(1) of the 
     Internal Revenue Code of 1986 (as added by subsection (a)) 
     shall apply to requests pending on, or filed after, the date 
     of the enactment of this Act.
       (2) Substantial compliance.--Section 2642(g)(2) of such 
     Code (as so added) shall take effect on the date of the 
     enactment of this Act and shall apply to allocations made 
     prior to such date for purposes of determining the tax 
     consequences of generation-skipping transfers with respect to 
     which the period of time for filing claims for refund has not 
     expired. No negative implication is intended with respect to 
     the availability of relief for late elections or the 
     application of a rule of substantial compliance prior to the 
     enactment of this amendment.

    TITLE VII--TAX RELIEF FOR DISTRESSED COMMUNITIES AND INDUSTRIES

           Subtitle A--American Community Renewal Act of 1999

     SEC. 701. SHORT TITLE.

       This subtitle may be cited as the ``American Community 
     Renewal Act of 1999''.

     SEC. 702. DESIGNATION OF AND TAX INCENTIVES FOR RENEWAL 
                   COMMUNITIES.

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

                  ``Subchapter X--Renewal Communities

``Part I.   Designation.
``Part II.  Renewal community capital gain; renewal community business.
``Part III. Family development accounts.
``Part IV.  Additional incentives.

                         ``PART I--DESIGNATION

``Sec. 1400E. Designation of renewal communities.

     ``SEC. 1400E. DESIGNATION OF RENEWAL COMMUNITIES.

       ``(a) Designation.--
       ``(1) Definitions.--For purposes of this title, the term 
     `renewal community' 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 community (hereinafter in this 
     section referred to as a `nominated area'); and
       ``(B) which the Secretary of Housing and Urban Development 
     designates as a renewal community, after consultation with--
       ``(i) the Secretaries of Agriculture, Commerce, Labor, and 
     the Treasury; the Director of the Office of Management and 
     Budget; and the Administrator of the Small Business 
     Administration; and
       ``(ii) in the case of an area on an Indian reservation, the 
     Secretary of the Interior.
       ``(2) Number of designations.--
       ``(A) In general.--The Secretary of Housing and Urban 
     Development may designate not more than 20 nominated areas as 
     renewal communities.

[[Page 17156]]

       ``(B) Minimum designation in rural areas.--Of the areas 
     designated under paragraph (1), at least 4 must be areas--
       ``(i) which are within a local government jurisdiction or 
     jurisdictions with a population of less than 50,000,
       ``(ii) which are outside of a metropolitan statistical area 
     (within the meaning of section 143(k)(2)(B)), or
       ``(iii) which are determined by the Secretary of Housing 
     and Urban Development, after consultation with the Secretary 
     of Commerce, to be rural areas.
       ``(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 
     communities 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 (c)(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 
     Secretary of Housing and Urban Development determines that 
     the course of action described in subsection (d)(2) with 
     respect to such area is inadequate.
       ``(C) Priority for empowerment zones and enterprise 
     communities with respect to first half of designations.--With 
     respect to the first 10 designations made under this 
     section--
       ``(i) all shall be chosen from nominated areas which are 
     empowerment zones or enterprise communities (and are 
     otherwise eligible for designation under this section); and
       ``(ii) 2 shall be areas described in paragraph (2)(B).
       ``(4) Limitation on designations.--
       ``(A) Publication of regulations.--The Secretary of Housing 
     and Urban Development shall prescribe by regulation no later 
     than 4 months after the date of the enactment of this 
     section, after consultation with the officials described in 
     paragraph (1)(B)--
       ``(i) the procedures for nominating an area under paragraph 
     (1)(A);
       ``(ii) the parameters relating to the size and population 
     characteristics of a renewal community; and
       ``(iii) the manner in which nominated areas will be 
     evaluated based on the criteria specified in subsection (d).
       ``(B) Time limitations.--The Secretary of Housing and Urban 
     Development may designate nominated areas as renewal 
     communities only during the 24-month period beginning on the 
     first day of the first month following the month in which the 
     regulations described in subparagraph (A) are prescribed.
       ``(C) Procedural rules.--The Secretary of Housing and Urban 
     Development shall not make any designation of a nominated 
     area as a renewal community 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 
     community;
       ``(II) to make the State and local commitments described in 
     subsection (d); and
       ``(III) to provide assurances satisfactory to the Secretary 
     of Housing and Urban Development 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 Secretary of Housing and Urban 
     Development shall by regulation prescribe; and
       ``(iii) the Secretary of Housing and Urban Development 
     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.
       ``(b) Period for Which Designation Is in Effect.--
       ``(1) In general.--Any designation of an area as a renewal 
     community shall remain in effect during the period beginning 
     on the date of the designation and ending on the earliest 
     of--
       ``(A) December 31, 2007,
       ``(B) the termination date designated by the State and 
     local governments in their nomination, or
       ``(C) the date the Secretary of Housing and Urban 
     Development revokes such designation.
       ``(2) Revocation of designation.--The Secretary of Housing 
     and Urban Development 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 (d).
       ``(c) Area and Eligibility Requirements.--
       ``(1) In general.--The Secretary of Housing and Urban 
     Development may designate a nominated area as a renewal 
     community under subsection (a) 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 at least--

       ``(I) 4,000 if any portion of such area (other than a rural 
     area described in subsection (a)(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 (and the Secretary 
     of Housing and Urban Development, after such review of 
     supporting data as he 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 high incidence of crime.--The 
     Secretary of Housing and Urban Development shall take into 
     account, in selecting nominated areas for designation as 
     renewal communities under this section, the extent to which 
     such areas have a high incidence of crime.
       ``(5) Consideration of communities identified in gao 
     study.--The Secretary of Housing and Urban Development shall 
     take into account, in selecting nominated areas for 
     designation as renewal communities under this section, if the 
     area has census tracts identified in the May 12, 1998, report 
     of the Government Accounting Office regarding the 
     identification of economically distressed areas.
       ``(d) Required State and Local Commitments.--
       ``(1) In general.--The Secretary of Housing and Urban 
     Development may designate any nominated area as a renewal 
     community under subsection (a) only if--
       ``(A) 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 community, 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; 
     and
       ``(B) the economic growth promotion requirements of 
     paragraph (3) are met.
       ``(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 five of the following:
       ``(i) A reduction of tax rates or fees applying within the 
     renewal community.
       ``(ii) An increase in the level of efficiency of local 
     services within the renewal community.
       ``(iii) Crime reduction strategies, such as crime 
     prevention (including the provision of such services by 
     nongovernmental entities).
       ``(iv) Actions to reduce, remove, simplify, or streamline 
     governmental requirements applying within the renewal 
     community.
       ``(v) Involvement in the program by private entities, 
     organizations, neighborhood organizations, and community 
     groups, particularly those in the renewal community, 
     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 community.
       ``(vi) State or local income tax benefits for fees paid for 
     services performed by a nongovernmental entity which were 
     formerly performed by a governmental entity.
       ``(vii) 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 community 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 Secretary of Housing and Urban 
     Development 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.
       ``(3) Economic growth promotion requirements.--The economic 
     growth promotion requirements of this paragraph are met with 
     respect to a nominated area if the local government and the 
     State in which such area is located certify in writing that 
     such government

[[Page 17157]]

     and State, respectively, have repealed or otherwise will not 
     enforce within the area, if such area is designated as a 
     renewal community--
       ``(A) licensing requirements for occupations that do not 
     ordinarily require a professional degree;
       ``(B) zoning restrictions on home-based businesses which do 
     not create a public nuisance;
       ``(C) permit requirements for street vendors who do not 
     create a public nuisance;
       ``(D) zoning or other restrictions that impede the 
     formation of schools or child care centers; and
       ``(E) franchises or other restrictions on competition for 
     businesses providing public services, including but not 
     limited to taxicabs, jitneys, cable television, or trash 
     hauling,

     except to the extent that such regulation of businesses and 
     occupations is necessary for and well-tailored to the 
     protection of health and safety.
       ``(e) Coordination With Treatment of Empowerment Zones and 
     Enterprise Communities.--For purposes of this title, if there 
     are in effect with respect to the same area both--
       ``(1) a designation as a renewal community; and
       ``(2) a designation as an empowerment zone or enterprise 
     community,
     both of such designations shall be given full effect with 
     respect to such area.
       ``(f) Definitions and Special Rules.--For purposes of this 
     subchapter--
       ``(1) Governments.--If more than one government seeks to 
     nominate an area as a renewal community, any reference to, or 
     requirement of, this section shall apply to all such 
     governments.
       ``(2) State.--The term `State' includes Puerto Rico, the 
     Virgin Islands of the United States, Guam, American Samoa, 
     the Northern Mariana Islands, and any other possession of the 
     United States.
       ``(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;
       ``(B) any combination of political subdivisions described 
     in subparagraph (A) recognized by the Secretary of Housing 
     and Urban Development; and
       ``(C) the District of Columbia.
       ``(4) Application of rules relating to census tracts and 
     census data.--The rules of sections 1392(b)(4) and 1393(a)(9) 
     shall apply.

 ``PART II--RENEWAL COMMUNITY CAPITAL GAIN; RENEWAL COMMUNITY BUSINESS

``Sec. 1400F. Renewal community capital gain.
``Sec. 1400G. Renewal community business defined.

     ``SEC. 1400F. RENEWAL COMMUNITY CAPITAL GAIN.

       ``(a) General Rule.--Gross income does not include any 
     qualified capital gain recognized on the sale or exchange of 
     a qualified community asset held for more than 5 years.
       ``(b) Qualified Community Asset.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified community asset' 
     means--
       ``(A) any qualified community stock;
       ``(B) any qualified community partnership interest; and
       ``(C) any qualified community business property.
       ``(2) Qualified community stock.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `qualified community stock' means any stock in a 
     domestic corporation if--
       ``(i) such stock is acquired by the taxpayer after December 
     31, 2000, and before January 1, 2008, 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 a renewal community business (or, in the case 
     of a new corporation, such corporation was being organized 
     for purposes of being a renewal community business); and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such stock, such corporation qualified as a 
     renewal community business.
       ``(B) Redemptions.--A rule similar to the rule of section 
     1202(c)(3) shall apply for purposes of this paragraph.
       ``(3) Qualified community partnership interest.--The term 
     `qualified community partnership interest' means any capital 
     or profits interest in a domestic partnership if--
       ``(A) such interest is acquired by the taxpayer after 
     December 31, 2000, and before January 1, 2008;
       ``(B) as of the time such interest was acquired, such 
     partnership was a renewal community business (or, in the case 
     of a new partnership, such partnership was being organized 
     for purposes of being a renewal community business); and
       ``(C) during substantially all of the taxpayer's holding 
     period for such interest, such partnership qualified as a 
     renewal community business.

     A rule similar to the rule of paragraph (2)(B) shall apply 
     for purposes of this paragraph.
       ``(4) Qualified community business property.--
       ``(A) In general.--The term `qualified community business 
     property' means tangible property if--
       ``(i) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)) after December 31, 
     2000, and before January 1, 2008;
       ``(ii) the original use of such property in the renewal 
     community commences with the taxpayer; and
       ``(iii) during substantially all of the taxpayer's holding 
     period for such property, substantially all of the use of 
     such property was in a renewal community 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 (within the 
     meaning of section 1400B(b)(4)(B)(ii)) by the taxpayer before 
     January 1, 2008; and
       ``(ii) any land on which such property is located.
       ``(c) Certain Rules To Apply.--Rules similar to the rules 
     of paragraphs (5), (6), and (7) of subsection (b), and 
     subsections (e), (f), and (g), of section 1400B shall apply 
     for purposes of this section.

     ``SEC. 1400G. RENEWAL COMMUNITY BUSINESS DEFINED.

       ``For purposes of this part, the term `renewal community 
     business' means any entity or proprietorship which would be a 
     qualified business entity or qualified proprietorship under 
     section 1397B if--
       ``(1) references to renewal communities were substituted 
     for references to empowerment zones in such section; and
       ``(2) `80 percent' were substituted for `50 percent' in 
     subsections (b)(2) and (c)(1) of such section.

                ``PART III--FAMILY DEVELOPMENT ACCOUNTS

``Sec. 1400H. Family development accounts for renewal community EITC 
              recipients.
``Sec. 1400I. Demonstration program to provide matching contributions 
              to family development accounts in certain renewal 
              communities.
``Sec. 1400J. Designation of earned income tax credit payments for 
              deposit to family development account.

     ``SEC. 1400H. FAMILY DEVELOPMENT ACCOUNTS FOR RENEWAL 
                   COMMUNITY EITC RECIPIENTS.

       ``(a) Allowance of Deduction.--
       ``(1) In general.--There shall be allowed as a deduction--
       ``(A) in the case of a qualified individual, the amount 
     paid in cash for the taxable year by such individual to any 
     family development account for such individual's benefit; and
       ``(B) in the case of any person other than a qualified 
     individual, the amount paid in cash for the taxable year by 
     such person to any family development account for the benefit 
     of a qualified individual but only if the amount so paid is 
     designated for purposes of this section by such individual.

     No deduction shall be allowed under this paragraph for any 
     amount deposited in a family development account under 
     section 1400I (relating to demonstration program to provide 
     matching amounts in renewal communities).
       ``(2) Limitation.--
       ``(A) In general.--The amount allowable as a deduction to 
     any individual for any taxable year by reason of paragraph 
     (1)(A) shall not exceed the lesser of--
       ``(i) $2,000, or
       ``(ii) an amount equal to the compensation includible in 
     the individual's gross income for such taxable year.
       ``(B) Persons donating to family development accounts of 
     others.--The amount which may be designated under paragraph 
     (1)(B) by any qualified individual for any taxable year of 
     such individual shall not exceed $1,000.
       ``(3) Special rules for certain married individuals.--Rules 
     similar to rules of section 219(c) shall apply to the 
     limitation in paragraph (2)(A).
       ``(4) Coordination with iras.--No deduction shall be 
     allowed under this section for any taxable year to any person 
     by reason of a payment to an account for the benefit of a 
     qualified individual if any amount is paid for such taxable 
     year into an individual retirement account (including a Roth 
     IRA) for the benefit of such individual.
       ``(5) Rollovers.--No deduction shall be allowed under this 
     section with respect to any rollover contribution.
       ``(b) Tax Treatment of Distributions.--
       ``(1) Inclusion of amounts in gross income.--Except as 
     otherwise provided in this subsection, any amount paid or 
     distributed out of a family development account shall be 
     included in gross income by the payee or distributee, as the 
     case may be.
       ``(2) Exclusion of qualified family development 
     distributions.--Paragraph (1) shall not apply to any 
     qualified family development distribution.
       ``(c) Qualified Family Development Distribution.--For 
     purposes of this section--
       ``(1) In general.--The term `qualified family development 
     distribution' means any amount paid or distributed out of a 
     family development account which would otherwise be 
     includible in gross income, to the extent that such payment 
     or distribution is used exclusively to pay qualified family 
     development expenses for the holder of the account or the 
     spouse or dependent (as defined in section 152) of such 
     holder.
       ``(2) Qualified family development expenses.--The term 
     `qualified family development expenses' means any of the 
     following:
       ``(A) Qualified higher education expenses.

[[Page 17158]]

       ``(B) Qualified first-time homebuyer costs.
       ``(C) Qualified business capitalization costs.
       ``(D) Qualified medical expenses.
       ``(E) Qualified rollovers.
       ``(3) Qualified higher education expenses.--
       ``(A) In general.--The term `qualified higher education 
     expenses' has the meaning given such term by section 
     72(t)(7), determined by treating postsecondary vocational 
     educational schools as eligible educational institutions.
       ``(B) 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 section.
       ``(C) 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).
       ``(4) Qualified first-time homebuyer costs.--The term 
     `qualified first-time homebuyer costs' means qualified 
     acquisition costs (as defined in section 72(t)(8) without 
     regard to subparagraph (B) thereof) with respect to a 
     principal residence (within the meaning of section 121) for a 
     qualified first-time homebuyer (as defined in section 
     72(t)(8)).
       ``(5) Qualified business capitalization costs.--
       ``(A) In general.--The term `qualified business 
     capitalization costs' means qualified expenditures for the 
     capitalization of a qualified business pursuant to a 
     qualified plan.
       ``(B) Qualified expenditures.--The term `qualified 
     expenditures' means expenditures included in a qualified 
     plan, including capital, plant, equipment, working capital, 
     and inventory expenses.
       ``(C) Qualified business.--The term `qualified business' 
     means any trade or business other than any trade or 
     business--
       ``(i) which consists of the operation of any facility 
     described in section 144(c)(6)(B), or
       ``(ii) which contravenes any law.
       ``(D) Qualified plan.--The term `qualified plan' means a 
     business plan which meets such requirements as the Secretary 
     may specify.
       ``(6) Qualified medical expenses.--The term `qualified 
     medical expenses' means any amount paid during the taxable 
     year, not compensated for by insurance or otherwise, for 
     medical care (as defined in section 213(d)) of the taxpayer, 
     his spouse, or his dependent (as defined in section 152).
       ``(7) Qualified rollovers.--The term `qualified rollover' 
     means any amount paid from a family development account of a 
     taxpayer into another such account established for the 
     benefit of--
       ``(A) such taxpayer, or
       ``(B) any qualified individual who is--
       ``(i) the spouse of such taxpayer, or
       ``(ii) any dependent (as defined in section 152) of the 
     taxpayer.
     Rules similar to the rules of section 408(d)(3) shall apply 
     for purposes of this paragraph.
       ``(d) Tax Treatment of Accounts.--
       ``(1) In general.--Any family development account is exempt 
     from taxation under this subtitle unless such account has 
     ceased to be a family development account by reason of 
     paragraph (2). Notwithstanding the preceding sentence, any 
     such account is subject to the taxes imposed by section 511 
     (relating to imposition of tax on unrelated business income 
     of charitable, etc., organizations). Notwithstanding any 
     other provision of this title (including chapters 11 and 12), 
     the basis of any person in such an account is zero.
       ``(2) Loss of exemption in case of prohibited 
     transactions.--For purposes of this section, rules similar to 
     the rules of section 408(e) shall apply.
       ``(3) Other rules to apply.--Rules similar to the rules of 
     paragraphs (4), (5), and (6) of section 408(d) shall apply 
     for purposes of this section.
       ``(e) Family Development Account.--For purposes of this 
     title, the term `family development account' means a trust 
     created or organized in the United States for the exclusive 
     benefit of a qualified individual or his beneficiaries, but 
     only if the written governing instrument creating the trust 
     meets the following requirements:
       ``(1) Except in the case of a qualified rollover (as 
     defined in subsection (c)(7))--
       ``(A) no contribution will be accepted unless it is in 
     cash; and
       ``(B) contributions will not be accepted for the taxable 
     year in excess of $3,000 (determined without regard to any 
     contribution made under section 1400I (relating to 
     demonstration program to provide matching amounts in renewal 
     communities)).
       ``(2) The requirements of paragraphs (2) through (6) of 
     section 408(a) are met.
       ``(f) Qualified Individual.--For purposes of this section, 
     the term `qualified individual' means, for any taxable year, 
     an individual--
       ``(1) who is a bona fide resident of a renewal community 
     throughout the taxable year; and
       ``(2) to whom a credit was allowed under section 32 for the 
     preceding taxable year.
       ``(g) Other Definitions and Special Rules.--
       ``(1) Compensation.--The term `compensation' has the 
     meaning given such term by section 219(f)(1).
       ``(2) Married individuals.--The maximum deduction under 
     subsection (a) shall be computed separately for each 
     individual, and this section shall be applied without regard 
     to any community property laws.
       ``(3) Time when contributions deemed made.--For purposes of 
     this section, a taxpayer shall be deemed to have made a 
     contribution to a family development account on the last day 
     of the preceding taxable year if the contribution is made on 
     account of such taxable year and is made not later than the 
     time prescribed by law for filing the return for such taxable 
     year (not including extensions thereof).
       ``(4) Employer payments; custodial accounts.--Rules similar 
     to the rules of sections 219(f)(5) and 408(h) shall apply for 
     purposes of this section.
       ``(5) Reports.--The trustee of a family development account 
     shall make such reports regarding such account to the 
     Secretary and to the individual for whom the account is 
     maintained with respect to contributions (and the years to 
     which they relate), distributions, and such other matters as 
     the Secretary may require under regulations. The reports 
     required by this paragraph--
       ``(A) shall be filed at such time and in such manner as the 
     Secretary prescribes in such regulations; and
       ``(B) shall be furnished to individuals--
       ``(i) not later than January 31 of the calendar year 
     following the calendar year to which such reports relate; and
       ``(ii) in such manner as the Secretary prescribes in such 
     regulations.
       ``(6) Investment in collectibles treated as 
     distributions.--Rules similar to the rules of section 408(m) 
     shall apply for purposes of this section.
       ``(h) Penalty for Distributions Not Used for Qualified 
     Family Development Expenses.--
       ``(1) In general.--If any amount is distributed from a 
     family development account and is not used exclusively to pay 
     qualified family development expenses for the holder of the 
     account or the spouse or dependent (as defined in section 
     152) of such holder, the tax imposed by this chapter for the 
     taxable year of such distribution shall be increased by the 
     sum of--
       ``(A) 100 percent of the portion of such amount which is 
     includible in gross income and is attributable to amounts 
     contributed under section 1400I (relating to demonstration 
     program to provide matching amounts in renewal communities); 
     and
       ``(B) 10 percent of the portion of such amount which is 
     includible in gross income and is not described in 
     subparagraph (A).

     For purposes of this subsection, distributions which are 
     includable in gross income shall be treated as attributable 
     to amounts contributed under section 1400I to the extent 
     thereof. For purposes of the preceding sentence, all family 
     development accounts of an individual shall be treated as one 
     account.
       ``(2) Exception for certain distributions.--Paragraph (1) 
     shall not apply to distributions which are--
       ``(A) made on or after the date on which the account holder 
     attains age 59\1/2\,
       ``(B) made to a beneficiary (or the estate of the account 
     holder) on or after the death of the account holder, or
       ``(C) attributable to the account holder's being disabled 
     within the meaning of section 72(m)(7).
       ``(i) Application of Section.--This section shall apply to 
     amounts paid to a family development account for any taxable 
     year beginning after December 31, 2000, and before January 1, 
     2008.

     ``SEC. 1400I. DEMONSTRATION PROGRAM TO PROVIDE MATCHING 
                   CONTRIBUTIONS TO FAMILY DEVELOPMENT ACCOUNTS IN 
                   CERTAIN RENEWAL COMMUNITIES.

       ``(a) Designation.--
       ``(1) Definitions.--For purposes of this section, the term 
     `FDA matching demonstration area' means any renewal 
     community--
       ``(A) which is nominated under this section by each of the 
     local governments and States which nominated such community 
     for designation as a renewal community under section 
     1400E(a)(1)(A); and
       ``(B) which the Secretary of Housing and Urban Development 
     designates as an FDA matching demonstration area after 
     consultation with--
       ``(i) the Secretaries of Agriculture, Commerce, Labor, and 
     the Treasury, the Director of the Office of Management and 
     Budget, and the Administrator of the Small Business 
     Administration; and
       ``(ii) in the case of a community on an Indian reservation, 
     the Secretary of the Interior.
       ``(2) Number of designations.--
       ``(A) In general.--The Secretary of Housing and Urban 
     Development may designate not more than 5 renewal communities 
     as FDA matching demonstration areas.
       ``(B) Minimum designation in rural areas.--Of the areas 
     designated under subparagraph (A), at least 2 must be areas 
     described in section 1400E(a)(2)(B).
       ``(3) Limitations on designations.--
       ``(A) Publication of regulations.--The Secretary of Housing 
     and Urban Development shall prescribe by regulation no later 
     than 4 months after the date of the enactment of this 
     section, after consultation with the officials described in 
     paragraph (1)(B)--
       ``(i) the procedures for nominating a renewal community 
     under paragraph (1)(A) (including procedures for coordinating 
     such nomination with the nomination of an area for 
     designation as a renewal community under section 1400E); and

[[Page 17159]]

       ``(ii) the manner in which nominated renewal communities 
     will be evaluated for purposes of this section.
       ``(B) Time limitations.--The Secretary of Housing and Urban 
     Development may designate renewal communities as FDA matching 
     demonstration areas only during the 24-month period beginning 
     on the first day of the first month following the month in 
     which the regulations described in subparagraph (A) are 
     prescribed.
       ``(4) Designation based on degree of poverty, etc.--The 
     rules of section 1400E(a)(3) shall apply for purposes of 
     designations of FDA matching demonstration areas under this 
     section.
       ``(b) Period for Which Designation Is in Effect.--Any 
     designation of a renewal community as an FDA matching 
     demonstration area shall remain in effect during the period 
     beginning on the date of such designation and ending on the 
     date on which such area ceases to be a renewal community.
       ``(c) Matching Contributions to Family Development 
     Accounts.--
       ``(1) In general.--Not less than once each taxable year, 
     the Secretary shall deposit (to the extent provided in 
     appropriation Acts) into a family development account of each 
     qualified individual (as defined in section 1400H(f))--
       ``(A) who is a resident throughout the taxable year of an 
     FDA matching demonstration area; and
       ``(B) who requests (in such form and manner as the 
     Secretary prescribes) such deposit for the taxable year,

     an amount equal to the sum of the amounts deposited into all 
     of the family development accounts of such individual during 
     such taxable year (determined without regard to any amount 
     contributed under this section).
       ``(2) Limitations.--
       ``(A) Annual limit.--The Secretary shall not deposit more 
     than $1000 under paragraph (1) with respect to any individual 
     for any taxable year.
       ``(B) Aggregate limit.--The Secretary shall not deposit 
     more than $2000 under paragraph (1) with respect to any 
     individual for all taxable years.
       ``(3) Exclusion from income.--Except as provided in section 
     1400H, gross income shall not include any amount deposited 
     into a family development account under paragraph (1).
       ``(d) Notice of Program.--The Secretary shall provide 
     appropriate notice to residents of FDA matching demonstration 
     areas of the availability of the benefits under this section.
       ``(e) Termination.--No amount may be deposited under this 
     section for any taxable year beginning after December 31, 
     2007.

     ``SEC. 1400J. DESIGNATION OF EARNED INCOME TAX CREDIT 
                   PAYMENTS FOR DEPOSIT TO FAMILY DEVELOPMENT 
                   ACCOUNT.

       ``(a) In General.--With respect to the return of any 
     qualified individual (as defined in section 1400H(f)) 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 earned income tax credit shall 
     be deposited by the Secretary into a family development 
     account of such individual. The Secretary shall so deposit 
     such portion designated under this subsection.
       ``(b) Manner and Time of Designation.--A designation under 
     subsection (a) may be made with respect to any taxable year--
       ``(1) at the time of filing the return of the tax imposed 
     by this chapter for such taxable year, or
       ``(2) 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.
       ``(c) Portion Attributable to Earned Income Tax Credit.--
     For purposes of subsection (a), an overpayment for any 
     taxable year shall be treated as attributable to the earned 
     income tax credit to the extent that such overpayment does 
     not exceed the credit allowed to the taxpayer under section 
     32 for such taxable year.
       ``(d) Overpayments Treated as Refunded.--For purposes of 
     this title, any portion of an overpayment of tax designated 
     under subsection (a) 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.
       ``(e) Termination.--This section shall not apply to any 
     taxable year beginning after December 31, 2007.

                    ``PART IV--ADDITIONAL INCENTIVES

``Sec. 1400K. Commercial revitalization deduction.
``Sec. 1400L. Increase in expensing under section 179.

     ``SEC. 1400K. COMMERCIAL REVITALIZATION DEDUCTION.

       ``(a) General Rule.--At the election of the taxpayer, 
     either--
       ``(1) one-half of any qualified revitalization expenditures 
     chargeable to capital account with respect to any qualified 
     revitalization building shall be allowable as a deduction for 
     the taxable year in which the building is placed in service, 
     or
       ``(2) a deduction for all such expenditures shall be 
     allowable ratably over the 120-month period beginning with 
     the month in which the building is placed in service.

     The deduction provided by this section with respect to such 
     expenditure shall be in lieu of any depreciation deduction 
     otherwise allowable on account of such expenditure.
       ``(b) Qualified Revitalization Buildings and 
     Expenditures.--For purposes of this section--
       ``(1) Qualified revitalization building.--The term 
     `qualified revitalization building' means any building (and 
     its structural components) if--
       ``(A) such building is located in a renewal community and 
     is placed in service after December 31, 2000;
       ``(B) a commercial revitalization deduction amount is 
     allocated to the building under subsection (d); and
       ``(C) depreciation (or amortization in lieu of 
     depreciation) is allowable with respect to the building 
     (without regard to this section).
       ``(2) Qualified revitalization expenditure.--
       ``(A) In general.--The term `qualified revitalization 
     expenditure' means any amount properly chargeable to capital 
     account--
       ``(i) for property for which depreciation is allowable 
     under section 168 (without regard to this section) and which 
     is--

       ``(I) nonresidential real property; or
       ``(II) an addition or improvement to property described in 
     subclause (I);

       ``(ii) in connection with the construction of any qualified 
     revitalization building which was not previously placed in 
     service or in connection with the substantial rehabilitation 
     (within the meaning of section 47(c)(1)(C)) of a building 
     which was placed in service before the beginning of such 
     rehabilitation; and
       ``(iii) for land (including land which is functionally 
     related to such property and subordinate thereto).
       ``(B) Dollar limitation.--The aggregate amount which may be 
     treated as qualified revitalization expenditures with respect 
     to any qualified revitalization building for any taxable year 
     shall not exceed the excess of--
       ``(i) $10,000,000, reduced by
       ``(ii) any such expenditures with respect to the building 
     taken into account by the taxpayer or any predecessor in 
     determining the amount of the deduction under this section 
     for all preceding taxable years.
       ``(C) Certain expenditures not included.--The term 
     `qualified revitalization expenditure' does not include--
       ``(i) Acquisition costs.--The costs of acquiring any 
     building or interest therein and any land in connection with 
     such building to the extent that such costs exceed 30 percent 
     of the qualified revitalization expenditures determined 
     without regard to this clause.
       ``(ii) Credits.--Any expenditure which the taxpayer may 
     take into account in computing any credit allowable under 
     this title unless the taxpayer elects to take the expenditure 
     into account only for purposes of this section.
       ``(c) When Expenditures Taken Into Account.--Qualified 
     revitalization expenditures with respect to any qualified 
     revitalization building shall be taken into account for the 
     taxable year in which the qualified revitalization building 
     is placed in service. For purposes of the preceding sentence, 
     a substantial rehabilitation of a building shall be treated 
     as a separate building.
       ``(d) Limitation on Aggregate Deductions Allowable With 
     Respect to Buildings Located in a State.--
       ``(1) In general.--The amount of the deduction determined 
     under this section for any taxable year with respect to any 
     building shall not exceed the commercial revitalization 
     deduction amount (in the case of an amount determined under 
     subsection (a)(2), the present value of such amount as 
     determined under the rules of section 42(b)(2)(C) by 
     substituting `100 percent' for `72 percent' in clause (ii) 
     thereof) allocated to such building under this subsection by 
     the commercial revitalization agency. Such allocation shall 
     be made at the same time and in the same manner as under 
     paragraphs (1) and (7) of section 42(h).
       ``(2) Commercial revitalization deduction amount for 
     agencies.--
       ``(A) In general.--The aggregate commercial revitalization 
     deduction amount which a commercial revitalization agency may 
     allocate for any calendar year is the amount of the State 
     commercial revitalization deduction ceiling determined under 
     this paragraph for such calendar year for such agency.
       ``(B) State commercial revitalization deduction ceiling.--
     The State commercial revitalization deduction ceiling 
     applicable to any State--
       ``(i) for each calendar year after 2000 and before 2008 is 
     $6,000,000 for each renewal community in the State; and
       ``(ii) zero for each calendar year thereafter.
       ``(C) Commercial revitalization agency.--For purposes of 
     this section, the term `commercial revitalization agency' 
     means any agency authorized by a State to carry out this 
     section.
       ``(e) Responsibilities of Commercial Revitalization 
     Agencies.--
       ``(1) Plans for allocation.--Notwithstanding any other 
     provision of this section, the commercial revitalization 
     deduction amount with respect to any building shall be zero 
     unless--
       ``(A) such amount was allocated pursuant to a qualified 
     allocation plan of the commercial revitalization agency which 
     is approved (in accordance with rules similar to the rules of 
     section 147(f)(2) (other than subparagraph (B)(ii) thereof)) 
     by the governmental unit of which such agency is a part; and

[[Page 17160]]

       ``(B) such agency notifies the chief executive officer (or 
     its equivalent) of the local jurisdiction within which the 
     building is located of such allocation and provides such 
     individual a reasonable opportunity to comment on the 
     allocation.
       ``(2) Qualified allocation plan.--For purposes of this 
     subsection, the term `qualified allocation plan' means any 
     plan--
       ``(A) which sets forth selection criteria to be used to 
     determine priorities of the commercial revitalization agency 
     which are appropriate to local conditions;
       ``(B) which considers--
       ``(i) the degree to which a project contributes to the 
     implementation of a strategic plan that is devised for a 
     renewal community through a citizen participation process;
       ``(ii) the amount of any increase in permanent, full-time 
     employment by reason of any project; and
       ``(iii) the active involvement of residents and nonprofit 
     groups within the renewal community; and
       ``(C) which provides a procedure that the agency (or its 
     agent) will follow in monitoring compliance with this 
     section.
       ``(f) Regulations.--For purposes of this section, the 
     Secretary shall, by regulations, provide for the application 
     of rules similar to the rules of section 49 and subsections 
     (a) and (b) of section 50.
       ``(g) Termination.--This section shall not apply to any 
     building placed in service after December 31, 2007.

     ``SEC. 1400L. INCREASE IN EXPENSING UNDER SECTION 179.

       ``(a) General Rule.--In the case of a renewal community 
     business (as defined in section 1400G), for purposes of 
     section 179--
       ``(1) the limitation under section 179(b)(1) shall be 
     increased by the lesser of--
       ``(A) $35,000; or
       ``(B) the cost of section 179 property which is qualified 
     renewal property placed in service during the taxable year; 
     and
       ``(2) the amount taken into account under section 179(b)(2) 
     with respect to any section 179 property which is qualified 
     renewal property shall be 50 percent of the cost thereof.
       ``(b) Recapture.--Rules similar to the rules under section 
     179(d)(10) shall apply with respect to any qualified renewal 
     property which ceases to be used in a renewal community by a 
     renewal community business.
       ``(c) Qualified Renewal Property.--For purposes of this 
     section--
       ``(1) In general.--The term `qualified renewal property' 
     means any property to which section 168 applies (or would 
     apply but for section 179) if--
       ``(A) such property was acquired by the taxpayer by 
     purchase (as defined in section 179(d)(2)) after December 31, 
     2000, and before January 1, 2008; and
       ``(B) such property would be qualified zone property (as 
     defined in section 1397C) if references to renewal 
     communities were substituted for references to empowerment 
     zones in section 1397C.
       ``(2) Certain rules to apply.--The rules of subsections 
     (a)(2) and (b) of section 1397C shall apply for purposes of 
     this section.''.

     SEC. 703. EXTENSION OF EXPENSING OF ENVIRONMENTAL REMEDIATION 
                   COSTS TO RENEWAL COMMUNITIES.

       (a) Extension.--Paragraph (2) of section 198(c) (defining 
     targeted area) is amended by redesignating subparagraph (C) 
     as subparagraph (D) and by inserting after subparagraph (B) 
     the following new subparagraph:
       ``(C) Renewal communities included.--Except as provided in 
     subparagraph (B), such term shall include a renewal community 
     (as defined in section 1400E) with respect to expenditures 
     paid or incurred after December 31, 2000.''.
       (b) Extension of Termination Date for Renewal 
     Communities.--Subsection (h) of section 198 is amended by 
     inserting before the period ``(December 31, 2007, in the case 
     of a renewal community, as defined in section 1400E).''.

     SEC. 704. EXTENSION OF WORK OPPORTUNITY TAX CREDIT FOR 
                   RENEWAL COMMUNITIES

       (a) Extension.--Subsection (c) of section 51 (relating to 
     termination) is amended by adding at the end the following 
     new paragraph:
       ``(5) Extension of credit for renewal communities.--
       ``(A) In general.--In the case of an individual who begins 
     work for the employer after the date contained in paragraph 
     (4)(B), for purposes of section 38--
       ``(i) in lieu of applying subsection (a), the amount of the 
     work opportunity credit determined under this section for the 
     taxable year shall be equal to--

       ``(I) 15 percent of the qualified first-year wages for such 
     year; and
       ``(II) 30 percent of the qualified second-year wages for 
     such year;

       ``(ii) subsection (b)(3) shall be applied by substituting 
     `$10,000' for `$6,000';
       ``(iii) paragraph (4)(B) shall be applied by substituting 
     for the date contained therein the last day for which the 
     designation under section 1400E of the renewal community 
     referred to in subparagraph (B)(i) is in effect; and
       ``(iv) rules similar to the rules of section 51A(b)(5)(C) 
     shall apply.
       ``(B) Qualified first- and second-year wages.--For purposes 
     of subparagraph (A)--
       ``(i) In general.--The term `qualified wages' means, with 
     respect to each 1-year period referred to in clause (ii) or 
     (iii), as the case may be, the wages paid or incurred by the 
     employer during the taxable year to any individual but only 
     if--

       ``(I) the employer is engaged in a trade or business in a 
     renewal community throughout such 1-year period;
       ``(II) the principal place of abode of such individual is 
     in such renewal community throughout such 1-year period; and
       ``(III) substantially all of the services which such 
     individual performs for the employer during such 1-year 
     period are performed in such renewal community.

       ``(ii) Qualified first-year wages.--The term `qualified 
     first-year wages' means, with respect to any individual, 
     qualified wages attributable to service rendered during the 
     1-year period beginning with the day the individual begins 
     work for the employer.
       ``(iii) Qualified second-year wages.--The term `qualified 
     second-year wages' means, with respect to any individual, 
     qualified wages attributable to service rendered during the 
     1-year period beginning on the day after the last day of the 
     1-year period with respect to such individual determined 
     under clause (ii).''.
       (b) Congruent Treatment of Renewal Communities and 
     Enterprise Zones for Purposes of Youth Residence 
     Requirements.--
       (1) High-risk youth.--Subparagraphs (A)(ii) and (B) of 
     section 51(d)(5) are each amended by striking ``empowerment 
     zone or enterprise community'' and inserting ``empowerment 
     zone, enterprise community, or renewal community''.
       (2) Qualified summer youth employee.--Clause (iv) of 
     section 51(d)(7)(A) is amended by striking ``empowerment zone 
     or enterprise community'' and inserting ``empowerment zone, 
     enterprise community, or renewal community''.
       (3) Headings.--Paragraphs (5)(B) and (7)(C) of section 
     51(d) are each amended by inserting ``or community'' in the 
     heading after ``zone''.
       (4) Effective date.--The amendments made by this subsection 
     shall apply to individuals who begin work for the employer 
     after December 31, 2000.

     SEC. 705. CONFORMING AND CLERICAL AMENDMENTS.

       (a) Deduction for Contributions to Family Development 
     Accounts Allowable Whether or Not Taxpayer Itemizes.--
     Subsection (a) of section 62 (relating to adjusted gross 
     income defined) is amended by inserting after paragraph (19) 
     the following new paragraph:
       ``(20) Family development accounts.--The deduction allowed 
     by section 1400H(a)(1).''.
       (b) Tax on Excess Contributions.--
       (1) Tax imposed.--Subsection (a) of section 4973 is amended 
     by striking ``or'' at the end of paragraph (3), adding ``or'' 
     at the end of paragraph (4), and inserting after paragraph 
     (4) the following new paragraph:
       ``(5) a family development account (within the meaning of 
     section 1400H(e)),''.
       (2) Excess contributions.--Section 4973 is amended by 
     adding at the end the following new subsection:
       ``(g) Family Development Accounts.--For purposes of this 
     section, in the case of family development accounts, the term 
     `excess contributions' means the sum of--
       ``(1) the excess (if any) of--
       ``(A) the amount contributed for the taxable year to the 
     accounts (other than a qualified rollover, as defined in 
     section 1400H(c)(7), or a contribution under section 1400I), 
     over
       ``(B) the amount allowable as a deduction under section 
     1400H for such contributions; and
       ``(2) the amount determined under this subsection for the 
     preceding taxable year reduced by the sum of--
       ``(A) the distributions out of the accounts for the taxable 
     year which were included in the gross income of the payee 
     under section 1400H(b)(1);
       ``(B) the distributions out of the accounts for the taxable 
     year to which rules similar to the rules of section 408(d)(5) 
     apply by reason of section 1400H(d)(3); and
       ``(C) the excess (if any) of the maximum amount allowable 
     as a deduction under section 1400H for the taxable year over 
     the amount contributed to the account for the taxable year 
     (other than a contribution under section 1400I).

     For purposes of this subsection, any contribution which is 
     distributed from the family development account in a 
     distribution to which rules similar to the rules of section 
     408(d)(4) apply by reason of section 1400H(d)(3) shall be 
     treated as an amount not contributed.''.
       (c) Tax on Prohibited Transactions.--Section 4975 is 
     amended--
       (1) by adding at the end of subsection (c) the following 
     new paragraph:
       ``(6) Special rule for family development accounts.--An 
     individual for whose benefit a family development account is 
     established and any contributor to such account shall be 
     exempt from the tax imposed by this section with respect to 
     any transaction concerning such account (which would 
     otherwise be taxable under this section) if, with respect to 
     such transaction, the account ceases to be a family 
     development account by reason of the application of section 
     1400H(d)(2) to such account.''; and
       (2) in subsection (e)(1), by striking ``or'' at the end of 
     subparagraph (E), by redesignating subparagraph (F) as 
     subparagraph (G), and by inserting after subparagraph (E) the 
     following new subparagraph:
       ``(F) a family development account described in section 
     1400H(e), or''.
       (d) Information Relating to Certain Trusts and Annuity 
     Plans.--Subsection (c) of section 6047 is amended--
       (1) by inserting ``or section 1400H'' after ``section 
     219''; and

[[Page 17161]]

       (2) by inserting ``, of any family development account 
     described in section 1400H(e),'', after ``section 408(a)''.
       (e) Inspection of Applications for Tax Exemption.--Clause 
     (i) of section 6104(a)(1)(B) is amended by inserting ``a 
     family development account described in section 1400H(e),'' 
     after ``section 408(a),''.
       (f) Failure To Provide Reports on Family Development 
     Accounts.--Paragraph (2) of section 6693(a) is amended by 
     striking ``and'' at the end of subparagraph (C), by striking 
     the period and inserting ``, and'' at the end of subparagraph 
     (D), and by adding at the end the following new subparagraph:
       ``(E) section 1400H(g)(6) (relating to family development 
     accounts).''.
       (g) Conforming Amendments Regarding Commercial 
     Revitalization Deduction.--
       (1) Section 172 is amended by redesignating subsection (j) 
     as subsection (k) and by inserting after subsection (i) the 
     following new subsection:
       ``(j) No carryback of section 1400k Deduction Before Date 
     of Enactment.--No portion of the net operating loss for any 
     taxable year which is attributable to any commercial 
     revitalization deduction determined under section 1400K may 
     be carried back to a taxable year ending before the date of 
     the enactment of section 1400K.''.
       (2) Subparagraph (B) of section 48(a)(2) is amended by 
     inserting ``or commercial revitalization'' after 
     ``rehabilitation'' each place it appears in the text and 
     heading.
       (3) Subparagraph (C) of section 469(i)(3) is amended--
       (A) by inserting ``or section 1400K'' after ``section 42''; 
     and
       (B) by inserting ``and commercial revitalization 
     deduction'' after ``credit'' in the heading.
       (h) Clerical Amendments.--The table of subchapters for 
     chapter 1 is amended by adding at the end the following new 
     item:

``Subchapter X. Renewal Communities.''.

     SEC. 706. EVALUATION AND REPORTING REQUIREMENTS.

       Not later than the close of the fourth calendar year after 
     the year in which the Secretary of Housing and Urban 
     Development first designates an area as a renewal community 
     under section 1400E of the Internal Revenue Code of 1986, and 
     at the close of each fourth calendar year thereafter, such 
     Secretary shall prepare and submit to the Congress a report 
     on the effects of such designations in stimulating the 
     creation of new jobs, particularly for disadvantaged workers 
     and long-term unemployed individuals, and promoting the 
     revitalization of economically distressed areas.

                     Subtitle B--Farming Incentive

     SEC. 711. PRODUCTION FLEXIBILITY CONTRACT PAYMENTS.

       Any option to accelerate the receipt of any payment under a 
     production flexibility contract which is payable under the 
     Federal Agriculture Improvement and Reform Act of 1996 (7 
     U.S.C. 7200 et seq.), as in effect on the date of the 
     enactment of this Act, shall be disregarded in determining 
     the taxable year for which such payment is properly 
     includible in gross income for purposes of the Internal 
     Revenue Code of 1986.

                   Subtitle C--Oil and Gas Incentives

     SEC. 721. 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)),

     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, 1998.

     SEC. 722. DEDUCTION FOR DELAY RENTAL PAYMENTS.

       (a) In General.--Section 263 (relating to capital 
     expenditures) is amended by adding after subsection (i) the 
     following new subsection:
       ``(j) 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) is amended by 
     inserting ``263(j),'' after ``263(i),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts paid or incurred in taxable years 
     beginning after December 31, 1999.

     SEC. 723. ELECTION TO EXPENSE GEOLOGICAL AND GEOPHYSICAL 
                   EXPENDITURES.

       (a) In General.--Section 263 (relating to capital 
     expenditures) is amended by adding after subsection (j) the 
     following new subsection:
       ``(k) 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(k),'' after ``263(j),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to costs paid or incurred in taxable years 
     beginning after December 31, 1999.

     SEC. 724. TEMPORARY SUSPENSION OF LIMITATION BASED ON 65 
                   PERCENT OF TAXABLE INCOME.

       (a) In General.--Subsection (d) of section 613A (relating 
     to limitation on percentage depletion in case of oil and gas 
     wells) is amended by adding at the end the following new 
     paragraph:
       ``(6) Temporary suspension of taxable income limit.--
     Paragraph (1) shall not apply to taxable years beginning 
     after December 31, 1998, and before January 1, 2005, 
     including with respect to amounts carried under the second 
     sentence of paragraph (1) to such taxable years.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 725. DETERMINATION OF SMALL REFINER EXCEPTION TO OIL 
                   DEPLETION DEDUCTION.

       (a) In General.--Paragraph (4) of section 613A(d) (relating 
     to certain refiners excluded) is amended to read as follows:
       ``(4) Certain refiners excluded.--If the taxpayer or a 
     related person engages in the refining of crude oil, 
     subsection (c) shall not apply to the taxpayer for a taxable 
     year if the average daily refinery runs of the taxpayer and 
     the related person for the taxable year exceed 50,000 
     barrels. For purposes of this paragraph, the average daily 
     refinery runs for any taxable year shall be determined by 
     dividing the aggregate refinery runs for the taxable year by 
     the number of days in the taxable year.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

                     Subtitle D--Timber Incentives

     SEC. 731. TEMPORARY SUSPENSION OF MAXIMUM AMOUNT OF 
                   AMORTIZABLE REFORESTATION EXPENDITURES.

       (a) Increase in Dollar Limitation.--Paragraph (1) of 
     section 194(b) (relating to amortization of reforestation 
     expenditures) is amended by striking ``$10,000 ($5,000'' and 
     inserting ``$25,000 ($12,500''.
       (b) Temporary Suspension of Increased Dollar Limitation.--
     Subsection (b) of section 194(b) (relating to amortization of 
     reforestation expenditures) is amended by adding at the end 
     the following new paragraph:
       ``(5) Suspension of dollar limitation.--Paragraph (1) shall 
     not apply to taxable years beginning after December 31, 1999, 
     and before January 1, 2004.
       (c) Conforming Amendment.--Paragraph (1) of section 48(b) 
     is amended by striking ``section 194(b)(1)'' and inserting 
     ``section 194(b)(1) and without regard to section 
     194(b)(5)''.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

     SEC. 732. CAPITAL GAIN TREATMENT UNDER SECTION 631(B) TO 
                   APPLY TO OUTRIGHT SALES BY LAND OWNER.

       (a) In General.--Subsection (b) of section 631 (relating to 
     disposal of timber with a retained economic interest) is 
     amended--
       (1) by inserting ``and Outright Sales of Timber'' after 
     Economic Interest'' in the subsection heading, and
       (2) by adding before the last sentence the following new 
     sentence: ``The requirement in the first sentence of this 
     subsection to retain an economic interest in timber shall not 
     apply to an outright sale of such timber by the owner thereof 
     if such owner owned the land (at the time of such sale) from 
     which the timber is cut.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to sales after the date of the enactment of this 
     Act.

[[Page 17162]]



                  Subtitle E--Steel Industry Incentive

     SEC. 741. MINIMUM TAX RELIEF FOR STEEL INDUSTRY.

       (a) In General.--Subsection (c) of section 53 (as amended 
     by section 302) is amended by adding at the end the following 
     new paragraph:
       ``(4) Steel companies.--
       ``(A) In general.--In the case of a corporation engaged in 
     the trade or business of manufacturing steel in the United 
     States for sale to customers, in lieu of applying paragraph 
     (2), the limitation under paragraph (1) for any taxable year 
     beginning after December 31, 1998, shall be increased 
     (subject to the rule of the last sentence of paragraph (2)) 
     by 90 percent of the tentative minimum tax.
       ``(B) Limitation.--The increase in the credit allowed by 
     this section by reason of this paragraph for any taxable year 
     shall not exceed the increase in the credit which would be so 
     allowed if the trade or business of such corporation of 
     manufacturing steel in the United States for sale to 
     customers were a separate taxpayer.
       ``(C) Regulations.--The Secretary shall prescribe 
     regulations to prevent the abuse of the purposes of this 
     paragraph, including regulations to prevent the benefits of 
     this paragraph from becoming available to any other 
     corporation through any reorganization or other 
     acquisition.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1998.

                TITLE VIII--RELIEF FOR SMALL BUSINESSES

     SEC. 801. DEDUCTION FOR 100 PERCENT OF HEALTH INSURANCE COSTS 
                   OF SELF-EMPLOYED INDIVIDUALS.

       (a) In General.--Paragraph (1) of section 162(l) is amended 
     to read as follows:
       ``(1) Allowance of deduction.--In the case of an individual 
     who is an employee within the meaning of section 401(c)(1), 
     there shall be allowed as a deduction under this section an 
     amount equal to 100 percent of the amount paid during the 
     taxable year for insurance which constitutes medical care for 
     the taxpayer, his spouse, and dependents.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

      SEC. 802. INCREASE IN EXPENSE TREATMENT FOR SMALL 
                   BUSINESSES.

       (a) In General.--Paragraph (1) of section 179(b) (relating 
     to dollar limitation) is amended to read as follows:
       ``(1) Dollar limitation.--The aggregate cost which may be 
     taken into account under subsection (a) for any taxable year 
     shall not exceed $30,000.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 803. REPEAL OF FEDERAL UNEMPLOYMENT SURTAX.

       (a) In General.--Section 3301 (relating to rate of Federal 
     unemployment tax) is amended--
       (1) by striking ``2007'' and inserting ``2004'', and
       (2) by striking ``2008'' and inserting ``2005''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to calendar years beginning after the date of the 
     enactment of this Act.

     SEC. 804. RESTORATION OF 80 PERCENT DEDUCTION FOR MEAL 
                   EXPENSES.

       (a) In General.--Paragraph (1) of section 274(n) (relating 
     to only 50 percent of meal and entertainment expenses allowed 
     as deduction) is amended by striking ``50 percent'' in the 
     text and inserting ``the allowable percentage''.
       (b) Allowable Percentages.--Subsection (n) of section 274 
     is amended by redesignating paragraphs (2) and (3) as 
     paragraphs (3) and (4), respectively, and by inserting after 
     paragraph (2) the following new paragraph:
       ``(2) Allowable percentage.--For purposes of paragraph (1), 
     the allowable percentage is--
       ``(A) in the case of amounts for items described in 
     paragraph (1)(B), 50 percent, and
       ``(B) in the case of expenses for food or beverages, the 
     percentage determined in accordance with the following table:

``For taxable years beginning in calendar The allowable percentage is--
      2000 through 2004............................................50  
      2005.........................................................55  
      2006.........................................................60  
      2007.........................................................65  
      2008.........................................................70  
      2009.........................................................75  
      2010 and thereafter.......................................80.''  

       (b) Conforming Amendments.--
       (1) The heading for subsection (n) of section 274 is 
     amended by striking ``50 Percent'' and inserting ``Limited 
     Percentages''.
       (2) Subparagraph (A) of section 274(n)(4), as redesignated 
     by subsection (a), is amended by striking ``50 percent'' and 
     inserting ``the allowable percentage''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

                   TITLE IX--INTERNATIONAL TAX RELIEF

     SEC. 901. INTEREST ALLOCATION RULES.

       (a) Election To Allocate Interest on a Worldwide Basis.--
     Subsection (e) of section 864 (relating to rules for 
     allocating interest, etc.) is amended by redesignating 
     paragraphs (6) and (7) as paragraphs (7) and (8), 
     respectively, and by inserting after paragraph (5) the 
     following new paragraph:
       ``(6) Election to allocate interest on a worldwide basis.--
       ``(A) In general.--Except as provided in this paragraph, 
     this subsection shall be applied by treating each worldwide 
     affiliated group for which an election under this paragraph 
     is in effect as an affiliated group solely for purposes of 
     allocating and apportioning interest expense of domestic 
     corporations which are members of such group.
       ``(B) Worldwide affiliated group.--For purposes of this 
     paragraph, the term `worldwide affiliated group' means the 
     group of corporations which consists of--
       ``(i) all corporations in an affiliated group (as defined 
     in paragraph (5)), and
       ``(ii) all foreign corporations (other than a FSC, as 
     defined in section 922(a)) with respect to which corporations 
     described in clause (i) own stock meeting the ownership 
     requirements of section 957(a) (without regard to stock 
     considered as owned under section 958(b)).
       ``(C) Allocation.--
       ``(i) In general.--For purposes of paragraph (1), only the 
     applicable percentage of the interest expense and assets of a 
     foreign corporation described in subparagraph (B)(ii) shall 
     be taken into account.
       ``(ii) Applicable percentage.--For purposes of this 
     paragraph, the term `applicable percentage' means, with 
     respect to any foreign corporation, the percentage equal to 
     the ratio which the value of the stock in such corporation 
     taken into account under subparagraph (B)(ii) bears to the 
     aggregate value of all stock in such corporation.
       ``(D) Treatment of foreign interest expense.--Interest 
     expense of domestic corporations which are members of an 
     electing worldwide affiliated group which is allocated to 
     foreign source income under this subsection shall be reduced 
     (but not below zero) by the applicable percentage of the 
     interest expense incurred by any foreign corporation in the 
     electing worldwide affiliated group to the extent such 
     interest expense of such foreign corporation would have been 
     allocated and apportioned to foreign source income of such 
     foreign corporation if this subsection were applied to a 
     group consisting of all the foreign corporations in such 
     affiliated group.
       ``(E) Election.--An election under this paragraph with 
     respect to any worldwide affiliated group may be made only by 
     the common parent of the affiliated group referred to in 
     subparagraph (B)(i) and may be made only for the first 
     taxable year beginning after December 31, 2001, in which a 
     worldwide affiliated group exists which includes such 
     affiliated group and at least 1 corporation described in 
     subparagraph (B)(ii). Such an election, once made, shall 
     apply to such parent and all other corporations which are 
     included in such worldwide affiliated group for such taxable 
     year and all subsequent years unless revoked with the consent 
     of the Secretary.''.
       (b) Election to Allocate Interest Within Financial 
     Institution Groups and Subsidiary Groups.--Section 864 is 
     amended by redesignating subsection (f) as subsection (g) and 
     by inserting after subsection (e) the following new 
     subsection:
       ``(f) Election To Apply Subsection (e) on Basis of 
     Financial Institution Group and Subsidiary Groups.--
       ``(1) In general.--Subsection (e) shall be applied--
       ``(A) as if the electing financial institution group were a 
     separate affiliated group, and
       ``(B) for purposes of allocating interest expense with 
     respect to qualified indebtedness of members of an electing 
     subsidiary group, as if each electing subsidiary group were a 
     separate affiliated group.

     Subsection (e) shall apply to any such electing group in the 
     same manner as subsection (e) applies to the pre-election 
     affiliated group of which such electing group is a part.
       ``(2) Electing financial institution group.--For purposes 
     of this subsection--
       ``(A) In general.--The term `electing financial institution 
     group' means any group of corporations if--
       ``(i) such group consists only of all of the financial 
     corporations in the pre-election affiliated group, and
       ``(ii) an election under this paragraph is in effect for 
     such group of corporations.
       ``(B) Financial corporation.--The term `financial 
     corporation' means any corporation if at least 80 percent of 
     its gross income is income described in section 
     904(d)(2)(C)(ii) and the regulations thereunder. To the 
     extent provided in regulations prescribed by the Secretary, 
     such term includes a bank holding company (within the meaning 
     of section 2(a) of the Bank Holding Company Act of 1956).
       ``(C) Effect of certain transactions.--Rules similar to the 
     rules of paragraph (3)(D) shall apply to transactions between 
     any member of the electing financial institution group and 
     any member of the pre-election affiliated group (other than a 
     member of the electing financial institution group).
       ``(D) Election.--An election under this paragraph with 
     respect to any financial institution group may be made only 
     by the common parent of the pre-election affiliated group. 
     Such an election, once made, shall apply only to the taxable 
     year for which made.
       ``(3) Electing subsidiary groups.--
       ``(A) In general.--The term `electing subsidiary group' 
     means any group of corporations if--
       ``(i) such group consists only of corporations in the pre-
     election affiliated group,
       ``(ii) such group includes--

[[Page 17163]]

       ``(I) a domestic corporation (which is not the common 
     parent of the pre-election affiliated group or a member of an 
     electing financial institution group) which incurs interest 
     expense with respect to qualified indebtedness, and
       ``(II) every other corporation (other than a member of an 
     electing financial institution group) which is in the pre-
     election affiliated group and which would be a member of an 
     affiliated group having such domestic corporation as the 
     common parent, and

       ``(iii) an election under this paragraph is in effect for 
     such group.
       ``(B) Equalization rule.--All interest expense of a 
     domestic corporation which is a member of a pre-election 
     affiliated group (other than subsidiary group interest 
     expense) shall be treated as allocated to foreign source 
     income to the extent such expense does not exceed the excess 
     (if any) of--
       ``(i) the interest expense of the pre-election affiliated 
     group (including subsidiary group interest expense) which 
     would (but for any election under this paragraph) be 
     allocated to foreign source income, over
       ``(ii) the subsidiary group interest expense allocated to 
     foreign source income.

     For purposes of the preceding sentence, the subsidiary group 
     interest expense is the interest expense to which subsection 
     (e) applies separately by reason of paragraph (1)(B).
       ``(C) Qualified indebtedness.--For purposes of this 
     subsection, the term `qualified indebtedness' means any 
     indebtedness of a domestic corporation--
       ``(i) which is held by an unrelated person, and
       ``(ii) which is not guaranteed (or otherwise supported) by 
     any corporation which is a member of the pre-election 
     affiliated group other than a corporation which is a member 
     of the electing subsidiary group.

     For purposes of this subparagraph, the term `unrelated 
     person' means any person not bearing a relationship specified 
     in section 267(b) or 707(b)(1) to the corporation.
       ``(D) Effect of certain transactions on qualified 
     indebtedness.--In the case of a corporation which is a member 
     of an electing subsidiary group, to the extent that such 
     corporation--
       ``(i) distributes dividends or makes other distributions 
     with respect to its stock after the date of the enactment of 
     this paragraph to any member of the pre-election affiliated 
     group (other than to a member of the electing subsidiary 
     group) in excess of the greater of--

       ``(I) its average annual dividend (expressed as a 
     percentage of current earnings and profits) during the 5-
     taxable-year period ending with the taxable year preceding 
     the taxable year, or
       ``(II) 25 percent of its average annual earnings and 
     profits for such 5 taxable year period, or

       ``(ii) deals with any person in any manner not clearly 
     reflecting the income of the corporation (as determined under 
     principles similar to the principles of section 482),

     an amount of qualified indebtedness equal to the excess 
     distribution or the understatement or overstatement of 
     income, as the case may be, shall be recharacterized (for the 
     taxable year and subsequent taxable years) for purposes of 
     this subsection as indebtedness which is not qualified 
     indebtedness. If a corporation has not been in existence for 
     5 taxable years, this subparagraph shall be applied with 
     respect to the period it was in existence.
       ``(E) Election.--An election under this paragraph with 
     respect to any electing subsidiary group may be made only by 
     the common parent of the pre-election affiliated group. Such 
     an election, once made, shall apply only to the taxable year 
     for which made. No election may be made under this paragraph 
     if the effect of the election would be to have the same 
     member of the pre-election affiliated group included in more 
     than 1 electing subsidiary group.
       ``(4) Pre-election affiliated group.--For purposes of this 
     subsection, the term `pre-election affiliated group' means, 
     with respect to a corporation, the affiliated group or 
     electing worldwide affiliated group of which such corporation 
     would (but for an election under this subsection) be a member 
     for purposes of applying subsection (e).
       ``(5) Regulations.--The Secretary shall prescribe such 
     regulations as may be appropriate to carry out this 
     subsection and subsection (e), including regulations--
       ``(A) providing for the direct allocation of interest 
     expense in other circumstances where such allocation would be 
     appropriate to carry out the purposes of this subsection,
       ``(B) preventing assets or interest expense from being 
     taken into account more than once, and
       ``(C) dealing with changes in members of any group (through 
     acquisitions or otherwise) treated under this subsection as 
     an affiliated group for purposes of subsection (e).''
       (c) Insurance Companies Included in Affiliated Groups.--
     Paragraph (5) of section 864(e) is amended to read as 
     follows:
       ``(5) Affiliated group.--The term `affiliated group' has 
     the meaning given such term by section 1504 (determined 
     without regard to paragraphs (2) and (4) of section 
     1504(b)).''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 902. LOOK-THRU RULES TO APPLY TO DIVIDENDS FROM 
                   NONCONTROLLED SECTION 902 CORPORATIONS.

       (a) In General.--Section 904(d)(4) (relating to application 
     of look-thru rules to dividends from noncontrolled section 
     902 corporations) is amended to read as follows:
       ``(4) Look-thru applies to dividends from noncontrolled 
     section 902 corporations.--
       ``(A) In general.--For purposes of this subsection, any 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer shall be treated as income in a 
     separate category in proportion to the ratio of--
       ``(i) the portion of earnings and profits attributable to 
     income in such category, to
       ``(ii) the total amount of earnings and profits.
       ``(B) Special rules.--For purposes of this paragraph--
       ``(i) In general.--Rules similar to the rules of paragraph 
     (3)(F) shall apply; except that the term `separate category' 
     shall include the category of income described in paragraph 
     (1)(I).
       ``(ii) Earnings and profits.--

       ``(I) In general.--The rules of section 316 shall apply.
       ``(II) Regulations.--The Secretary may prescribe 
     regulations regarding the treatment of distributions out of 
     earnings and profits for periods before the taxpayer's 
     acquisition of the stock to which the distributions relate.

       ``(iii) Dividends not allocable to separate category.--The 
     portion of any dividend from a noncontrolled section 902 
     corporation which is not treated as income in a separate 
     category under subparagraph (A) shall be treated as a 
     dividend to which subparagraph (A) does not apply.
       ``(iv) Look-thru with respect to carryforwards of credit.--
     Rules similar to subparagraph (A) also shall apply to any 
     carryforward under subsection (c) from a taxable year 
     beginning before January 1, 2002, of tax allocable to a 
     dividend from a noncontrolled section 902 corporation with 
     respect to the taxpayer.''
       (b) Conforming Amendments.--
       (1) Subparagraph (E) of section 904(d)(1), as in effect 
     both before and after the amendments made by section 1105 of 
     the Taxpayer Relief Act of 1997, is hereby repealed.
       (2) Section 904(d)(2)(C)(iii), as so in effect, is amended 
     by striking subclause (II) and by redesignating subclause 
     (III) as subclause (II).
       (3) The last sentence of section 904(d)(2)(D), as so in 
     effect, is amended to read as follows: ``Such term does not 
     include any financial services income.''
       (4) Section 904(d)(2)(E) is amended by striking clauses 
     (ii) and (iv) and by redesignating clause (iii) as clause 
     (ii).
       (5) Section 904(d)(3)(F) is amended by striking ``(D), or 
     (E)'' and inserting ``or (D)''.
       (6) Section 864(d)(5)(A)(i) is amended by striking 
     ``(C)(iii)(III)'' and inserting ``(C)(iii)(II)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 903. 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.

     SEC. 904. SUBPART F TREATMENT OF INCOME FROM TRANSMISSION OF 
                   HIGH VOLTAGE ELECTRICITY.

       (a) In General.--Paragraph (2) of section 954(e) (relating 
     to foreign base company services 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 transmission of high voltage electricity.''
       (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.

     SEC. 905. RECHARACTERIZATION OF OVERALL DOMESTIC LOSS.

       (a) General Rule.--Section 904 is amended by redesignating 
     subsections (g), (h), (i), (j), and (k) as subsections (h), 
     (i), (j), (k), and (l), respectively, and by inserting after 
     subsection (f) the following new subsection:
       ``(g) Recharacterization of Overall Domestic Loss.--
       ``(1) General rule.--For purposes of this subpart and 
     section 936, in the case of any taxpayer who sustains an 
     overall domestic loss for any taxable year beginning after 
     December 31, 2004, that portion of the taxpayer's taxable 
     income from sources within the United States for each 
     succeeding taxable year which is equal to the lesser of--
       ``(A) the amount of such loss (to the extent not used under 
     this paragraph in prior taxable years), or
       ``(B) 50 percent of the taxpayer's taxable income from 
     sources within the United States for such succeeding taxable 
     year,

     shall be treated as income from sources without the United 
     States (and not as income from sources within the United 
     States).
       ``(2) Overall domestic loss defined.--For purposes of this 
     subsection--

[[Page 17164]]

       ``(A) In general.--The term `overall domestic loss' means 
     any domestic loss to the extent such loss offsets taxable 
     income from sources without the United States for the taxable 
     year or for any preceding taxable year by reason of a 
     carryback. For purposes of the preceding sentence, the term 
     `domestic loss' means the amount by which the gross income 
     for the taxable year from sources within the United States is 
     exceeded by the sum of the deductions properly apportioned or 
     allocated thereto (determined without regard to any carryback 
     from a subsequent taxable year).
       ``(B) Taxpayer must have elected foreign tax credit for 
     year of loss.--The term `overall domestic loss' shall not 
     include any loss for any taxable year unless the taxpayer 
     chose the benefits of this subpart for such taxable year.
       ``(3) Characterization of subsequent income.--
       ``(A) In general.--Any income from sources within the 
     United States that is treated as income from sources without 
     the United States under paragraph (1) shall be allocated 
     among and increase the income categories in proportion to the 
     loss from sources within the United States previously 
     allocated to those income categories.
       ``(B) Income category.--For purposes of this paragraph, the 
     term `income category' has the meaning given such term by 
     subsection (f)(5)(E)(i).
       ``(4) Coordination with subsection (f).--The Secretary 
     shall prescribe such regulations as may be necessary to 
     coordinate the provisions of this subsection with the 
     provisions of subsection (f).''
       (b) Conforming Amendments.--
       (1) Section 535(d)(2) is amended by striking ``section 
     904(g)(6)'' and inserting ``section 904(h)(6)''.
       (2) Subparagraph (A) of section 936(a)(2) is amended by 
     striking ``section 904(f)'' and inserting ``subsections (f) 
     and (g) of section 904''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to losses for taxable years beginning after 
     December 31, 2004.

     SEC. 906. TREATMENT OF MILITARY PROPERTY OF FOREIGN SALES 
                   CORPORATIONS.

       (a) In General.--Section 923(a) (defining exempt foreign 
     trade income) is amended by striking paragraph (5) and by 
     redesignating paragraph (6) as paragraph (5).
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2001.

     SEC. 907. TREATMENT OF CERTAIN DIVIDENDS OF REGULATED 
                   INVESTMENT COMPANIES.

       (a) Treatment of Certain Dividends.--
       (1) Nonresident alien individuals.--Section 871 (relating 
     to tax on nonresident alien individuals) is amended by 
     redesignating subsection (k) as subsection (l) and by 
     inserting after subsection (j) the following new subsection:
       ``(k) Exemption for Certain Dividends of Regulated 
     Investment Companies.--
       ``(1) Interest-related dividends.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     no tax shall be imposed under paragraph (1)(A) of subsection 
     (a) on any interest-related dividend received from a 
     regulated investment company.
       ``(B) Exceptions.--Subparagraph (A) shall not apply--
       ``(i) to any interest-related dividend received from a 
     regulated investment company by a person to the extent such 
     dividend is attributable to interest (other than interest 
     described in clause (i), (iii), or the last sentence of 
     subparagraph (E)) received by such company on indebtedness 
     issued by such person or by any corporation or partnership 
     with respect to which such person is a 10-percent 
     shareholder,
       ``(ii) to any interest-related dividend with respect to 
     stock of a regulated investment company unless the person who 
     would otherwise be required to deduct and withhold tax from 
     such dividend under chapter 3 receives a statement (which 
     meets requirements similar to the requirements of subsection 
     (h)(5)) that the beneficial owner of such stock is not a 
     United States person, and
       ``(iii) to any interest-related dividend paid to any person 
     within a foreign country (or any interest-related dividend 
     payment addressed to, or for the account of, persons within 
     such foreign country) during any period described in 
     subsection (h)(6) with respect to such country.

     Clause (iii) shall not apply to any dividend with respect to 
     any stock the holding period of which begins on or before the 
     date of the publication of the Secretary's determination 
     under subsection (h)(6).
       ``(C) Interest-related dividend.--For purposes of this 
     paragraph, an interest-related dividend is any dividend (or 
     part thereof) which is designated by the regulated investment 
     company as an interest-related dividend in a written notice 
     mailed to its shareholders not later than 60 days after the 
     close of its taxable year. If the aggregate amount so 
     designated with respect to a taxable year of the company 
     (including amounts so designated with respect to dividends 
     paid after the close of the taxable year described in section 
     855) is greater than the qualified net interest income of the 
     company for such taxable year, the portion of each 
     distribution which shall be an interest-related dividend 
     shall be only that portion of the amounts so designated which 
     such qualified net interest income bears to the aggregate 
     amount so designated.
       ``(D) Qualified net interest income.--For purposes of 
     subparagraph (C), the term `qualified net interest income' 
     means the qualified interest income of the regulated 
     investment company reduced by the deductions properly 
     allocable to such income.
       ``(E) Qualified interest income.--For purposes of 
     subparagraph (D), the term `qualified interest income' means 
     the sum of the following amounts derived by the regulated 
     investment company from sources within the United States:
       ``(i) Any amount includible in gross income as original 
     issue discount (within the meaning of section 1273) on an 
     obligation payable 183 days or less from the date of original 
     issue (without regard to the period held by the company).
       ``(ii) Any interest includible in gross income (including 
     amounts recognized as ordinary income in respect of original 
     issue discount or market discount or acquisition discount 
     under part V of subchapter P and such other amounts as 
     regulations may provide) on an obligation which is in 
     registered form; except that this clause shall not apply to--

       ``(I) any interest on an obligation issued by a corporation 
     or partnership if the regulated investment company is a 10-
     percent shareholder in such corporation or partnership, and
       ``(II) any interest which is treated as not being portfolio 
     interest under the rules of subsection (h)(4).

       ``(iii) Any interest referred to in subsection (i)(2)(A) 
     (without regard to the trade or business of the regulated 
     investment company).
       ``(iv) Any interest-related dividend includable in gross 
     income with respect to stock of another regulated investment 
     company.

     Such term includes any interest derived by the regulated 
     investment company from sources outside the United States 
     other than interest that is subject to a tax imposed by a 
     foreign jurisdiction if the amount of such tax is reduced (or 
     eliminated) by a treaty with the United States.
       ``(F) 10-percent shareholder.--For purposes of this 
     paragraph, the term `10-percent shareholder' has the meaning 
     given such term by subsection (h)(3)(B).
       ``(2) Short-term capital gain dividends.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     no tax shall be imposed under paragraph (1)(A) of subsection 
     (a) on any short-term capital gain dividend received from a 
     regulated investment company.
       ``(B) Exception for aliens taxable under subsection 
     (a)(2).--Subparagraph (A) shall not apply in the case of any 
     nonresident alien individual subject to tax under subsection 
     (a)(2).
       ``(C) Short-term capital gain dividend.--For purposes of 
     this paragraph, a short-term capital gain dividend is any 
     dividend (or part thereof) which is designated by the 
     regulated investment company as a short-term capital gain 
     dividend in a written notice mailed to its shareholders not 
     later than 60 days after the close of its taxable year. If 
     the aggregate amount so designated with respect to a taxable 
     year of the company (including amounts so designated with 
     respect to dividends paid after the close of the taxable year 
     described in section 855) is greater than the qualified 
     short-term gain of the company for such taxable year, the 
     portion of each distribution which shall be a short-term 
     capital gain dividend shall be only that portion of the 
     amounts so designated which such qualified short-term gain 
     bears to the aggregate amount so designated.
       ``(D) Qualified short-term gain.--For purposes of 
     subparagraph (C), the term `qualified short-term gain' means 
     the excess of the net short-term capital gain of the 
     regulated investment company for the taxable year over the 
     net long-term capital loss (if any) of such company for such 
     taxable year. For purposes of this subparagraph--
       ``(i) the net short-term capital gain of the regulated 
     investment company shall be computed by treating any short-
     term capital gain dividend includible in gross income with 
     respect to stock of another regulated investment company as a 
     short-term capital gain, and
       ``(ii) the excess of the net short-term capital gain for a 
     taxable year over the net long-term capital loss for a 
     taxable year (to which an election under section 4982(e)(4) 
     does not apply) shall be determined without regard to any net 
     capital loss or net short-term capital loss attributable to 
     transactions after October 31 of such year, and any such net 
     capital loss or net short-term capital loss shall be treated 
     as arising on the 1st day of the next taxable year.

     To the extent provided in regulations, clause (ii) shall 
     apply also for purposes of computing the taxable income of 
     the regulated investment company.''
       (2) Foreign corporations.--Section 881 (relating to tax on 
     income of foreign corporations not connected with United 
     States business) is amended by redesignating subsection (e) 
     as subsection (f) and by inserting after subsection (d) the 
     following new subsection:
       ``(e) Tax Not To Apply to Certain Dividends of Regulated 
     Investment Companies.--
       ``(1) Interest-related dividends.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     no tax shall be imposed under paragraph (1) of subsection (a) 
     on any interest-related dividend (as defined in section 
     871(k)(1)) received from a regulated investment company.
       ``(B) Exception.--Subparagraph (A) shall not apply--
       ``(i) to any dividend referred to in section 871(k)(1)(B), 
     and
       ``(ii) to any interest-related dividend received by a 
     controlled foreign corporation (within the meaning of section 
     957(a)) to the extent such dividend is attributable to 
     interest received by the regulated investment company from a 
     person who is a related person (within the meaning of section 
     864(d)(4)) with respect to such controlled foreign 
     corporation.
       ``(C) Treatment of dividends received by controlled foreign 
     corporations.--The rules

[[Page 17165]]

     of subsection (c)(5)(A) shall apply to any interest-related 
     dividend received by a controlled foreign corporation (within 
     the meaning of section 957(a)) to the extent such dividend is 
     attributable to interest received by the regulated investment 
     company which is described in clause (ii) of section 
     871(k)(1)(E) (and not described in clause (i), (iii), or the 
     last sentence of such section).
       ``(2) Short-term capital gain dividends.--No tax shall be 
     imposed under paragraph (1) of subsection (a) on any short-
     term capital gain dividend (as defined in section 871(k)(2)) 
     received from a regulated investment company.''
       (3) Withholding taxes.--
       (A) Section 1441(c) (relating to exceptions) is amended by 
     adding at the end the following new paragraph:
       ``(12) Certain dividends received from regulated investment 
     companies.--
       ``(A) In general.--No tax shall be required to be deducted 
     and withheld under subsection (a) from any amount exempt from 
     the tax imposed by section 871(a)(1)(A) by reason of section 
     871(k).
       ``(B) Special rule.--For purposes of subparagraph (A), 
     clause (i) of section 871(k)(1)(B) shall not apply to any 
     dividend unless the regulated investment company knows that 
     such dividend is a dividend referred to in such clause. A 
     similar rule shall apply with respect to the exception 
     contained in section 871(k)(2)(B).''
       (B) Section 1442(a) (relating to withholding of tax on 
     foreign corporations) is amended--
       (i) by striking ``and the reference in section 
     1441(c)(10)'' and inserting ``the reference in section 
     1441(c)(10)'', and
       (ii) by inserting before the period at the end the 
     following: ``, and the references in section 1441(c)(12) to 
     sections 871(a) and 871(k) shall be treated as referring to 
     sections 881(a) and 881(e) (except that for purposes of 
     applying subparagraph (A) of section 1441(c)(12), as so 
     modified, clause (ii) of section 881(e)(1)(B) shall not apply 
     to any dividend unless the regulated investment company knows 
     that such dividend is a dividend referred to in such 
     clause)''.
       (b) Estate Tax Treatment of Interest in Certain Regulated 
     Investment Companies.--Section 2105 (relating to property 
     without the United States for estate tax purposes) is amended 
     by adding at the end the following new subsection:
       ``(d) Stock in a RIC.--
       ``(1) In general.--For purposes of this subchapter, stock 
     in a regulated investment company (as defined in section 851) 
     owned by a nonresident not a citizen of the United States 
     shall not be deemed property within the United States in the 
     proportion that, at the end of the quarter of such investment 
     company's taxable year immediately preceding a decedent's 
     date of death (or at such other time as the Secretary may 
     designate in regulations), the assets of the investment 
     company that were qualifying assets with respect to the 
     decedent bore to the total assets of the investment company.
       ``(2) Qualifying assets.--For purposes of this subsection, 
     qualifying assets with respect to a decedent are assets that, 
     if owned directly by the decedent, would have been--
       ``(A) amounts, deposits, or debt obligations described in 
     subsection (b) of this section,
       ``(B) debt obligations described in the last sentence of 
     section 2104(c), or
       ``(C) other property not within the United States.''
       (c) Treatment of Regulated Investment Companies Under 
     Section 897.--
       (1) Paragraph (1) of section 897(h) is amended by striking 
     ``REIT'' each place it appears and inserting ``qualified 
     investment entity''.
       (2) Paragraphs (2) and (3) of section 897(h) are amended to 
     read as follows:
       ``(2) Sale of stock in domestically controlled entity not 
     taxed.--The term `United States real property interest' does 
     not include any interest in a domestically controlled 
     qualified investment entity.
       ``(3) Distributions by domestically controlled qualified 
     investment entities.--In the case of a domestically 
     controlled qualified investment entity, rules similar to the 
     rules of subsection (d) shall apply to the foreign ownership 
     percentage of any gain.''
       (3) Subparagraphs (A) and (B) of section 897(h)(4) are 
     amended to read as follows:
       ``(A) Qualified investment entity.--The term `qualified 
     investment entity' means any real estate investment trust and 
     any regulated investment company.
       ``(B) Domestically controlled.--The term `domestically 
     controlled qualified investment entity' means any qualified 
     investment entity in which at all times during the testing 
     period less than 50 percent in value of the stock was held 
     directly or indirectly by foreign persons.''
       (4) Subparagraphs (C) and (D) of section 897(h)(4) are each 
     amended by striking ``REIT'' and inserting ``qualified 
     investment entity''.
       (5) The subsection heading for subsection (h) of section 
     897 is amended by striking ``REITS'' and inserting ``Certain 
     Investment Entities''.
       (d) Effective Date.--
       (1) In general.--Except as otherwise provided in this 
     subsection, the amendments made by this section shall apply 
     to dividends with respect to taxable years of regulated 
     investment companies beginning after December 31, 2004.
       (2) Estate tax treatment.--The amendment made by subsection 
     (b) shall apply to estates of decedents dying after December 
     31, 2004.
       (3) Certain other provisions.--The amendments made by 
     subsection (c) (other than paragraph (1) thereof) shall take 
     effect on January 1, 2005.

     SEC. 908. REPEAL OF SPECIAL RULES FOR APPLYING FOREIGN TAX 
                   CREDIT IN CASE OF FOREIGN OIL AND GAS INCOME.

       (a) In General.--Section 907 (relating to special rules in 
     case of foreign oil and gas income) is repealed.
       (b) Conforming Amendments.--
       (1) Each of the following provisions are amended by 
     striking ``907,'':
       (A) Section 245(a)(10).
       (B) Section 865(h)(1)(B).
       (C) Section 904(d)(1).
       (D) Section 904(g)(10)(A).
       (2) Section 904(f)(5)(E)(iii) is amended by inserting ``, 
     as in effect before its repeal by the Financial Freedom Act 
     of 1999'' after ``section 907(c)(4)(B)''.
       (3) Section 954(g)(1) is amended by inserting ``, as in 
     effect before its repeal by the Financial Freedom Act of 
     1999'' after ``907(c)''.
       (4) Section 6501(i) is amended--
       (A) by striking ``, or under section 907(f) (relating to 
     carryback and carryover of disallowed oil and gas extraction 
     taxes)'', and
       (B) by striking ``or 907(f)''.
       (5) The table of sections for subpart A of part III of 
     subchapter N of chapter 1 is amended by striking the item 
     relating to section 907.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.

     SEC. 909. STUDY OF PROPER TREATMENT OF EUROPEAN UNION UNDER 
                   SAME COUNTRY EXCEPTIONS.

       (a) Study.--The Secretary of the Treasury or the 
     Secretary's delegate shall conduct a study on the feasibility 
     of treating all countries included in the European Union as 1 
     country for purposes of applying the same country exceptions 
     under subpart F of part III of subchapter N of chapter 1 of 
     the Internal Revenue Code of 1986.
       (b) Report.--Not later than 6 months after the date of the 
     enactment of this Act, the Secretary of the Treasury shall 
     report to the Committee on Ways and Means of the House of 
     Representatives and the Committee on Finance of the Senate 
     the results of the study conducted under subsection (a), 
     including recommendations (if any) for legislation.

     SEC. 910. APPLICATION OF DENIAL OF FOREIGN TAX CREDIT WITH 
                   RESPECT TO CERTAIN FOREIGN COUNTRIES.

       (a) In General.--Clause (ii) of section 901(j)(2)(B) 
     (relating to denial of foreign tax credit, etc., with respect 
     to certain foreign countries) is amended by inserting before 
     the period ``or, if earlier, ending on the date that the 
     President determines that the application of this subsection 
     to such foreign country is no longer in the national 
     interests of the United States''.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 911. ADVANCE PRICING AGREEMENTS TREATED AS CONFIDENTIAL 
                   TAXPAYER INFORMATION.

       (a) In General.--
       (1) Treatment as return information.--Paragraph (2) of 
     section 6103(b) (defining return information) is amended by 
     striking ``and'' at the end of subparagraph (A), by inserting 
     ``and'' at the end of subparagraph (B), and by inserting 
     after subparagraph (B) the following new subparagraph:
       ``(C) any advance pricing agreement entered into by a 
     taxpayer and the Secretary and any background information 
     related to such agreement or any application for an advance 
     pricing agreement,''.
       (2) Exception from public inspection as written 
     determination.--Paragraph (1) of section 6110(b) (defining 
     written determination) is amended by adding at the end the 
     following new sentence: ``Such term shall not include any 
     advance pricing agreement entered into by a taxpayer and the 
     Secretary and any background information related to such 
     agreement or any application for an advance pricing 
     agreement.''.
       (3) Effective date.--The amendments made by this subsection 
     shall take effect on the date of the enactment of this Act.
       (b) Annual Report Regarding Advance Pricing Agreements.--
       (1) In general.--Not later than 90 days after the end of 
     each calendar year, the Secretary of the Treasury shall 
     prepare and publish a report regarding advance pricing 
     agreements.
       (2) Contents of report.--The report shall include the 
     following for the calendar year to which such report relates:
       (A) Information about the structure, composition, and 
     operation of the advance pricing agreement program office.
       (B) A copy of each model advance pricing agreement.
       (C) The number of--
       (i) applications filed during such calendar year for 
     advanced pricing agreements;
       (ii) advance pricing agreements executed cumulatively to 
     date and during such calendar year;
       (iii) renewals of advanced pricing agreements issued;
       (iv) pending requests for advance pricing agreements;
       (v) pending renewals of advance pricing agreements;
       (vi) for each of the items in clauses (ii) through (v), the 
     number that are unilateral, bilateral, and multilateral, 
     respectively;
       (vii) advance pricing agreements revoked or canceled, and 
     the number of withdrawals from the advance pricing agreement 
     program; and
       (viii) advanced pricing agreements finalized or renewed by 
     industry.

[[Page 17166]]

       (D) General descriptions of--
       (i) the nature of the relationships between the related 
     organizations, trades, or businesses covered by advance 
     pricing agreements;
       (ii) the covered transactions and the business functions 
     performed and risks assumed by such organizations, trades, or 
     businesses;
       (iii) the related organizations, trades, or businesses 
     whose prices or results are tested to determine compliance 
     with transfer pricing methodologies prescribed in advanced 
     pricing agreements;
       (iv) methodologies used to evaluate tested parties and 
     transactions and the circumstances leading to the use of 
     those methodologies;
       (v) critical assumptions made and sources of comparables 
     used;
       (vi) comparable selection criteria and the rationale used 
     in determining such criteria;
       (vii) the nature of adjustments to comparables or tested 
     parties;
       (viii) the nature of any ranges agreed to, including 
     information regarding when no range was used and why, when 
     interquartile ranges were used, and when there was a 
     statistical narrowing of the comparables;
       (ix) adjustment mechanisms provided to rectify results that 
     fall outside of the agreed upon advance pricing agreement 
     range;
       (x) the various term lengths for advance pricing 
     agreements, including rollback years, and the number of 
     advance pricing agreements with each such term length;
       (xi) the nature of documentation required; and
       (xii) approaches for sharing of currency or other risks.
       (E) Statistics regarding the amount of time taken to 
     complete new and renewal advance pricing agreements.
       (3) Confidentiality.--The reports required by this 
     subsection shall be treated as authorized by the Internal 
     Revenue Code of 1986 for purposes of section 6103 of such 
     Code, but the reports shall not include information--
       (A) which would not be permitted to be disclosed under 
     section 6110(c) of such Code if such report were a written 
     determination as defined in section 6110 of such Code, or
       (B) which can be associated with, or otherwise identify, 
     directly or indirectly, a particular taxpayer.
       (4) First report.--The report for calendar year 1999 shall 
     include prior calendar years after 1990.
       (c) User Fee.--Section 7527, as added by title XV of this 
     Act, is amended by redesignating subsection (c) as subsection 
     (d) and by inserting after subsection (b) the following new 
     subsection:
       ``(c) Advance Pricing Agreements.--
       ``(1) In general.--In addition to any fee otherwise imposed 
     under this section, the fee imposed for requests for advance 
     pricing agreements shall be increased by $500.
       ``(2) Reduced fee for small businesses.--The Secretary 
     shall provide an appropriate reduction in the amount imposed 
     by reason of paragraph (1) for requests for advance pricing 
     agreements for small businesses.''
       (d) Regulations.--The Secretary of the Treasury or the 
     Secretary's delegate shall prescribe such regulations as may 
     be necessary or appropriate to carry out the purposes of 
     section 6103(b)(2)(C), and the last sentence of section 
     6110(b)(1), of the Internal Revenue Code of 1986, as added by 
     this section.

     SEC. 912. INCREASE IN DOLLAR LIMITATION ON SECTION 911 
                   EXCLUSION.

       (a) General Rule.--The table contained in clause (i) of 
     section 911(b)(2)(D) is amended to read as follows:

``For calendar year--                         The exclusion amount is--
  2000.........................................................$76,000 
  2001......................................................... 78,000 
  2002......................................................... 80,000 
  2003......................................................... 83,000 
  2004......................................................... 86,000 
  2005......................................................... 89,000 
  2006......................................................... 92,000 
  2007 and thereafter........................................ 95,000.''

       (b) Conforming Amendment.--Clause (ii) of section 
     911(b)(2)(D) is amended by striking ``$80,000'' and inserting 
     ``$95,000''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

        TITLE X--PROVISIONS RELATING TO TAX-EXEMPT ORGANIZATIONS

     SEC. 1001. 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,
       ``(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, 
     1999.

     SEC. 1002. MODIFICATION OF SPECIAL ARBITRAGE RULE FOR CERTAIN 
                   FUNDS.

       (a) In General.--Paragraph (1) of section 648 of the Tax 
     Reform Act of 1984 is amended to read as follows:
       ``(1) such securities or obligations are held in a fund--
       ``(A) which, except to the extent of the investment 
     earnings on such securities or obligations, cannot be used, 
     under State constitutional or statutory restrictions 
     continuously in effect since October 9, 1969, through the 
     date of issue of the bond issue, to pay debt service on the 
     bond issue or to finance the facilities that are to be 
     financed with the proceeds of the bonds, or
       ``(B) the annual distributions from which cannot exceed 7 
     percent of the average fair market value of the assets held 
     in such fund except to the extent distributions are necessary 
     to pay debt service on the bond issue,''.
       (b) Conforming Amendment.--Paragraph (3) of such section is 
     amended by striking ``the investment earnings of'' and 
     inserting ``distributions from''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on January 1, 2000.

     SEC. 1003. CHARITABLE SPLIT-DOLLAR LIFE INSURANCE, ANNUITY, 
                   AND ENDOWMENT CONTRACTS.

       (a) In General.--Subsection (f) of section 170 (relating to 
     disallowance of deduction in certain cases and special rules) 
     is amended by adding at the end the following new paragraph:
       ``(10) Split-dollar life insurance, annuity, and endowment 
     contracts.--
       ``(A) In general.--Nothing in this section or in section 
     545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), or 2522 shall 
     be construed to allow a deduction, and no deduction shall be 
     allowed, for any transfer to or for the use of an 
     organization described in subsection (c) if in connection 
     with such transfer--
       ``(i) the organization directly or indirectly pays, or has 
     previously paid, any premium on any personal benefit contract 
     with respect to the transferor, or
       ``(ii) there is an understanding or expectation that any 
     person will directly or indirectly pay any premium on any 
     personal benefit contract with respect to the transferor.

[[Page 17167]]

       ``(B) Personal benefit contract.--For purposes of 
     subparagraph (A), the term `personal benefit contract' means, 
     with respect to the transferor, any life insurance, annuity, 
     or endowment contract if any direct or indirect beneficiary 
     under such contract is the transferor, any member of the 
     transferor's family, or any other person (other than an 
     organization described in subsection (c)) designated by the 
     transferor.
       ``(C) Application to charitable remainder trusts.--In the 
     case of a transfer to a trust referred to in subparagraph 
     (E), references in subparagraphs (A) and (F) to an 
     organization described in subsection (c) shall be treated as 
     a reference to such trust.
       ``(D) Exception for certain annuity contracts.--If, in 
     connection with a transfer to or for the use of an 
     organization described in subsection (c), such organization 
     incurs an obligation to pay a charitable gift annuity (as 
     defined in section 501(m)) and such organization purchases 
     any annuity contract to fund such obligation, persons 
     receiving payments under the charitable gift annuity shall 
     not be treated for purposes of subparagraph (B) as indirect 
     beneficiaries under such contract if--
       ``(i) such organization possesses all of the incidents of 
     ownership under such contract,
       ``(ii) such organization is entitled to all the payments 
     under such contract, and
       ``(iii) the timing and amount of payments under such 
     contract are substantially the same as the timing and amount 
     of payments to each such person under such obligation (as 
     such obligation is in effect at the time of such transfer).
       ``(E) Exception for certain contracts held by charitable 
     remainder trusts.--A person shall not be treated for purposes 
     of subparagraph (B) as an indirect beneficiary under any life 
     insurance, annuity, or endowment contract held by a 
     charitable remainder annuity trust or a charitable remainder 
     unitrust (as defined in section 664(d)) solely by reason of 
     being entitled to any payment referred to in paragraph (1)(A) 
     or (2)(A) of section 664(d) if--
       ``(i) such trust possesses all of the incidents of 
     ownership under such contract, and
       ``(ii) such trust is entitled to all the payments under 
     such contract.
       ``(F) Excise tax on premiums paid.--
       ``(i) In general.--There is hereby imposed on any 
     organization described in subsection (c) an excise tax equal 
     to the premiums paid by such organization on any life 
     insurance, annuity, or endowment contract if the payment of 
     premiums on such contract is in connection with a transfer 
     for which a deduction is not allowable under subparagraph 
     (A), determined without regard to when such transfer is made.
       ``(ii) Payments by other persons.--For purposes of clause 
     (i), payments made by any other person pursuant to an 
     understanding or expectation referred to in subparagraph (A) 
     shall be treated as made by the organization.
       ``(iii) Reporting.--Any organization on which tax is 
     imposed by clause (i) with respect to any premium shall file 
     an annual return which includes--

       ``(I) the amount of such premiums paid during the year and 
     the name and TIN of each beneficiary under the contract to 
     which the premium relates, and
       ``(II) such other information as the Secretary may require.

     The penalties applicable to returns required under section 
     6033 shall apply to returns required under this clause. 
     Returns required under this clause shall be furnished at such 
     time and in such manner as the Secretary shall by forms or 
     regulations require.
       ``(iv) Certain rules to apply.--The tax imposed by this 
     subparagraph shall be treated as imposed by chapter 42 for 
     purposes of this title other than subchapter B of chapter 42.
       ``(G) Special rule where state requires specification of 
     charitable gift annuitant in contract.--In the case of an 
     obligation to pay a charitable gift annuity referred to in 
     subparagraph (D) which is entered into under the laws of a 
     State which requires, in order for the charitable gift 
     annuity to be exempt from insurance regulation by such State, 
     that each beneficiary under the charitable gift annuity be 
     named as a beneficiary under an annuity contract issued by an 
     insurance company authorized to transact business in such 
     State, the requirements of clauses (i) and (ii) of 
     subparagraph (D) shall be treated as met if--
       ``(i) such State law requirement was in effect on February 
     8, 1999,
       ``(ii) each such beneficiary under the charitable gift 
     annuity is a bona fide resident of such State at the time the 
     obligation to pay a charitable gift annuity is entered into, 
     and
       ``(iii) the only persons entitled to payments under such 
     contract are persons entitled to payments as beneficiaries 
     under such obligation on the date such obligation is entered 
     into.
       ``(H) Member of family.--For purposes of this paragraph, an 
     individual's family consists of the individual's 
     grandparents, the grandparents of such individual's spouse, 
     the lineal descendants of such grandparents, and any spouse 
     of such a lineal descendant.
       ``(I) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this paragraph, including regulations to 
     prevent the avoidance of such purposes.''
       (b) Effective Date.--
       (1) In general.--Except as otherwise provided in this 
     section, the amendment made by this section shall apply to 
     transfers made after February 8, 1999.
       (2) Excise tax.--Except as provided in paragraph (3) of 
     this subsection, section 170(f)(10)(F) of the Internal 
     Revenue Code of 1986 (as added by this section) shall apply 
     to premiums paid after the date of the enactment of this Act.
       (3) Reporting.--Clause (iii) of such section 170(f)(10)(F) 
     shall apply to premiums paid after February 8, 1999 
     (determined as if the tax imposed by such section applies to 
     premiums paid after such date).

     SEC. 1004. EXEMPTION PROCEDURE FROM TAXES ON SELF-DEALING.

       (a) In General.--Subsection (d) of section 4941 (relating 
     to taxes on self-dealing) is amended by adding at the end the 
     following new paragraph:
       ``(3) Special exemption.--The Secretary shall establish an 
     exemption procedure for purposes of this subsection. Pursuant 
     to such procedure, the Secretary may grant a conditional or 
     unconditional exemption of any disqualified person or 
     transaction or class of disqualified persons or transactions, 
     from all or part of the restrictions imposed by paragraph 
     (1). The Secretary may not grant an exemption under this 
     paragraph unless he finds that such exemption is--
       ``(A) administratively feasible,
       ``(B) in the interests of the private foundation, and
       ``(C) protective of the rights of the private foundation.
     Before granting an exemption under this paragraph, the 
     Secretary shall require adequate notice to be given to 
     interested persons and shall publish notice in the Federal 
     Register of the pendency of such exemption and shall afford 
     interested persons an opportunity to present views.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to transactions occurring after the date of the 
     enactment of this Act.

     SEC. 1005. EXPANSION OF DECLARATORY JUDGMENT REMEDY TO TAX-
                   EXEMPT ORGANIZATIONS.

       (a) In General.--Subsection (a) of section 7428 (relating 
     to creation of remedy) is amended--
       (1) in subparagraph (B) by inserting after ``509(a))'' the 
     following: ``or as a private operating foundation (as defined 
     in section 4942(j)(3))'', and
       (2) by amending subparagraph (C) to read as follows:
       ``(C) with respect to the initial qualification or 
     continuing qualification of an organization as an 
     organization described in section 501(c) (other than 
     paragraph (3)) which is exempt from tax under section 501(a), 
     or''.
       (b) Court Jurisdiction.--Subsection (a) of section 7428 is 
     amended in the material following paragraph (2) by striking 
     ``United States Tax Court, the United States Claims Court, or 
     the district court of the United States for the District of 
     Columbia'' and inserting the following: ``United States Tax 
     Court (in the case of any such determination or failure) or 
     the United States Claims Court or the district court of the 
     United States for the District of Columbia (in the case of a 
     determination or failure with respect to an issue referred to 
     in subparagraph (A) or (B) of paragraph (1)),''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to pleadings filed with respect to determinations 
     (or requests for determinations) made after the date of the 
     enactment of this Act.

     SEC. 1006. 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, 
     1999.
       (2) Payments subject to binding contract transition rule.--
     If the amendments made by section 1041 of the Taxpayer Relief 
     Act of 1997 do not apply to any amount received or accrued 
     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, 2000.

                    TITLE XI--REAL ESTATE PROVISIONS

    Subtitle A--Provisions Relating to Real Estate Investment Trusts

   PART I--TREATMENT OF INCOME AND SERVICES PROVIDED BY TAXABLE REIT 
                              SUBSIDIARIES

     SEC. 1101. MODIFICATIONS TO ASSET DIVERSIFICATION TEST.

       (a) In General.--Subparagraph (B) of section 856(c)(4) is 
     amended to read as follows:
       ``(B)(i) not more than 25 percent of the value of its total 
     assets is represented by securities (other than those 
     includible under subparagraph (A)), and
       ``(ii) except with respect to a taxable REIT subsidiary and 
     securities includible under subparagraph (A)--

[[Page 17168]]

       ``(I) not more than 5 percent of the value of its total 
     assets is represented by securities of any 1 issuer,
       ``(II) the trust does not hold securities possessing more 
     than 10 percent of the total voting power of the outstanding 
     securities of any 1 issuer, and
       ``(III) the trust does not hold securities having a value 
     of more than 10 percent of the total value of the outstanding 
     securities of any 1 issuer.''
       (b) Exception for Straight Debt Securities.--Subsection (c) 
     of section 856 is amended by adding at the end the following 
     new paragraph:
       ``(7) Straight debt safe harbor in applying paragraph 
     (4).--Securities of an issuer which are straight debt (as 
     defined in section 1361(c)(5) without regard to subparagraph 
     (B)(iii) thereof) shall not be taken into account in applying 
     paragraph (4)(B)(ii)(III) if--
       ``(A) the only securities of such issuer which are held by 
     the trust or a taxable REIT subsidiary of the trust are 
     straight debt (as so defined), or
       ``(B) the issuer is a partnership and the trust holds at 
     least a 20 percent profits interest in the partnership.''

     SEC. 1102. TREATMENT OF INCOME AND SERVICES PROVIDED BY 
                   TAXABLE REIT SUBSIDIARIES.

       (a) Income From Taxable REIT Subsidiaries Not Treated as 
     Impermissible Tenant Service Income.--Clause (i) of section 
     856(d)(7)(C) (relating to exceptions to impermissible tenant 
     service income) is amended by inserting ``or through a 
     taxable REIT subsidiary of such trust'' after ``income''.
       (b) Certain Income From Taxable REIT Subsidiaries Not 
     Excluded From Rents From Real Property.--
       (1) In general.--Subsection (d) of section 856 (relating to 
     rents from real property defined) is amended by adding at the 
     end the following new paragraphs:
       ``(8) Special rule for taxable reit subsidiaries.--For 
     purposes of this subsection, amounts paid to a real estate 
     investment trust by a taxable REIT subsidiary of such trust 
     shall not be excluded from rents from real property by reason 
     of paragraph (2)(B) if the requirements of subparagraph (A) 
     or (B) are met.
       ``(A) Limited rental exception.--The requirements of this 
     subparagraph are met with respect to any property if at least 
     90 percent of the leased space of the property is rented to 
     persons other than taxable REIT subsidiaries of such trust 
     and other than persons described in section 856(d)(2)(B). The 
     preceding sentence shall apply only to the extent that the 
     amounts paid to the trust as rents from real property (as 
     defined in paragraph (1) without regard to paragraph (2)(B)) 
     from such property are substantially comparable to such rents 
     made by the other tenants of the trust's property for 
     comparable space.
       ``(B) Exception for certain lodging facilities.--The 
     requirements of this subparagraph are met with respect to an 
     interest in real property which is a qualified lodging 
     facility leased by the trust to a taxable REIT subsidiary of 
     the trust if the property is operated on behalf of such 
     subsidiary by a person who is an eligible independent 
     contractor.
       ``(9) Eligible independent contractor.--For purposes of 
     paragraph (8)(B)--
       ``(A) In general.--The term `eligible independent 
     contractor' means, with respect to any qualified lodging 
     facility, any independent contractor if, at the time such 
     contractor enters into a management agreement or other 
     similar service contract with the taxable REIT subsidiary to 
     operate the facility, such contractor (or any related person) 
     is actively engaged in the trade or business of operating 
     qualified lodging facilities for any person who is not a 
     related person with respect to the real estate investment 
     trust or the taxable REIT subsidiary.
       ``(B) Special rules.--Solely for purposes of this paragraph 
     and paragraph (8)(B), a person shall not fail to be treated 
     as an independent contractor with respect to any qualified 
     lodging facility by reason of any of the following:
       ``(i) The taxable REIT subsidiary bears the expenses for 
     the operation of the facility pursuant to the management 
     agreement or other similar service contract.
       ``(ii) The taxable REIT subsidiary receives the revenues 
     from the operation of such facility, net of expenses for such 
     operation and fees payable to the operator pursuant to such 
     agreement or contract.
       ``(iii) The real estate investment trust receives income 
     from such person with respect to another property that is 
     attributable to a lease of such other property to such person 
     that was in effect as on the later of--

       ``(I) January 1, 1999, or
       ``(II) the earliest date that any taxable REIT subsidiary 
     of such trust entered into a management agreement or other 
     similar service contract with such person with respect to 
     such qualified lodging facility.

       ``(C) Renewals, etc., of existing leases.--For purposes of 
     subparagraph (B)(iii)--
       ``(i) a lease shall be treated as in effect on January 1, 
     1999, without regard to its renewal after such date, so long 
     as such renewal is pursuant to the terms of such lease as in 
     effect on whichever of the dates under subparagraph (B)(iii) 
     is the latest, and
       ``(ii) a lease of a property entered into after whichever 
     of the dates under subparagraph (B)(iii) is the latest shall 
     be treated as in effect on such date if--

       ``(I) on such date, a lease of such property from the trust 
     was in effect, and
       ``(II) under the terms of the new lease, such trust 
     receives a substantially similar or lesser benefit in 
     comparison to the lease referred to in subclause (I).

       ``(D) Qualified lodging facility.--For purposes of this 
     paragraph--
       ``(i) In general.--The term `qualified lodging facility' 
     means any lodging facility unless wagering activities are 
     conducted at or in connection with such facility by any 
     person who is engaged in the business of accepting wagers and 
     who is legally authorized to engage in such business at or in 
     connection with such facility.
       ``(ii) Lodging facility.--The term `lodging facility' means 
     a hotel, motel, or other establishment more than one-half of 
     the dwelling units in which are used on a transient basis.
       ``(iii) Customary amenities and facilities.--The term 
     `lodging facility' includes customary amenities and 
     facilities operated as part of, or associated with, the 
     lodging facility so long as such amenities and facilities are 
     customary for other properties of a comparable size and class 
     owned by other owners unrelated to such real estate 
     investment trust.
       ``(E) Operate includes manage.--References in this 
     paragraph to operating a property shall be treated as 
     including a reference to managing the property.
       ``(F) Related person.--Persons shall be treated as related 
     to each other if such persons are treated as a single 
     employer under subsection (a) or (b) of section 52.''.
       (2) Conforming amendment.--Subparagraph (B) of section 
     856(d)(2) is amended by inserting ``except as provided in 
     paragraph (8),'' after ``(B)''.

     SEC. 1103. TAXABLE REIT SUBSIDIARY.

       (a) In General.--Section 856 is amended by adding at the 
     end the following new subsection:
       ``(l) Taxable REIT Subsidiary.--For purposes of this part--
       ``(1) In general.--The term `taxable REIT subsidiary' 
     means, with respect to a real estate investment trust, a 
     corporation (other than a real estate investment trust) if--
       ``(A) such trust directly or indirectly owns stock in such 
     corporation, and
       ``(B) such trust and such corporation jointly elect that 
     such corporation shall be treated as a taxable REIT 
     subsidiary of such trust for purposes of this part.
     Such an election, once made, shall be irrevocable unless both 
     such trust and corporation consent to its revocation. Such 
     election, and any revocation thereof, may be made without the 
     consent of the Secretary.
       ``(2) 35 percent ownership in another taxable reit 
     subsidiary.--The term `taxable REIT subsidiary' includes, 
     with respect to any real estate investment trust, any 
     corporation (other than a real estate investment trust) with 
     respect to which a taxable REIT subsidiary of such trust owns 
     directly or indirectly--
       ``(A) securities possessing more than 35 percent of the 
     total voting power of the outstanding securities of such 
     corporation, or
       ``(B) securities having a value of more than 35 percent of 
     the total value of the outstanding securities of such 
     corporation.
     The preceding sentence shall not apply to a qualified REIT 
     subsidiary (as defined in subsection (i)(2)). The rule of 
     section 856(c)(7) shall apply for purposes of subparagraph 
     (B).
       ``(3) Exceptions.--The term `taxable REIT subsidiary' shall 
     not include--
       ``(A) any corporation which directly or indirectly operates 
     or manages a lodging facility or a health care facility, and
       ``(B) any corporation which directly or indirectly provides 
     to any other person (under a franchise, license, or 
     otherwise) rights to any brand name under which any lodging 
     facility or health care facility is operated.
     Subparagraph (B) shall not apply to rights provided to an 
     eligible independent contractor to operate or manage a 
     lodging facility if such rights are held by such corporation 
     as a franchisee, licensee, or in a similar capacity and such 
     lodging facility is either owned by such corporation or is 
     leased to such corporation from the real estate investment 
     trust.
       ``(4) Definitions.--For purposes of paragraph (3)--
       ``(A) Lodging facility.--The term `lodging facility' has 
     the meaning given to such term by paragraph (9)(D)(ii).
       ``(B) Health care facility.--The term `health care 
     facility' has the meaning given to such term by subsection 
     (e)(6)(D)(ii).''.
       (b) Conforming Amendment.--Paragraph (2) of section 856(i) 
     is amended by adding at the end the following new sentence: 
     ``Such term shall not include a taxable REIT subsidiary.''

     SEC. 1104. LIMITATION ON EARNINGS STRIPPING.

       Paragraph (3) of section 163(j) (relating to limitation on 
     deduction for interest on certain indebtedness) is amended by 
     striking ``and'' at the end of subparagraph (A), by striking 
     the period at the end of subparagraph (B) and inserting ``, 
     and'', and by adding at the end the following new 
     subparagraph:
       ``(C) any interest paid or accrued (directly or indirectly) 
     by a taxable REIT subsidiary (as defined in section 856(l)) 
     of a real estate investment trust to such trust.''.

     SEC. 1105. 100 PERCENT TAX ON IMPROPERLY ALLOCATED AMOUNTS.

       (a) In General.--Subsection (b) of section 857 (relating to 
     method of taxation of real estate investment trusts and 
     holders of shares or certificates of beneficial interest) is 
     amended by redesignating paragraphs (7) and (8) as paragraphs 
     (8) and (9), respectively, and by inserting after paragraph 
     (6) the following new paragraph:
       ``(7) Income from redetermined rents, redetermined 
     deductions, and excess interest.--

[[Page 17169]]

       ``(A) Imposition of tax.--There is hereby imposed for each 
     taxable year of the real estate investment trust a tax equal 
     to 100 percent of redetermined rents, redetermined 
     deductions, and excess interest.
       ``(B) Redetermined rents.--
       ``(i) In general.--The term `redetermined rents' means 
     rents from real property (as defined in subsection 856(d)) 
     the amount of which would (but for subparagraph (E)) be 
     reduced on distribution, apportionment, or allocation under 
     section 482 to clearly reflect income as a result of services 
     furnished or rendered by a taxable REIT subsidiary of the 
     real estate investment trust to a tenant of such trust.
       ``(ii) Exception for certain services.--Clause (i) shall 
     not apply to amounts received directly or indirectly by a 
     real estate investment trust for services described in 
     paragraph (1)(B) or (7)(C)(i) of section 856(d).
       ``(iii) Exception for de minimis amounts.--Clause (i) shall 
     not apply to amounts described in section 856(d)(7)(A) with 
     respect to a property to the extent such amounts do not 
     exceed the one percent threshold described in section 
     856(d)(7)(B) with respect to such property.
       ``(iv) Exception for comparably priced services.--Clause 
     (i) shall not apply to any service rendered by a taxable REIT 
     subsidiary of a real estate investment trust to a tenant of 
     such trust if--

       ``(I) such subsidiary renders a significant amount of 
     similar services to persons other than such trust and tenants 
     of such trust who are unrelated (within the meaning of 
     section 856(d)(8)(F)) to such subsidiary, trust, and tenants, 
     but
       ``(II) only to the extent the charge for such service so 
     rendered is substantially comparable to the charge for the 
     similar services rendered to persons referred to in subclause 
     (I).

       ``(v) Exception for certain separately charged services.--
     Clause (i) shall not apply to any service rendered by a 
     taxable REIT subsidiary of a real estate investment trust to 
     a tenant of such trust if--

       ``(I) the rents paid to the trust by tenants (leasing at 
     least 25 percent of the net leasable space in the trust's 
     property) who are not receiving such service from such 
     subsidiary are substantially comparable to the rents paid by 
     tenants leasing comparable space who are receiving such 
     service from such subsidiary, and
       ``(II) the charge for such service from such subsidiary is 
     separately stated.

       ``(vi) Exception for certain services based on subsidiary's 
     income from the services.--Clause (i) shall not apply to any 
     service rendered by a taxable REIT subsidiary of a real 
     estate investment trust to a tenant of such trust if the 
     gross income of such subsidiary from such service is not less 
     than 150 percent of such subsidiary's direct cost in 
     furnishing or rendering the service.
       ``(vii) Exceptions granted by secretary.--The Secretary may 
     waive the tax otherwise imposed by subparagraph (A) if the 
     trust establishes to the satisfaction of the Secretary that 
     rents charged to tenants were established on an arms' length 
     basis even though a taxable REIT subsidiary of the trust 
     provided services to such tenants.
       ``(C) Redetermined deductions.--The term `redetermined 
     deductions' means deductions (other than redetermined rents) 
     of a taxable REIT subsidiary of a real estate investment 
     trust if the amount of such deductions would (but for 
     subparagraph (E)) be increased on distribution, 
     apportionment, or allocation under section 482 to clearly 
     reflect income as between such subsidiary and such trust.
       ``(D) Excess interest.--The term `excess interest' means 
     any deductions for interest payments by a taxable REIT 
     subsidiary of a real estate investment trust to such trust to 
     the extent that the interest payments are in excess of a rate 
     that is commercially reasonable.
       ``(E) Coordination with section 482.--The imposition of tax 
     under subparagraph (A) shall be in lieu of any distribution, 
     apportionment, or allocation under section 482.
       ``(F) Regulatory authority.--The Secretary shall prescribe 
     such regulations as may be necessary or appropriate to carry 
     out the purposes of this paragraph. Until the Secretary 
     prescribes such regulations, real estate investment trusts 
     and their taxable REIT subsidiaries may base their 
     allocations on any reasonable method.''.
       (b) Amount Subject to Tax Not Required To Be Distributed.--
     Subparagraph (E) of section 857(b)(2) (relating to real 
     estate investment trust taxable income) is amended by 
     striking ``paragraph (5)'' and inserting ``paragraphs (5) and 
     (7)''.

     SEC. 1106. EFFECTIVE DATE.

       (a) In General.--The amendments made by this part shall 
     apply to taxable years beginning after December 31, 2000.
       (b) Transitional Rules Related to Section 1101.--
       (1) Existing arrangements.--
       (A) In general.--Except as otherwise provided in this 
     paragraph, the amendment made by section 1101 shall not apply 
     to a real estate investment trust with respect to--
       (i) securities of a corporation held directly or indirectly 
     by such trust on July 12, 1999,
       (ii) securities of a corporation held by an entity on July 
     12, 1999, if such trust acquires control of such entity 
     pursuant to a written binding contract in effect on such date 
     and at all times thereafter before such acquisition,
       (iii) securities received by such trust (or a successor) in 
     exchange for, or with respect to, securities described in 
     clause (i) or (ii) in a transaction in which gain or loss is 
     not recognized, and
       (iv) securities acquired directly or indirectly by such 
     trust as part of a reorganization (as defined in section 
     368(a)(1) of the Internal Revenue Code of 1986) with respect 
     to such trust if such securities are described in clause (i), 
     (ii), or (iii) with respect to any other real estate 
     investment trust.
       (B) New trade or business or substantial new assets.--
     Subparagraph (A) shall cease to apply to securities of a 
     corporation as of the first day after July 12, 1999, on which 
     such corporation engages in a substantial new line of 
     business, or acquires any substantial asset, other than--
       (i) pursuant to a binding contract in effect on such date 
     and at all times thereafter before the acquisition of such 
     asset,
       (ii) in a transaction in which gain or loss is not 
     recognized by reason of section 1031 or 1033 of the Internal 
     Revenue Code of 1986, or
       (iii) in a reorganization (as so defined) with another 
     corporation the securities of which are described in 
     paragraph (1)(A) of this subsection.
       (2) Tax-free conversion.--If--
       (A) at the time of an election for a corporation to become 
     a taxable REIT subsidiary, the amendment made by section 1101 
     does not apply to such corporation by reason of paragraph 
     (1), and
       (B) such election first takes effect before January 1, 
     2004,

     such election shall be treated as a reorganization qualifying 
     under section 368(a)(1)(A) of such Code.

                       PART II--HEALTH CARE REITS

     SEC. 1111. HEALTH CARE REITS.

       (a) Special Foreclosure Rule for Health Care Properties.--
     Subsection (e) of section 856 (relating to special rules for 
     foreclosure property) is amended by adding at the end the 
     following new paragraph:
       ``(6) Special rule for qualified health care properties.--
     For purposes of this subsection--
       ``(A) Acquisition at expiration of lease.--The term 
     `foreclosure property' shall include any qualified health 
     care property acquired by a real estate investment trust as 
     the result of the termination of a lease of such property 
     (other than a termination by reason of a default, or the 
     imminence of a default, on the lease).
       ``(B) Grace period.--In the case of a qualified health care 
     property which is foreclosure property solely by reason of 
     subparagraph (A), in lieu of applying paragraphs (2) and 
     (3)--
       ``(i) the qualified health care property shall cease to be 
     foreclosure property as of the close of the second taxable 
     year after the taxable year in which such trust acquired such 
     property, and
       ``(ii) if the real estate investment trust establishes to 
     the satisfaction of the Secretary that an extension of the 
     grace period in clause (i) is necessary to the orderly 
     leasing or liquidation of the trust's interest in such 
     qualified health care property, the Secretary may grant 1 or 
     more extensions of the grace period for such qualified health 
     care property.

     Any such extension shall not extend the grace period beyond 
     the close of the 6th year after the taxable year in which 
     such trust acquired such qualified health care property.
       ``(C) Income from independent contractors.--For purposes of 
     applying paragraph (4)(C) with respect to qualified health 
     care property which is foreclosure property by reason of 
     subparagraph (A) or paragraph (1), income derived or received 
     by the trust from an independent contractor shall be 
     disregarded to the extent such income is attributable to--
       ``(i) any lease of property in effect on the date the real 
     estate investment trust acquired the qualified health care 
     property (without regard to its renewal after such date so 
     long as such renewal is pursuant to the terms of such lease 
     as in effect on such date), or
       ``(ii) any lease of property entered into after such date 
     if--

       ``(I) on such date, a lease of such property from the trust 
     was in effect, and
       ``(II) under the terms of the new lease, such trust 
     receives a substantially similar or lesser benefit in 
     comparison to the lease referred to in subclause (I).

       ``(D) Qualified health care property.--
       ``(i) In general.--The term `qualified health care 
     property' means any real property (including interests 
     therein), and any personal property incident to such real 
     property, which--

       ``(I) is a health care facility, or
       ``(II) is necessary or incidental to the use of a health 
     care facility.

       ``(ii) Health care facility.--For purposes of clause (i), 
     the term `health care facility' means a hospital, nursing 
     facility, assisted living facility, congregate care facility, 
     qualified continuing care facility (as defined in section 
     7872(g)(4)), or other licensed facility which extends medical 
     or nursing or ancillary services to patients and which, 
     immediately before the termination, expiration, default, or 
     breach of the lease of or mortgage secured by such facility, 
     was operated by a provider of such services which was 
     eligible for participation in the medicare program under 
     title XVIII of the Social Security Act with respect to such 
     facility.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

      PART III--CONFORMITY WITH REGULATED INVESTMENT COMPANY RULES

     SEC. 1121. CONFORMITY WITH REGULATED INVESTMENT COMPANY 
                   RULES.

       (a) Distribution Requirement.--Clauses (i) and (ii) of 
     section 857(a)(1)(A) (relating to requirements applicable to 
     real estate investment

[[Page 17170]]

     trusts) are each amended by striking ``95 percent (90 percent 
     for taxable years beginning before January 1, 1980)'' and 
     inserting ``90 percent''.
       (b) Imposition of Tax.--Clause (i) of section 857(b)(5)(A) 
     (relating to imposition of tax in case of failure to meet 
     certain requirements) is amended by striking ``95 percent (90 
     percent in the case of taxable years beginning before January 
     1, 1980)'' and inserting ``90 percent''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

 PART IV--CLARIFICATION OF EXCEPTION FROM IMPERMISSIBLE TENANT SERVICE 
                                 INCOME

     SEC. 1131. CLARIFICATION OF EXCEPTION FOR INDEPENDENT 
                   OPERATORS.

       (a) In General.--Paragraph (3) of section 856(d) (relating 
     to independent contractor defined) is amended by adding at 
     the end the following flush sentence:

     ``In the event that any class of stock of either the real 
     estate investment trust or such person is regularly traded on 
     an established securities market, only persons who own, 
     directly or indirectly, more than 5 percent of such class of 
     stock shall be taken into account as owning any of the stock 
     of such class for purposes of applying the 35 percent 
     limitation set forth in subparagraph (B) (but all of the 
     outstanding stock of such class shall be considered 
     outstanding in order to compute the denominator for purpose 
     of determining the applicable percentage of ownership).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

           PART V--MODIFICATION OF EARNINGS AND PROFITS RULES

     SEC. 1141. MODIFICATION OF EARNINGS AND PROFITS RULES.

       (a) Rules for Determining Whether Regulated Investment 
     Company Has Earnings and Profits From Non-RIC Year.--
     Subsection (c) of section 852 is amended by adding at the end 
     the following new paragraph:
       ``(3) Distributions to meet requirements of subsection 
     (a)(2)(B).--Any distribution which is made in order to comply 
     with the requirements of subsection (a)(2)(B)--
       ``(A) shall be treated for purposes of this subsection and 
     subsection (a)(2)(B) as made from the earliest earnings and 
     profits accumulated in any taxable year to which the 
     provisions of this part did not apply rather than the most 
     recently accumulated earnings and profits, and
       ``(B) to the extent treated under subparagraph (A) as made 
     from accumulated earnings and profits, shall not be treated 
     as a distribution for purposes of subsection (b)(2)(D) and 
     section 855.''.
       (b) Clarification of Application of REIT Spillover Dividend 
     Rules to Distributions To Meet Qualification Requirement.--
     Subparagraph (B) of section 857(d)(3) is amended by inserting 
     before the period ``and section 858''.
       (c) Application of Deficiency Dividend Procedures.--
     Paragraph (1) of section 852(e) is amended by adding at the 
     end the following new sentence: ``If the determination under 
     subparagraph (A) is solely as a result of the failure to meet 
     the requirements of subsection (a)(2), the preceding sentence 
     shall also apply for purposes of applying subsection (a)(2) 
     to the non-RIC year.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

          PART VI--STUDY RELATING TO TAXABLE REIT SUBSIDIARIES

     SEC. 1151. STUDY RELATING TO TAXABLE REIT SUBSIDIARIES.

       The Commissioner of the Internal Revenue shall conduct a 
     study to determine how many taxable REIT subsidiaries are in 
     existence and the aggregate amount of taxes paid by such 
     subsidiaries. The Secretary shall submit a report to the 
     Congress describing the results of such study.

     Subtitle B--Modification of At-Risk Rules for Publicly Traded 
                            Nonrecourse Debt

     SEC. 1161. TREATMENT UNDER AT-RISK RULES OF PUBLICLY TRADED 
                   NONRECOURSE DEBT.

       (a) In General.--Subparagraph (A) of section 465(b)(6) 
     (relating to qualified nonrecourse financing treated as 
     amount at risk) is amended by striking ``share of'' and all 
     that follows and inserting ``share of--
       ``(i) any qualified nonrecourse financing which is secured 
     by real property used in such activity, and
       ``(ii) any other financing which--

       ``(I) would (but for subparagraph (B)(ii)) be qualified 
     nonrecourse financing,
       ``(II) is qualified publicly traded debt, and
       ``(III) is not borrowed by the taxpayer from a person 
     described in subclause (I), (II), or (III) of section 
     49(a)(1)(D)(iv).''

       (b) Qualified Publicly Traded Debt.--Paragraph (6) of 
     section 465(b) is amended by adding at the end the following 
     new subparagraph:
       ``(F) Qualified publicly traded debt.--For purposes of 
     subparagraph (A), the term `qualified publicly traded debt' 
     means any debt instrument which is readily tradable on an 
     established securities market. Such term shall not include 
     any debt instrument which has a yield to maturity which 
     equals or exceeds the limitation in section 163(i)(1)(B).''
       (c) Effective Date.--The amendments made by this section 
     shall apply to debt instruments issued after December 31, 
     1999.

     Subtitle C--Treatment of Construction Allowances and Certain 
                 Contributions to Capital of Retailers

     SEC. 1171. EXCLUSION FROM GROSS INCOME OF QUALIFIED LESSEE 
                   CONSTRUCTION ALLOWANCES NOT LIMITED FOR CERTAIN 
                   RETAILERS TO SHORT-TERM LEASES.

       (a) In General.--Subsection (a) section 110 (relating to 
     qualified lessee construction allowances for short-term 
     leases) is amended by adding at the end the following new 
     sentence: ``Paragraph (1) shall not apply if the lessee is a 
     qualified retail business (as defined by section 118(d)(3) 
     without regard to the proximity requirement in subparagraph 
     (A) thereof).''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to leases entered into after December 31, 1999.

     SEC. 1172. EXCLUSION FROM GROSS INCOME FOR CERTAIN 
                   CONTRIBUTIONS TO THE CAPITAL OF CERTAIN 
                   RETAILERS.

       (a) In General.--Section 118 (relating to contributions to 
     the capital of a corporation) is amended by redesignating 
     subsections (d) and (e) as subsections (e) and (f), 
     respectively, and by inserting after subsection (c) the 
     following new subsection:
       ``(d) Safe Harbor for Contributions to Certain Retailers.--
       ``(1) General rule.--For purposes of this section, the term 
     `contribution to the capital of the taxpayer' includes any 
     amount of money or other property received by the taxpayer 
     if--
       ``(A) the taxpayer has entered into an agreement to operate 
     (or cause to be operated) a qualified retail business at a 
     particular location for a period of at least 15 years,
       ``(B)(i) immediately after the receipt of such money or 
     other property, the taxpayer owns the land and the structure 
     to be used by the taxpayer in carrying on a qualified retail 
     business at such location, or
       ``(ii) the taxpayer uses such amount to acquire ownership 
     of at least such land and structure,
       ``(C) such amount meets the requirements of the expenditure 
     rule of paragraph (2), and
       ``(D) the contributor of such amount does not hold a 
     beneficial interest in any property located on the premises 
     of such qualified retail business other than de minimis 
     amounts of property associated with the operation of property 
     adjacent to such premises.
       ``(2) Expenditure rule.--An amount meets the requirements 
     of this paragraph if--
       ``(A) an amount equal to such amount is expended for the 
     acquisition of land or for acquisition or construction of 
     other property described in section 1231(b)--
       ``(i) which was the purpose motivating the contribution, 
     and
       ``(ii) which is used predominantly in a qualified retail 
     business at the location referred to in paragraph (1)(A),
       ``(B) the expenditure referred to in subparagraph (A) 
     occurs before the end of the second taxable year after the 
     year in which such amount was received, and
       ``(C) accurate records are kept of the amounts contributed 
     and expenditures made on the basis of the project for which 
     the contribution was made and on the basis of the year of the 
     contribution expenditure.
       ``(3) Definition of qualified retail business.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     the term `qualified retail business' means a trade or 
     business of selling tangible personal property to the general 
     public if the premises on which such trade or business is 
     conducted is in close proximity to property that the 
     contributor of the amount referred to in paragraph (1) is 
     developing or operating for profit (or, in the case of a 
     contributor which is a governmental entity, is attempting to 
     revitalize).
       ``(B) Services.--A trade or business shall not fail to be 
     treated as a qualified retail business by reason of sales of 
     services if such sales are incident to the sale of tangible 
     personal property or if the services are de minimis in 
     amount.
       ``(4) Special rules.--
       ``(A) Leases.--For purposes of paragraph (1)(B)(i), 
     property shall be treated as owned by the taxpayer if the 
     taxpayer is the lessee of such property under a lease having 
     a term of at least 30 years and on which only nominal rent is 
     required.
       ``(B) Controlled groups.--For purposes of this subsection, 
     all persons treated as a single employer under subsection (a) 
     or (b) of section 52 shall be treated as 1 person.
       ``(5) Disallowance of deductions and credits; adjusted 
     basis.--Notwithstanding any other provision of this subtitle, 
     no deduction or credit shall be allowed for, or by reason of, 
     any amount received by the taxpayer which constitutes a 
     contribution to capital to which this subsection applies. The 
     adjusted basis of any property acquired with the 
     contributions to which this subsection applies shall be 
     reduced by the amount of the contributions to which this 
     subsection applies.
       ``(6) Regulations.--The Secretary shall prescribe such 
     regulations are appropriate to prevent the abuse of the 
     purposes of the subsection, including regulations which 
     allocate income and deductions (or adjust the amount 
     excludable under this subsection) in cases in which--
       ``(A) payments in excess of fair market value are paid to 
     the contributor by the taxpayer, or

[[Page 17171]]

       ``(B) the contributor and the taxpayer are related 
     parties.''
       (b) Conforming Amendment.--Subsection (e) of section 118 
     (as redesignated by subsection (a)) is amended by adding at 
     the end the following flush sentence:
     ``Rules similar to the rules of the preceding sentence shall 
     apply to any amount treated as a contribution to the capital 
     of the taxpayer under subsection (d).''
       (c) Effective Date.--The amendments made by this section 
     shall apply to amounts received after December 31, 1999.

               TITLE XII--PROVISIONS RELATING TO PENSIONS

                     Subtitle A--Expanding Coverage

     SEC. 1201. INCREASE IN BENEFIT AND CONTRIBUTION LIMITS.

       (a) Defined Benefit Plans.--
       (1) Dollar limit.--
       (A) Subparagraph (A) of section 415(b)(1) (relating to 
     limitation for defined benefit plans) is amended by striking 
     ``$90,000'' and inserting ``$160,000''.
       (B) Subparagraphs (C) and (D) of section 415(b)(2) are each 
     amended by striking ``$90,000'' each place it appears in the 
     headings and the text and inserting ``$160,000''.
       (C) Paragraph (7) of section 415(b) (relating to benefits 
     under certain collectively bargained plans) is amended by 
     striking ``the greater of $68,212 or one-half the amount 
     otherwise applicable for such year under paragraph (1)(A) for 
     `$90,000' '' and inserting ``one-half the amount otherwise 
     applicable for such year under paragraph (1)(A) for 
     `$160,000' ''.
       (2) Limit reduced when benefit begins before age 62.--
     Subparagraph (C) of section 415(b)(2) is amended by striking 
     ``the social security retirement age'' each place it appears 
     in the heading and text and inserting ``age 62''.
       (3) Limit increased when benefit begins after age 65.--
     Subparagraph (D) of section 415(b)(2) is amended by striking 
     ``the social security retirement age'' each place it appears 
     in the heading and text and inserting ``age 65''.
       (4) Cost-of-living adjustments.--Subsection (d) of section 
     415 (related to cost-of-living adjustments) is amended--
       (A) in paragraph (1)(A) by striking ``$90,000'' and 
     inserting ``$160,000'', and
       (B) in paragraph (3)(A)--
       (i) by striking ``$90,000'' in the heading and inserting 
     ``$160,000'', and
       (ii) by striking ``October 1, 1986'' and inserting ``July 
     1, 2000''.
       (5) Conforming amendment.--Section 415(b)(2) is amended by 
     striking subparagraph (F).
       (b) Defined Contribution Plans.--
       (1) Dollar limit.--Subparagraph (A) of section 415(c)(1) 
     (relating to limitation for defined contribution plans) is 
     amended by striking ``$30,000'' and inserting ``$40,000''.
       (2) Cost-of-living adjustments.--Subsection (d) of section 
     415 (related to cost-of-living adjustments) is amended--
       (A) in paragraph (1)(C) by striking ``$30,000'' and 
     inserting ``$40,000'', and
       (B) in paragraph (3)(D)--
       (i) by striking ``$30,000'' in the heading and inserting 
     ``$40,000'', and
       (ii) by striking ``October 1, 1993'' and inserting ``July 
     1, 2000''.
       (c) Qualified Trusts.--
       (1) Compensation limit.--Sections 401(a)(17), 404(l), 
     408(k), and 505(b)(7) are each amended by striking 
     ``$150,000'' each place it appears and inserting 
     ``$200,000''.
       (2) Base period and rounding of cost-of-living 
     adjustment.--Subparagraph (B) of section 401(a)(17) is 
     amended--
       (A) by striking ``October 1, 1993'' and inserting ``July 1, 
     2000'', and
       (B) by striking ``$10,000'' both places it appears and 
     inserting ``$5,000''.
       (d) Elective Deferrals.--
       (1) In general.--Paragraph (1) of section 402(g) (relating 
     to limitation on exclusion for elective deferrals) is amended 
     to read as follows:
       ``(1) In general.--
       ``(A) Limitation.--Notwithstanding subsections (e)(3) and 
     (h)(1)(B), the elective deferrals of any individual for any 
     taxable year shall be included in such individual's gross 
     income to the extent the amount of such deferrals for the 
     taxable year exceeds the applicable dollar amount.
       ``(B) Applicable dollar amount.--For purposes of 
     subparagraph (A), the applicable dollar amount shall be the 
     amount determined in accordance with the following table:

    ``Taxable year:                           Applicable dollar amount:
      2001.....................................................$11,000 
      2002.....................................................$12,000 
      2003.....................................................$13,000 
      2004.....................................................$14,000 
      2005 or thereafter....................................$15,000.''.
       (2) Cost-of-living adjustment.--Paragraph (5) of section 
     402(g) is amended to read as follows:
       ``(5) Cost-of-living adjustment.--In the case of taxable 
     years beginning after December 31, 2005, the Secretary shall 
     adjust the $15,000 amount under paragraph (1)(B) at the same 
     time and in the same manner as under section 415(d); except 
     that the base period shall be the calendar quarter beginning 
     July 1, 2004, and any increase under this paragraph which is 
     not a multiple of $500 shall be rounded to the next lowest 
     multiple of $500.''.
       (3) Conforming amendments.--
       (A) Section 402(g) (relating to limitation on exclusion for 
     elective deferrals), as amended by paragraphs (1) and (2), is 
     further amended by striking paragraph (4) and redesignating 
     paragraphs (5), (6), (7), (8), and (9) as paragraphs (4), 
     (5), (6), (7), and (8), respectively.
       (B) Paragraph (2) of section 457(c) is amended by striking 
     ``402(g)(8)(A)(iii)'' and inserting ``402(g)(7)(A)(iii)''.
       (C) Clause (iii) of section 501(c)(18)(D) is amended by 
     striking ``(other than paragraph (4) thereof)''.
       (e) Deferred Compensation Plans of State and Local 
     Governments and Tax-Exempt Organizations.--
       (1) In general.--Section 457 (relating to deferred 
     compensation plans of State and local governments and tax-
     exempt organizations) is amended--
       (A) in subsections (b)(2)(A) and (c)(1) by striking 
     ``$7,500'' each place it appears and inserting ``the 
     applicable dollar amount'', and
       (B) in subsection (b)(3)(A) by striking ``$15,000'' and 
     inserting ``twice the dollar amount in effect under 
     subsection (b)(2)(A)''.
       (2) Applicable dollar amount; cost-of-living adjustment.--
     Paragraph (15) of section 457(e) is amended to read as 
     follows:
       ``(15) Applicable dollar amount.--
       ``(A) In general.--The applicable dollar amount shall be 
     the amount determined in accordance with the following table:

    ``Taxable year:                           Applicable dollar amount:
      2001.....................................................$11,000 
      2002.....................................................$12,000 
      2003.....................................................$13,000 
      2004.....................................................$14,000 
      2005 or thereafter.......................................$15,000.
       ``(B) Cost-of-living adjustments.--In the case of taxable 
     years beginning after December 31, 2005, the Secretary shall 
     adjust the $15,000 amount specified in the table in 
     subparagraph (A) at the same time and in the same manner as 
     under section 415(d), except that the base period shall be 
     the calendar quarter beginning July 1, 2004, and any increase 
     under this paragraph which is not a multiple of $500 shall be 
     rounded to the next lowest multiple of $500.''.
       (f) Simple Retirement Accounts.--
       (1) Limitation.--Clause (ii) of section 408(p)(2)(A) 
     (relating to general rule for qualified salary reduction 
     arrangement) is amended by striking ``$6,000'' and inserting 
     ``the applicable dollar amount''.
       (2) Applicable dollar amount.--Subparagraph (E) of 
     408(p)(2) is amended to read as follows:
       ``(E) Applicable dollar amount; cost-of-living 
     adjustment.--
       ``(i) In general.--For purposes of subparagraph (A)(ii), 
     the applicable dollar amount shall be the amount determined 
     in accordance with the following table:

        ``Year:                               Applicable dollar amount:
          2001..................................................$7,000 
          2002..................................................$8,000 
          2003..................................................$9,000 
          2004 or thereafter...................................$10,000.
       ``(ii) Cost-of-living adjustment.--In the case of a year 
     beginning after December 31, 2004, the Secretary shall adjust 
     the $10,000 amount under clause (i) at the same time and in 
     the same manner as under section 415(d), except that the base 
     period taken into account shall be the calendar quarter 
     beginning July 1, 2003, and any increase under this 
     subparagraph which is not a multiple of $500 shall be rounded 
     to the next lower multiple of $500.''.
       (3) Conforming amendments.--
       (A) Clause (I) of section 401(k)(11)(B)(i) is amended by 
     striking ``$6,000'' and inserting ``the amount in effect 
     under section 408(p)(2)(A)(ii)''.
       (B) Section 401(k)(11) is amended by striking subparagraph 
     (E).
       (g) Rounding Rule Relating to Defined Benefit Plans and 
     Defined Contribution Plans.--Paragraph (4) of section 415(d) 
     is amended to read as follows:
       ``(4) Rounding.--
       ``(A) $160,000 amount.--Any increase under subparagraph (A) 
     of paragraph (1) which is not a multiple of $5,000 shall be 
     rounded to the next lowest multiple of $5,000.
       ``(B) $40,000 amount.--Any increase under subparagraph (C) 
     of paragraph (1) which is not a multiple of $1,000 shall be 
     rounded to the next lowest multiple of $1,000.''.
       (h) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to years beginning after December 31, 2000.
       (2) Collective bargaining agreements.--In the case of a 
     plan maintained pursuant to 1 or more collective bargaining 
     agreements between employee representatives and 1 or more 
     employers ratified by the date of enactment of this Act, the 
     amendments made by this section shall not apply to 
     contributions or benefits pursuant to any such agreement for 
     years beginning before the earlier of--
       (A) the later of--
       (i) the date on which the last of such collective 
     bargaining agreements terminates (determined without regard 
     to any extension thereof on or after such date of enactment), 
     or
       (ii) January 1, 2001, or
       (B) January 1, 2005.

     SEC. 1202. PLAN LOANS FOR SUBCHAPTER S OWNERS, PARTNERS, AND 
                   SOLE PROPRIETORS.

       (a) In General.--Subparagraph (B) of section 4975(f)(6) 
     (relating to exemptions not to apply to certain transactions) 
     is amended by adding at the end the following new clause:
       ``(iii) Loan exception.--For purposes of subparagraph 
     (A)(i), the term `owner-employee' shall only include a person 
     described in subclause (II) or (III) of clause (i).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to loans made after December 31, 2000.

[[Page 17172]]



     SEC. 1203. MODIFICATION OF TOP-HEAVY RULES.

       (a) Simplification of Definition of Key Employee.--
       (1) In general.--Section 416(i)(1)(A) (defining key 
     employee) is amended--
       (A) by striking ``or any of the 4 preceding plan years'' in 
     the matter preceding clause (i),
       (B) by striking clause (i) and inserting the following:
       ``(i) an officer of the employer having an annual 
     compensation greater than $150,000,'',
       (C) by striking clause (ii) and redesignating clauses (iii) 
     and (iv) as clauses (ii) and (iii), respectively, and
       (D) by striking the second sentence in the matter following 
     clause (iii), as redesignated by subparagraph (C).
       (2) Conforming amendment.--Section 416(i)(1)(B)(iii) is 
     amended by striking ``and subparagraph (A)(ii)''.
       (b) Matching Contributions Taken Into Account for Minimum 
     Contribution Requirements.--Section 416(c)(2)(A) (relating to 
     defined contribution plans) is amended by adding at the end 
     the following: ``Employer matching contributions (as defined 
     in section 401(m)(4)(A)) shall be taken into account for 
     purposes of this subparagraph.''.
       (c) Distributions During Last Year Before Determination 
     Date Taken Into Account.--
       (1) In general.--Paragraph (3) of section 416(g) is amended 
     to read as follows:
       ``(3) Distributions during last year before determination 
     date taken into account.--
       ``(A) In general.--For purposes of determining--
       ``(i) the present value of the cumulative accrued benefit 
     for any employee, or
       ``(ii) the amount of the account of any employee,

     such present value or amount shall be increased by the 
     aggregate distributions made with respect to such employee 
     under the plan during the 1-year period ending on the 
     determination date. The preceding sentence shall also apply 
     to distributions under a terminated plan which if it had not 
     been terminated would have been required to be included in an 
     aggregation group.
       ``(B) 5-year period in case of in-service distribution.--In 
     the case of any distribution made for a reason other than 
     separation from service, death, or disability, subparagraph 
     (A) shall be applied by substituting `5-year period' for `1-
     year period'.''.
       (2) Benefits not taken into account.--Subparagraph (E) of 
     section 416(g)(4) is amended--
       (A) by striking ``last 5 years'' in the heading and 
     inserting ``last year before determination date'', and
       (B) by striking ``5-year period'' and inserting ``1-year 
     period''.
       (d) Definition of Top-Heavy Plans.--Paragraph (4) of 
     section 416(g) (relating to other special rules for top-heavy 
     plans) is amended by adding at the end the following new 
     subparagraph:
       ``(H) Cash or deferred arrangements using alternative 
     methods of meeting nondiscrimination requirements.--The term 
     `top-heavy plan' shall not include a plan which consists 
     solely of--
       ``(i) a cash or deferred arrangement which meets the 
     requirements of section 401(k)(12), and
       ``(ii) matching contributions with respect to which the 
     requirements of section 401(m)(11) are met.

     If, but for this subparagraph, a plan would be treated as a 
     top-heavy plan because it is a member of an aggregation group 
     which is a top-heavy group, contributions under the plan may 
     be taken into account in determining whether any other plan 
     in the group meets the requirements of subsection (c)(2).''
       (e) Frozen Plan Exempt From Minimum Benefit Requirement.--
     Subparagraph (C) of section 416(c)(1) (relating to defined 
     benefit plans) is amended--
       (A) in clause (i), by striking ``clause (ii)'' and 
     inserting ``clause (ii) or (iii)'', and
       (B) by adding at the end the following:
       ``(iii) Exception for frozen plan.--For purposes of 
     determining an employee's years of service with the employer, 
     any service with the employer shall be disregarded to the 
     extent that such service occurs during a plan year when the 
     plan benefits (within the meaning of section 410(b)) no 
     employee or former employee.''.
       (f) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1204. ELECTIVE DEFERRALS NOT TAKEN INTO ACCOUNT FOR 
                   PURPOSES OF DEDUCTION LIMITS.

       (a) In General.--Section 404 (relating to deduction for 
     contributions of an employer to an employees' trust or 
     annuity plan and compensation under a deferred payment plan) 
     is amended by adding at the end the following new subsection:
       ``(n) Elective Deferrals Not Taken Into Account for 
     Purposes of Deduction Limits.--Elective deferrals (as defined 
     in section 402(g)(3)) shall not be subject to any limitation 
     contained in paragraph (3), (7), or (9) of subsection (a), 
     and such elective deferrals shall not be taken into account 
     in applying any such limitation to any other 
     contributions.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1207. REPEAL OF COORDINATION REQUIREMENTS FOR DEFERRED 
                   COMPENSATION PLANS OF STATE AND LOCAL 
                   GOVERNMENTS AND TAX-EXEMPT ORGANIZATIONS.

       (a) In General.--Subsection (c) of section 457 (relating to 
     deferred compensation plans of State and local governments 
     and tax-exempt organizations), as amended by section 1201(e), 
     is amended to read as follows:
       ``(c) Limitation.--The maximum amount of the compensation 
     of any one individual which may be deferred under subsection 
     (a) during any taxable year shall not exceed the amount in 
     effect under subsection (b)(2)(A) (as modified by any 
     adjustment provided under subsection (b)(3)).''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to years beginning after December 31, 2000.

     SEC. 1208. ELIMINATION OF USER FEE FOR REQUESTS TO IRS 
                   REGARDING PENSION PLANS.

       (a) Elimination of Certain User Fees.--The Secretary of the 
     Treasury or the Secretary's delegate shall not require 
     payment of user fees under the program established under 
     section 7527 of the Internal Revenue Code of 1986 for 
     requests to the Internal Revenue Service for determination 
     letters with respect to the qualified status of a pension 
     benefit plan maintained solely by one or more eligible 
     employers or any trust which is part of the plan. The 
     preceding sentence shall not apply to any request made by the 
     sponsor of any prototype or similar plan which the sponsor 
     intends to market to participating employers.
       (b) Pension Benefit Plan.--For purposes of this section, 
     the term ``pension benefit plan'' means a pension, profit-
     sharing, stock bonus, annuity, or employee stock ownership 
     plan.
       (c) Eligible Employer.--For purposes of this section, the 
     term ``eligible employer'' has the same meaning given such 
     term in section 408(p)(2)(C)(i)(I) of the Internal Revenue 
     Code of 1986. The determination of whether an employer is an 
     eligible employer under this section shall be made as of the 
     date of the request described in subsection (a).
       (d) Effective Date.--The provisions of this section shall 
     apply with respect to requests made after December 31, 2000.

     SEC. 1209. DEDUCTION LIMITS.

       (a) In General.--Section 404(a) (relating to general rule) 
     is amended by adding at the end the following:
       ``(12) Definition of compensation.--For purposes of 
     paragraphs (3), (7), (8), and (9), the term `compensation' 
     shall include amounts treated as participant's compensation 
     under subparagraph (C) or (D) of section 415(c)(3).''.
       (b) Conforming Amendment.--Subparagraph (B) of section 
     404(a)(3) is amended by striking the last sentence thereof.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1210. OPTION TO TREAT ELECTIVE DEFERRALS AS AFTER-TAX 
                   CONTRIBUTIONS.

       (a) In General.--Subpart A of part I of subchapter D of 
     chapter 1 (relating to deferred compensation, etc.) is 
     amended by inserting after section 402 the following new 
     section:

     ``SEC. 402A. OPTIONAL TREATMENT OF ELECTIVE DEFERRALS AS PLUS 
                   CONTRIBUTIONS.

       ``(a) General Rule.--If an applicable retirement plan 
     includes a qualified plus contribution program--
       ``(1) any designated plus contribution made by an employee 
     pursuant to the program shall be treated as an elective 
     deferral for purposes of this chapter, except that such 
     contribution shall not be excludable from gross income, and
       ``(2) such plan (and any arrangement which is part of such 
     plan) shall not be treated as failing to meet any requirement 
     of this chapter solely by reason of including such program.
       ``(b) Qualified Plus Contribution Program.--For purposes of 
     this section--
       ``(1) In general.--The term `qualified plus contribution 
     program' means a program under which an employee may elect to 
     make designated plus contributions in lieu of all or a 
     portion of elective deferrals the employee is otherwise 
     eligible to make under the applicable retirement plan.
       ``(2) Separate accounting required.--A program shall not be 
     treated as a qualified plus contribution program unless the 
     applicable retirement plan--
       ``(A) establishes separate accounts (`designated plus 
     accounts') for the designated plus contributions of each 
     employee and any earnings properly allocable to the 
     contributions, and
       ``(B) maintains separate recordkeeping with respect to each 
     account.
       ``(c) Definitions and Rules Relating to Designated Plus 
     Contributions.--For purposes of this section--
       ``(1) Designated plus contribution.--The term `designated 
     plus contribution' means any elective deferral which--
       ``(A) is excludable from gross income of an employee 
     without regard to this section, and
       ``(B) the employee designates (at such time and in such 
     manner as the Secretary may prescribe) as not being so 
     excludable.
       ``(2) Designation limits.--The amount of elective deferrals 
     which an employee may designate under paragraph (1) shall not 
     exceed the excess (if any) of--
       ``(A) the maximum amount of elective deferrals excludable 
     from gross income of the employee for the taxable year 
     (without regard to this section), over
       ``(B) the aggregate amount of elective deferrals of the 
     employee for the taxable year which the employee does not 
     designate under paragraph (1).
       ``(3) Rollover contributions.--
       ``(A) In general.--A rollover contribution of any payment 
     or distribution from a designated

[[Page 17173]]

     plus account which is otherwise allowable under this chapter 
     may be made only if the contribution is to--
       ``(i) another designated plus account of the individual 
     from whose account the payment or distribution was made, or
       ``(ii) a Roth IRA of such individual.
       ``(B) Coordination with limit.--Any rollover contribution 
     to a designated plus account under subparagraph (A) shall not 
     be taken into account for purposes of paragraph (1).
       ``(d) Distribution Rules.--For purposes of this title--
       ``(1) Exclusion.--Any qualified distribution from a 
     designated plus account shall not be includible in gross 
     income.
       ``(2) Qualified distribution.--For purposes of this 
     subsection--
       ``(A) In general.--The term `qualified distribution' has 
     the meaning given such term by section 408A(d)(2)(A) (without 
     regard to clause (iv) thereof).
       ``(B) Distributions within nonexclusion period.--A payment 
     or distribution from a designated plus account shall not be 
     treated as a qualified distribution if such payment or 
     distribution is made within the 5-taxable-year period 
     beginning with the earlier of--
       ``(i) the 1st taxable year for which the individual made a 
     designated plus contribution to any designated plus account 
     established for such individual under the same applicable 
     retirement plan, or
       ``(ii) if a rollover contribution was made to such 
     designated plus account from a designated plus account 
     previously established for such individual under another 
     applicable retirement plan, the 1st taxable year for which 
     the individual made a designated plus contribution to such 
     previously established account.
       ``(C) Distributions of excess deferrals and earnings.--The 
     term `qualified distribution' shall not include any 
     distribution of any excess deferral under section 402(g)(2) 
     and any income on the excess deferral.
       ``(3) Aggregation rules.--Section 72 shall be applied 
     separately with respect to distributions and payments from a 
     designated plus account and other distributions and payments 
     from the plan.
       ``(e) Other Definitions.--For purposes of this section--
       ``(1) Applicable retirement plan.--The term `applicable 
     retirement plan' means--
       ``(A) an employees' trust described in section 401(a) which 
     is exempt from tax under section 501(a), and
       ``(B) a plan under which amounts are contributed by an 
     individual's employer for an annuity contract described in 
     section 403(b).
       ``(2) Elective deferral.--The term `elective deferral' 
     means any elective deferral described in subparagraph (A) or 
     (C) of section 402(g)(3).''
       (b) Excess Deferrals.--Section 402(g) (relating to 
     limitation on exclusion for elective deferrals) is amended--
       (1) by adding at the end of paragraph (1) the following new 
     sentence: ``The preceding sentence shall not apply to so much 
     of such excess as does not exceed the designated plus 
     contributions of the individual for the taxable year.'', and
       (2) by inserting ``(or would be included but for the last 
     sentence thereof)'' after ``paragraph (1)'' in paragraph 
     (2)(A).
       (c) Rollovers.--Subparagraph (B) of section 402(c)(8) is 
     amended by adding at the end the following:

     ``If any portion of an eligible rollover distribution is 
     attributable to payments or distributions from a designated 
     plus account (as defined in section 402A), an eligible 
     retirement plan with respect to such portion shall include 
     only another designated plus account and a Roth IRA.''
       (d) Reporting Requirements.--
       (1) W-2 information.--Section 6051(a)(8) is amended by 
     inserting ``, including the amount of designated plus 
     contributions (as defined in section 402A)'' before the comma 
     at the end.
       (2) Information.--Section 6047 is amended by redesignating 
     subsection (f) as subsection (g) and by inserting after 
     subsection (e) the following new subsection:
       ``(f) Designated Plus Contributions.--The Secretary shall 
     require the plan administrator of each applicable retirement 
     plan (as defined in section 402A) to make such returns and 
     reports regarding designated plus contributions (as so 
     defined) to the Secretary, participants and beneficiaries of 
     the plan, and such other persons as the Secretary may 
     prescribe.''
       (e) Conforming Amendments.--
       (1) Section 408A(e) is amended by adding after the first 
     sentence the following new sentence: ``Such term includes a 
     rollover contribution described in section 402A(c)(3)(A).''
       (2) The table of sections for subpart A of part I of 
     subchapter D of chapter 1 is amended by inserting after the 
     item relating to section 402 the following new item:

``Sec. 402A. Optional treatment of elective deferrals as plus 
              contributions.''
       (f) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 1211. INCREASE IN MINIMUM DEFINED BENEFIT LIMIT UNDER 
                   SECTION 415.

       (a) In General.--Paragraph (4) of section 415(b) (relating 
     to total annual benefits not in excess of $10,000) is amended 
     to read as follows:
       ``(4) Total annual benefits not in excess of $40,000.--
     Notwithstanding the preceding provisions of this subsection, 
     the benefits payable with respect to a participant under any 
     defined benefit plan shall be deemed not to exceed the 
     limitation of this subsection if the retirement benefits 
     payable with respect to such participant under such plan and 
     under all other defined benefit plans of the employer do not 
     exceed $40,000 for the plan year or any prior plan year. The 
     preceding sentence shall be applied by substituting for 
     `$40,000'--
       ``(A) $20,000 if the plan year begins during 2001, and
       ``(B) $30,000 if the plan year begins during 2002.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

                Subtitle B--Enhancing Fairness for Women

     SEC. 1221. ADDITIONAL SALARY REDUCTION CATCH-UP 
                   CONTRIBUTIONS.

       (a) Limitation on Exclusion for Elective Deferrals.--
       (1) In general.--Subsection (g) of section 402 (as amended 
     by section 1201(d)) is further amended by adding at the end 
     the following:
       ``(9) Catch-up contributions for those approaching 
     retirement.--
       ``(A) In general.--In the case of an individual who is at 
     least age 50 as of the end of any taxable year, the 
     limitation of paragraph (1) for such year, after the 
     application of paragraph (7), shall be increased by the 
     applicable catch-up amount.
       ``(B) Applicable catch-up amount.--For purposes of 
     subparagraph (A), the applicable catch-up amount shall be the 
     amount determined in accordance with the following table:

``Taxable year:                             Applicable catch-up amount:
      2001......................................................$1,000 
      2002......................................................$2,000 
      2003......................................................$3,000 
      2004......................................................$4,000 
      2005 or thereafter.....................................$5,000.''.
       (2) Cost-of-living adjustments.--Paragraph (4) of section 
     402(g) (relating to cost-of-living adjustment), as amended by 
     section 1201(d), is further amended by inserting ``and the 
     $5,000 dollar amount in paragraph (9)'' after ``paragraph 
     (1)(B)''.
       (b) Simple Retirement Accounts.--Paragraph (2) of section 
     408(p) (relating to qualified salary reduction arrangement) 
     is amended by inserting at the end of the following new 
     subparagraph:
       ``(F) Catch-up contributions for those approaching 
     retirement.--In the case of an individual who is at least age 
     50 as of the end of any taxable year, the limitation of 
     subparagraph (A)(ii) for such year shall be increased by the 
     applicable catch-up amount. For purposes of the preceding 
     sentence, the applicable catch-up amount is the amount in 
     effect under section 402(g)(9) for such taxable year.''.
       (c) Deferred Compensation Plans of State and Local 
     Governments and Tax-Exempt Organizations.--Subsection (e) of 
     section 457 (relating to other definitions and special rules) 
     is amended by adding after paragraph (16) the following new 
     paragraph:
       ``(17) Catch-up amounts.--In the case of an individual who 
     is at least age 50 as of the end of any taxable year, the 
     limitation of subsection (b)(2)(A) for such year shall be 
     increased by the applicable catch-up amount (as in effect 
     under section 402(g)(9) for such taxable year), except that 
     this paragraph shall not apply to any taxable year to which 
     subsection (b)(3) applies.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1222. EQUITABLE TREATMENT FOR CONTRIBUTIONS OF EMPLOYEES 
                   TO DEFINED CONTRIBUTION PLANS.

       (a) Equitable Treatment.--
       (1) In general.--Subparagraph (B) of section 415(c)(1) 
     (relating to limitation for defined contribution plans) is 
     amended by striking ``25 percent'' and inserting ``100 
     percent''.
       (2) Application to section 403(b).--Section 403(b) is 
     amended--
       (A) by striking ``the exclusion allowance for such taxable 
     year'' in paragraph (1) and inserting ``the applicable limit 
     under section 415'',
       (B) by striking paragraph (2), and
       (C) by inserting ``or any amount received by a former 
     employee after the 5th taxable year following the taxable 
     year in which such employee was terminated'' before the 
     period at the end of the second sentence of paragraph (3).
       (3) Conforming amendments.--
       (A) Subsection (f) of section 72 is amended by striking 
     ``section 403(b)(2)(D)(iii))'' and inserting ``section 
     403(b)(2)(D)(iii), as in effect on December 31, 2000)''.
       (B) Section 404(a)(10)(B) is amended by striking ``, the 
     exclusion allowance under section 403(b)(2),''.
       (C) Section 415(a)(2) is amended by striking ``, and the 
     amount of the contribution for such portion shall reduce the 
     exclusion allowance as provided in section 403(b)(2)''.
       (D) Section 415(c)(3) is amended by adding at the end the 
     following new subparagraph:
       ``(E) Annuity contracts.--In the case of an annuity 
     contract described in section 403(b), the term `participant's 
     compensation' means the participant's includible compensation 
     determined under section 403(b)(3).''.
       (E) Section 415(c) is amended by striking paragraph (4).
       (F) Section 415(c)(7) is amended to read as follows:
       ``(7) Certain contributions by church plans not treated as 
     exceeding limit.--
       ``(A) In general.--Notwithstanding any other provision of 
     this subsection, at the election of a participant who is an 
     employee of a church or a convention or association of 
     churches, including an organization described in section

[[Page 17174]]

     414(e)(3)(B)(ii), contributions and other additions for an 
     annuity contract or retirement income account described in 
     section 403(b) with respect to such participant, when 
     expressed as an annual addition to such participant's 
     account, shall be treated as not exceeding the limitation of 
     paragraph (1) if such annual addition is not in excess of 
     $10,000.
       ``(B) $40,000 aggregate limitation.--The total amount of 
     additions with respect to any participant which may be taken 
     into account for purposes of this subparagraph for all years 
     may not exceed $40,000.
       ``(C) Annual addition.--For purposes of this paragraph, the 
     term `annual addition' has the meaning given such term by 
     paragraph (2).''.
       (G) Subparagraph (B) of section 402(g)(7) (as amended by 
     section 1201(d)) is amended by inserting before the period at 
     the end the following: ``(as in effect on the date of the 
     enactment of the Financial Freedom Act of 1999)''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to years beginning after December 31, 2000.
       (b) Special Rules for Sections 403(b) and 408.--
       (1) In general.--Subsection (k) of section 415 is amended 
     by adding at the end the following new paragraph:
       ``(4) Special rules for sections 403(b) and 408.--For 
     purposes of this section, any annuity contract described in 
     section 403(b) for the benefit of a participant shall be 
     treated as a defined contribution plan maintained by each 
     employer with respect to which the participant has the 
     control required under subsection (b) or (c) of section 414 
     (as modified by subsection (h)). For purposes of this 
     section, any contribution by an employer to a simplified 
     employee pension plan for an individual for a taxable year 
     shall be treated as an employer contribution to a defined 
     contribution plan for such individual for such year.''.
       (2) Effective date.--
       (A) In general.--The amendment made by paragraph (1) shall 
     apply to limitation years beginning after December 31, 1999.
       (B) Exclusion allowance.--Effective for limitation years 
     beginning in 2000, in the case of any annuity contract 
     described in section 403(b) of the Internal Revenue Code of 
     1986, the amount of the contribution disqualified by reason 
     of section 415(g) of such Code shall reduce the exclusion 
     allowance as provided in section 403(b)(2) of such Code.
       (c) Deferred Compensation Plans of State and Local 
     Governments and Tax-Exempt Organizations.--
       (1) In general.--Subparagraph (B) of section 457(b)(2) 
     (relating to salary limitation on eligible deferred 
     compensation plans) is amended by striking ``33\1/3\ 
     percent'' and inserting ``100 percent''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 2000.

     SEC. 1223. FASTER VESTING OF CERTAIN EMPLOYER MATCHING 
                   CONTRIBUTIONS.

       (a) In General.--Section 411(a) (relating to minimum 
     vesting standards) is amended--
       (1) in paragraph (2), by striking ``A plan'' and inserting 
     ``Except as provided in paragraph (12), a plan'', and
       (2) by adding at the end the following:
       ``(12) Faster vesting for matching contributions.--In the 
     case of matching contributions (as defined in section 
     401(m)(4)(A)), paragraph (2) shall be applied--
       ``(A) by substituting `3 years' for `5 years' in 
     subparagraph (A), and
       ``(B) by substituting the following table for the table 
     contained in subparagraph (B):

                                                     The nonforfeitable
    ``Years of service:                                percentage is:  
      2.............................................................20 
      3.............................................................40 
      4.............................................................60 
      5.............................................................80 
      6 or more.................................................100.''.
       (b) Effective Dates.--
       (1) In general.--Except as provided in paragraph (2), the 
     amendments made by this section shall apply to plan years 
     beginning after December 31, 2000.
       (2) Collective bargaining agreements.--In the case of a 
     plan maintained pursuant to 1 or more collective bargaining 
     agreements between employee representatives and 1 or more 
     employers ratified by the date of the enactment of this Act, 
     the amendments made by this section shall not apply to plan 
     years beginning before the earlier of--
       (A) the later of--
       (i) the date on which the last of such collective 
     bargaining agreements terminates (determined without regard 
     to any extension thereof on or after such date of enactment), 
     or
       (ii) January 1, 2001, or
       (B) January 1, 2005.
       (3) Service required.--With respect to any plan, the 
     amendments made by this section shall not apply to any 
     employee before the date that such employee has 1 hour of 
     service under such plan in any plan year to which the 
     amendments made by this section apply.

     SEC. 1224. SIMPLIFY AND UPDATE THE MINIMUM DISTRIBUTION 
                   RULES.

       (a) Simplification and Finalization of Minimum Distribution 
     Requirements.--
       (1) In general.--The Secretary of the Treasury shall--
       (A) simplify and finalize the regulations relating to 
     minimum distribution requirements under sections 401(a)(9), 
     408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2) of the 
     Internal Revenue Code of 1986, and
       (B) modify such regulations to--
       (i) reflect current life expectancy, and
       (ii) revise the required distribution methods so that, 
     under reasonable assumptions, the amount of the required 
     minimum distribution does not decrease over a participant's 
     life expectancy.
       (2) Fresh start.--Notwithstanding subparagraph (D) of 
     section 401(a)(9) of such Code, during the first year that 
     regulations are in effect under this subsection, required 
     distributions for future years may be redetermined to reflect 
     changes under such regulations. Such redetermination shall 
     include the opportunity to choose a new designated 
     beneficiary and to elect a new method of calculating life 
     expectancy.
       (3) Effective date for regulations.--Regulations referred 
     to in paragraph (1) shall be effective for years beginning 
     after December 31, 2000, and shall apply in such years 
     without regard to whether an individual had previously begun 
     receiving minimum distributions.
       (b) Repeal of Rule Where Distributions Had Begun Before 
     Death Occurs.--
       (1) In general.--Subparagraph (B) of section 401(a)(9) is 
     amended by striking clause (i) and redesignating clauses 
     (ii), (iii), and (iv) as clauses (i), (ii), and (iii), 
     respectively.
       (2) Conforming changes.--
       (A) Clause (i) of section 401(a)(9)(B) (as so redesignated) 
     is amended--
       (i) by striking ``for other cases'' in the heading, and
       (ii) by striking ``the distribution of the employee's 
     interest has begun in accordance with subparagraph (A)(ii)'' 
     and inserting ``his entire interest has been distributed to 
     him,''.
       (B) Clause (ii) of section 401(a)(9)(B) (as so 
     redesignated) is amended by striking ``clause (ii)'' and 
     inserting ``clause (i)''.
       (C) Clause (iii) of section 401(a)(9)(B) (as so 
     redesignated) is amended--
       (i) by striking ``clause (iii)(I)'' and inserting ``clause 
     (ii)(I)'',
       (ii) in subclause (I) by striking ``clause (iii)(III)'' and 
     inserting ``clause (ii)(III)'',
       (iii) in subclause (I) by striking ``the date on which the 
     employee would have attained the age 70\1/2\,'' and inserting 
     ``April 1 of the calendar year following the calendar year in 
     which the spouse attains 70\1/2\,'', and
       (iv) in subclause (II) by striking ``the distributions to 
     such spouse begin,'' and inserting ``his entire interest has 
     been distributed to him,''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to years beginning after December 31, 2000.
       (c) Reduction in Excise Tax.--
       (1) In general.--Subsection (a) of section 4974 is amended 
     by striking ``50 percent'' and inserting ``10 percent''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 2000.

     SEC. 1225. CLARIFICATION OF TAX TREATMENT OF DIVISION OF 
                   SECTION 457 PLAN BENEFITS UPON DIVORCE.

       (a) In General.--Section 414(p)(11) (relating to 
     application of rules to governmental and church plans) is 
     amended--
       (1) by inserting ``or an eligible deferred compensation 
     plan (within the meaning of section 457(b))'' after 
     ``subsection (e))'', and
       (2) in the heading, by striking ``governmental and church 
     plans'' and inserting ``certain other plans''.
       (b) Waiver of Certain Distribution Requirements.--Paragraph 
     (10) of section 414(p) is amended by striking ``and section 
     409(d)'' and inserting ``section 409(d), and section 
     457(d)''.
       (c) Tax Treatment of Payments From a Section 457 Plan.--
     Subsection (p) of section 414 is amended by redesignating 
     paragraph (12) as paragraph (13) and inserting after 
     paragraph (11) the following new paragraph:
       ``(12) Tax treatment of payments from a section 457 plan.--
     If a distribution or payment from an eligible deferred 
     compensation plan described in section 457(b) is made 
     pursuant to a qualified domestic relations order, rules 
     similar to the rules of section 402(e)(1)(A) shall apply to 
     such distribution or payment.''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to transfers, distributions, and payments made 
     after December 31, 2000.

          Subtitle C--Increasing Portability for Participants

     SEC. 1231. ROLLOVERS ALLOWED AMONG VARIOUS TYPES OF PLANS.

       (a) Rollovers From and to Section 457 Plans.--
       (1) Rollovers from section 457 plans.--
       (A) In general.--Section 457(e) (relating to other 
     definitions and special rules) is amended by adding at the 
     end the following:
       ``(16) Rollover amounts.--
       ``(A) General rule.--In the case of an eligible deferred 
     compensation plan established and maintained by an employer 
     described in subsection (e)(1)(A), if--
       ``(i) any portion of the balance to the credit of an 
     employee in such plan is paid to such employee in an eligible 
     rollover distribution (within the meaning of section 
     402(c)(4) without regard to subparagraph (C) thereof),
       ``(ii) the employee transfers any portion of the property 
     such employee receives in such distribution to an eligible 
     retirement plan described in section 402(c)(8)(B), and
       ``(iii) in the case of a distribution of property other 
     than money, the amount so transferred consists of the 
     property distributed,

     then such distribution (to the extent so transferred) shall 
     not be includible in gross income for the taxable year in 
     which paid.
       ``(B) Certain rules made applicable.--The rules of 
     paragraphs (2) through (7) (other than

[[Page 17175]]

     paragraph (4)(C)) and (9) of section 402(c) and section 
     402(f) shall apply for purposes of subparagraph (A).
       ``(C) Reporting.--Rollovers under this paragraph shall be 
     reported to the Secretary in the same manner as rollovers 
     from qualified retirement plans (as defined in section 
     4974(c)).''.
       (B) Deferral limit determined without regard to rollover 
     amounts.--Section 457(b)(2) (defining eligible deferred 
     compensation plan) is amended by inserting ``(other than 
     rollover amounts)'' after ``taxable year''.
       (C) Direct rollover.--Paragraph (1) of section 457(d) is 
     amended by striking ``and'' at the end of subparagraph (A), 
     by striking the period at the end of subparagraph (B) and 
     inserting ``, and'', and by inserting after subparagraph (B) 
     the following:
       ``(C) in the case of a plan maintained by an employer 
     described in subsection (e)(1)(A), the plan meets 
     requirements similar to the requirements of section 
     401(a)(31).

     Any amount transferred in a direct trustee-to-trustee 
     transfer in accordance with section 401(a)(31) shall not be 
     includible in gross income for the taxable year of 
     transfer.''.
       (D) Withholding.--
       (i) Paragraph (12) of section 3401(a) is amended by adding 
     at the end the following:
       ``(E) under or to an eligible deferred compensation plan 
     which, at the time of such payment, is a plan described in 
     section 457(b) maintained by an employer described in section 
     457(e)(1)(A); or''.
       (ii) Paragraph (3) of section 3405(c) is amended to read as 
     follows:
       ``(3) Eligible rollover distribution.--For purposes of this 
     subsection, the term `eligible rollover distribution' has the 
     meaning given such term by section 402(f)(2)(A).''.
       (iii) Liability for withholding.--Subparagraph (B) of 
     section 3405(d)(2) is amended by striking ``or'' at the end 
     of clause (ii), by striking the period at the end of clause 
     (iii) and inserting ``, or'', and by adding at the end the 
     following:
       ``(iv) section 457(b).''.
       (2) Rollovers to section 457 plans.--
       (A) In general.--Section 402(c)(8)(B) (defining eligible 
     retirement plan) is amended by striking ``and'' at the end of 
     clause (iii), by striking the period at the end of clause 
     (iv) and inserting ``, and'', and by inserting after clause 
     (iv) the following new clause:
       ``(v) an eligible deferred compensation plan described in 
     section 457(b) of an employer described in section 
     457(e)(1)(A).''.
       (B) Separate accounting.--Section 402(c) is amended by 
     adding at the end the following new paragraph:
       ``(11) Separate accounting.--Unless a plan described in 
     clause (v) of paragraph (8)(B) agrees to separately account 
     for amounts rolled into such plan from eligible retirement 
     plans not described in such clause, the plan described in 
     such clause may not accept transfers or rollovers from such 
     retirement plans.''.
       (C) 10 percent additional tax.--Subsection (t) of section 
     72 (relating to 10-percent additional tax on early 
     distributions from qualified retirement plans) is amended by 
     adding at the end the following new paragraph:
       ``(9) Special rule for rollovers to section 457 plans.--For 
     purposes of this subsection, a distribution from an eligible 
     deferred compensation plan (as defined in section 457(b)) of 
     an employer described in section 457(e)(1)(A) shall be 
     treated as a distribution from a qualified retirement plan 
     described in 4974(c)(1) to the extent that such distribution 
     is attributable to an amount transferred to an eligible 
     deferred compensation plan from a qualified retirement plan 
     (as defined in section 4974(c)).''.
       (b) Allowance of Rollovers From and to 403(b) Plans.--
       (1) Rollovers from section 403(b) plans.--Section 
     403(b)(8)(A)(ii) (relating to rollover amounts) is amended by 
     striking ``such distribution'' and all that follows and 
     inserting ``such distribution to an eligible retirement plan 
     described in section 402(c)(8)(B), and''.
       (2) Rollovers to section 403(b) plans.--Section 
     402(c)(8)(B) (defining eligible retirement plan), as amended 
     by subsection (a), is amended by striking ``and'' at the end 
     of clause (iv), by striking the period at the end of clause 
     (v) and inserting

     ``, and'', and by inserting after clause (v) the following 
     new clause:
       ``(vi) an annuity contract described in section 403(b).''
       (c) Expanded Explanation to Recipients of Rollover 
     Distributions.--Paragraph (1) of section 402(f) (relating to 
     written explanation to recipients of distributions eligible 
     for rollover treatment) is amended by striking ``and'' at the 
     end of subparagraph (C), by striking the period at the end of 
     subparagraph (D) and inserting ``, and'', and by adding at 
     the end the following new subparagraph:
       ``(E) of the provisions under which distributions from the 
     eligible retirement plan receiving the distribution may be 
     subject to restrictions and tax consequences which are 
     different from those applicable to distributions from the 
     plan making such distribution.''.
       (d) Spousal Rollovers.--Section 402(c)(9) (relating to 
     rollover where spouse receives distribution after death of 
     employee) is amended by striking ``; except that'' and all 
     that follows up to the end period.
       (e) Conforming Amendments.--
       (1) Section 72(o)(4) is amended by striking ``and 
     408(d)(3)'' and inserting ``403(b)(8), 408(d)(3), and 
     457(e)(16)''.
       (2) Section 219(d)(2) is amended by striking ``or 
     408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
       (3) Section 401(a)(31)(B) is amended by striking ``and 
     403(a)(4)'' and inserting ``, 403(a)(4), 403(b)(8), and 
     457(e)(16)''.
       (4) Subparagraph (A) of section 402(f)(2) is amended by 
     striking ``or paragraph (4) of section 403(a)'' and inserting 
     ``, paragraph (4) of section 403(a), subparagraph (A) of 
     section 403(b)(8), or subparagraph (A) of section 
     457(e)(16)''.
       (5) Paragraph (1) of section 402(f) is amended by striking 
     ``from an eligible retirement plan''.
       (6) Subparagraphs (A) and (B) of section 402(f)(1) are 
     amended by striking ``another eligible retirement plan'' and 
     inserting ``an eligible retirement plan''.
       (7) Subparagraph (B) of section 403(b)(8) is amended to 
     read as follows:
       ``(B) Certain rules made applicable.--The rules of 
     paragraphs (2) through (7) and (9) of section 402(c) and 
     section 402(f) shall apply for purposes of subparagraph (A), 
     except that section 402(f) shall be applied to the payor in 
     lieu of the plan administrator.''.
       (8) Section 408(a)(1) is amended by striking ``or 
     403(b)(8)'' and inserting ``, 403(b)(8), or 457(e)(16)''.
       (9) Subparagraphs (A) and (B) of section 415(b)(2) are each 
     amended by striking ``and 408(d)(3)'' and inserting 
     ``403(b)(8), 408(d)(3), and 457(e)(16)''.
       (10) Section 415(c)(2) is amended by striking ``and 
     408(d)(3)'' and inserting ``408(d)(3), and 457(e)(16)''.
       (11) Section 4973(b)(1)(A) is amended by striking ``or 
     408(d)(3)'' and inserting ``408(d)(3), or 457(e)(16)''.
       (f) Effective Date; Special Rule.--
       (1) Effective date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.
       (2) Special rule.--Notwithstanding any other provision of 
     law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
     Reform Act of 1986 shall not apply to any distribution from 
     an eligible retirement plan (as defined in clause (iii) or 
     (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 
     1986) on behalf of an individual if there was a rollover to 
     such plan on behalf of such individual which is permitted 
     solely by reason of any amendment made by this section.

     SEC. 1232. ROLLOVERS OF IRAS INTO WORKPLACE RETIREMENT PLANS.

       (a) In General.--Subparagraph (A) of section 408(d)(3) 
     (relating to rollover amounts) is amended by adding ``or'' at 
     the end of clause (i), by striking clauses (ii) and (iii), 
     and by adding at the end the following:
       ``(ii) the entire amount received (including money and any 
     other property) is paid into an eligible retirement plan for 
     the benefit of such individual not later than the 60th day 
     after the date on which the payment or distribution is 
     received, except that the maximum amount which may be paid 
     into such plan may not exceed the portion of the amount 
     received which is includible in gross income (determined 
     without regard to this paragraph).

     For purposes of clause (ii), the term `eligible retirement 
     plan' has the meaning given such term by clauses (iii), (iv), 
     (v), and (vi) of section 402(c)(8)(B).''.
       (b) Conforming Amendments.--
       (1) Paragraph (1) of section 403(b) is amended by striking 
     ``section 408(d)(3)(A)(iii)'' and inserting ``section 
     408(d)(3)(A)(ii)''.
       (2) Clause (i) of section 408(d)(3)(D) is amended by 
     striking ``(i), (ii), or (iii)'' and inserting ``(i) or 
     (ii)''.
       (3) Subparagraph (G) of section 408(d)(3) is amended to 
     read as follows:
       ``(G) Simple retirement accounts.--In the case of any 
     payment or distribution out of a simple retirement account 
     (as defined in subsection (p)) to which section 72(t)(6) 
     applies, this paragraph shall not apply unless such payment 
     or distribution is paid into another simple retirement 
     account.''.
       (c) Effective Date; Special Rule.--
       (1) Effective date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.
       (2) Special rule.--Notwithstanding any other provision of 
     law, subsections (h)(3) and (h)(5) of section 1122 of the Tax 
     Reform Act of 1986 shall not apply to any distribution from 
     an eligible retirement plan (as defined in clause (iii) or 
     (iv) of section 402(c)(8)(B) of the Internal Revenue Code of 
     1986) on behalf of an individual if there was a rollover to 
     such plan on behalf of such individual which is permitted 
     solely by reason of the amendments made by this section.

     SEC. 1233. ROLLOVERS OF AFTER-TAX CONTRIBUTIONS.

       (a) Rollovers From Exempt Trusts.--Paragraph (2) of section 
     402(c) (relating to maximum amount which may be rolled over) 
     is amended by adding at the end the following: ``The 
     preceding sentence shall not apply to such distribution to 
     the extent--
       ``(A) such portion is transferred in a direct trustee-to-
     trustee transfer to a qualified trust which is part of a plan 
     which is a defined contribution plan and which agrees to 
     separately account for amounts so transferred, including 
     separately accounting for the portion of such distribution 
     which is includible in gross income and the portion of such 
     distribution which is not so includible, or
       ``(B) such portion is transferred to an eligible retirement 
     plan described in clause (i) or (ii) of paragraph (8)(B).''.
       (b) Optional Direct Transfer of Eligible Rollover 
     Distributions.--Subparagraph (B) of section 401(a)(31) 
     (relating to limitation) is

[[Page 17176]]

     amended by adding at the end the following: ``The preceding 
     sentence shall not apply to such distribution if the plan to 
     which such distribution is transferred--
       ``(i) agrees to separately account for amounts so 
     transferred, including separately accounting for the portion 
     of such distribution which is includible in gross income and 
     the portion of such distribution which is not so includible, 
     or
       ``(ii) is an eligible retirement plan described in clause 
     (i) or (ii) of section 402(c)(8)(B).''.
       (c) Rules for Applying Section 72 to IRAs.--Paragraph (3) 
     of section 408(d) (relating to special rules for applying 
     section 72) is amended by inserting at the end the following:
       ``(H) Application of section 72.--
       ``(i) In general.--If--

       ``(I) a distribution is made from an individual retirement 
     plan, and
       ``(II) a rollover contribution is made to an eligible 
     retirement plan described in section 402(c)(8)(B)(iii), (iv), 
     (v), or (vi) with respect to all or part of such 
     distribution,

     then, notwithstanding paragraph (2), the rules of clause (ii) 
     shall apply for purposes of applying section 72.
       ``(ii) Applicable rules.--In the case of a distribution 
     described in clause (i)--

       ``(I) section 72 shall be applied separately to such 
     distribution,
       ``(II) notwithstanding the pro rata allocation of income 
     on, and investment in the contract, to distributions under 
     section 72, the portion of such distribution rolled over to 
     an eligible retirement plan described in clause (i) shall be 
     treated as from income on the contract (to the extent of the 
     aggregate income on the contract from all individual 
     retirement plans of the distributee), and
       ``(III) appropriate adjustments shall be made in applying 
     section 72 to other distributions in such taxable year and 
     subsequent taxable years.''

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

     SEC. 1234. HARDSHIP EXCEPTION TO 60-DAY RULE.

       (a) Exempt Trusts.--Paragraph (3) of section 402(c) 
     (relating to transfer must be made within 60 days of receipt) 
     is amended to read as follows:
       ``(3) Transfer must be made within 60 days of receipt.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     paragraph (1) shall not apply to any transfer of a 
     distribution made after the 60th day following the day on 
     which the distributee received the property distributed.
       ``(B) Hardship exception.--The Secretary may waive the 60-
     day requirement under subparagraph (A) where the failure to 
     waive such requirement would be against equity or good 
     conscience, including casualty, disaster, or other events 
     beyond the reasonable control of the individual subject to 
     such requirement.''.
       (b) IRAs.--Paragraph (3) of section 408(d) (relating to 
     rollover contributions) is amended by adding after 
     subparagraph (H) the following new subparagraph:
       ``(I) Waiver of 60-day requirement.--The Secretary may 
     waive the 60-day requirement under subparagraphs (A) and (D) 
     where the failure to waive such requirement would be against 
     equity or good conscience, including casualty, disaster, or 
     other events beyond the reasonable control of the individual 
     subject to such requirement.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 1235. TREATMENT OF FORMS OF DISTRIBUTION.

       (a) Plan Transfers.--
       (1) In general.--Paragraph (6) of section 411(d) (relating 
     to accrued benefit not to be decreased by amendment) is 
     amended by adding at the end the following:
       ``(D) Plan transfers.--
       ``(i) A defined contribution plan (in this subparagraph 
     referred to as the `transferee plan') shall not be treated as 
     failing to meet the requirements of this subsection merely 
     because the transferee plan does not provide some or all of 
     the forms of distribution previously available under another 
     defined contribution plan (in this subparagraph referred to 
     as the `transferor plan') to the extent that--

       ``(I) the forms of distribution previously available under 
     the transferor plan applied to the account of a participant 
     or beneficiary under the transferor plan that was transferred 
     from the transferor plan to the transferee plan pursuant to a 
     direct transfer rather than pursuant to a distribution from 
     the transferor plan;
       ``(II) the terms of both the transferor plan and the 
     transferee plan authorize the transfer described in subclause 
     (I);
       ``(III) the transfer described in subclause (I) was made 
     pursuant to a voluntary election by the participant or 
     beneficiary whose account was transferred to the transferee 
     plan;
       ``(IV) the election described in subclause (III) was made 
     after the participant or beneficiary received a notice 
     describing the consequences of making the election;
       ``(V) if the transferor plan provides for an annuity as the 
     normal form of distribution under the plan in accordance with 
     section 417, the transfer is made with the consent of the 
     participant's spouse (if any), and such consent meets 
     requirements similar to the requirements imposed by section 
     417(a)(2); and
       ``(VI) the transferee plan allows the participant or 
     beneficiary described in subclause (III) to receive any 
     distribution to which the participant or beneficiary is 
     entitled under the transferee plan in the form of a single 
     sum distribution.

       ``(ii) Clause (i) shall apply to plan mergers and other 
     transactions having the effect of a direct transfer, 
     including consolidations of benefits attributable to 
     different employers within a multiple employer plan.
       ``(E) Elimination of form of distribution.--Except to the 
     extent provided in regulations, a defined contribution plan 
     shall not be treated as failing to meet the requirements of 
     this section merely because of the elimination of a form of 
     distribution previously available thereunder. This 
     subparagraph shall not apply to the elimination of a form of 
     distribution with respect to any participant unless--
       ``(i) a single sum payment is available to such participant 
     at the same time or times as the form of distribution being 
     eliminated; and
       ``(ii) such single sum payment is based on the same or 
     greater portion of the participant's account as the form of 
     distribution being eliminated.''.
       (2) Effective date.--The amendment made by this subsection 
     shall apply to years beginning after December 31, 2000.
       (b) Regulations.--
       (1) In general.--The last sentence of paragraph (6)(B) of 
     section 411(d) (relating to accrued benefit not to be 
     decreased by amendment) is amended to read as follows: ``The 
     Secretary may by regulations provide that this subparagraph 
     shall not apply to any plan amendment that does not adversely 
     affect the rights of participants in a material manner.''.
       (2) Secretary directed.--Not later than December 31, 2001, 
     the Secretary of the Treasury is directed to issue final 
     regulations under section 411(d)(6) of the Internal Revenue 
     Code of 1986. Such regulations shall apply to plan years 
     beginning after December 31, 2001, or such earlier date as is 
     specified by the Secretary of the Treasury.

     SEC. 1236. RATIONALIZATION OF RESTRICTIONS ON DISTRIBUTIONS.

       (a) Modification of Same Desk Exception.--
       (1) Section 401(k).--
       (A) Section 401(k)(2)(B)(i)(I) (relating to qualified cash 
     or deferred arrangements) is amended by striking ``separation 
     from service'' and inserting ``severance from employment''.
       (B) Subparagraph (A) of section 401(k)(10) (relating to 
     distributions upon termination of plan or disposition of 
     assets or subsidiary) is amended to read as follows:
       ``(A) In general.--An event described in this subparagraph 
     is the termination of the plan without establishment or 
     maintenance of another defined contribution plan (other than 
     an employee stock ownership plan as defined in section 
     4975(e)(7)).''.
       (C) Section 401(k)(10) is amended--
       (i) in subparagraph (B)--

       (I) by striking ``An event'' in clause (i) and inserting 
     ``A termination'', and
       (II) by striking ``the event'' in clause (i) and inserting 
     ``the termination'',

       (ii) by striking subparagraph (C), and
       (iii) by striking ``or disposition of assets or 
     subsidiary'' in the heading.
       (2) Section 403(b).--
       (A) Paragraphs (7)(A)(ii) and (11)(A) of section 403(b) are 
     each amended by striking ``separates from service'' and 
     inserting ``has a severance from employment''.
       (B) The heading for paragraph (11) of section 403(b) is 
     amended by striking ``separation from service'' and inserting 
     ``severance from employment''.
       (3) Section 457.--Clause (ii) of section 457(d)(1)(A) is 
     amended by striking ``is separated from service'' and 
     inserting ``has a severance from employment''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 1237. PURCHASE OF SERVICE CREDIT IN GOVERNMENTAL DEFINED 
                   BENEFIT PLANS.

       (a) 403(b) Plans.--Subsection (b) of section 403 is amended 
     by adding at the end the following new paragraph:
       ``(13) Trustee-to-trustee transfers to purchase permissive 
     service credit.--No amount shall be includible in gross 
     income by reason of a direct trustee-to-trustee transfer to a 
     defined benefit governmental plan (as defined in section 
     414(d)) if such transfer is--
       ``(A) for the purchase of permissive service credit (as 
     defined in section 415(n)(3)(A)) under such plan, or
       ``(B) a repayment to which section 415 does not apply by 
     reason of subsection (k)(3) thereof.''.
       (b) 457 Plans.--
       (1) Subsection (e) of section 457 is amended by adding 
     after paragraph (17) the following new paragraph:
       ``(18) Trustee-to-trustee transfers to purchase permissive 
     service credit.--No amount shall be includible in gross 
     income by reason of a direct trustee-to-trustee transfer to a 
     defined benefit governmental plan (as defined in section 
     414(d)) if such transfer is--
       ``(A) for the purchase of permissive service credit (as 
     defined in section 415(n)(3)(A)) under such plan, or
       ``(B) a repayment to which section 415 does not apply by 
     reason of subsection (k)(3) thereof.''.
       (2) Section 457(b)(2) is amended by striking ``(other than 
     rollover amounts)'' and inserting ``(other than rollover 
     amounts and amounts received in a transfer referred to in 
     subsection (e)(16))''.

[[Page 17177]]

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

     SEC. 1238. EMPLOYERS MAY DISREGARD ROLLOVERS FOR PURPOSES OF 
                   CASH-OUT AMOUNTS.

       (a) In General.--Section 411(a)(11) (relating to 
     restrictions on certain mandatory distributions) is amended 
     by adding at the end the following:
       ``(D) Special rule for rollover contributions.--A plan 
     shall not fail to meet the requirements of this paragraph if, 
     under the terms of the plan, the present value of the 
     nonforfeitable accrued benefit is determined without regard 
     to that portion of such benefit which is attributable to 
     rollover contributions (and earnings allocable thereto). For 
     purposes of this subparagraph, the term `rollover 
     contributions' means any rollover contribution under sections 
     402(c), 403(a)(4), 403(b)(8), 408(d)(3)(A)(ii), and 
     457(e)(16).''.
       (b) Eligible Deferred Compensation Plans.--Clause (i) of 
     section 457(e)(9)(A) is amended by striking ``such amount'' 
     and inserting ``the portion of such amount which is not 
     attributable to rollover contributions (as defined in section 
     411(a)(11)(D))''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

     SEC. 1239. MINIMUM DISTRIBUTION AND INCLUSION REQUIREMENTS 
                   FOR SECTION 457 PLANS.

       (a) Minimum Distribution Requirements.--Paragraph (2) of 
     section 457(d) (relating to distribution requirements) is 
     amended to read as follows:
       ``(2) Minimum distribution requirements.--A plan meets the 
     minimum distribution requirements of this paragraph if such 
     plan meets the requirements of section 401(a)(9).''
       (b) Inclusion in Gross Income.--
       (1) Year of inclusion.--Subsection (a) of section 457 
     (relating to year of inclusion in gross income) is amended to 
     read as follows:
       ``(a) Year of inclusion in gross income.--
       ``(1) In general.--Any amount of compensation deferred 
     under an eligible deferred compensation plan, and any income 
     attributable to the amounts so deferred, shall be includible 
     in gross income only for the taxable year in which such 
     compensation or other income--
       ``(A) is paid to the participant or other beneficiary, in 
     the case of a plan of an eligible employer described in 
     subsection (e)(1)(A), and
       ``(B) is paid or otherwise made available to the 
     participant or other beneficiary, in the case of a plan of an 
     eligible employer described in subsection (e)(1)(B).
       ``(2) Special rule for rollover amounts.--To the extent 
     provided in section 72(t)(9), section 72(t) shall apply to 
     any amount includible in gross income under this 
     subsection.''.
       (2) Conforming amendment.--So much of paragraph (9) of 
     section 457(e) as precedes subparagraph (A) is amended to 
     read as follows:
       ``(9) Benefits of tax exempt organization plans not treated 
     as made available by reason of certain elections, etc.--In 
     the case of an eligible deferred compensation plan of an 
     employer described in subsection (e)(1)(B)--''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to distributions after December 31, 2000.

       Subtitle D--Strengthening Pension Security and Enforcement

     SEC. 1241. REPEAL OF 150 PERCENT OF CURRENT LIABILITY FUNDING 
                   LIMIT.

       (a) In General.--Section 412(c)(7) (relating to full-
     funding limitation) is amended--
       (1) by striking ``the applicable percentage'' in 
     subparagraph (A)(i)(I) and inserting ``in the case of plan 
     years beginning before January 1, 2004, the applicable 
     percentage'', and
       (2) by amending subparagraph (F) to read as follows:
       ``(F) Applicable percentage.--For purposes of subparagraph 
     (A)(i)(I), the applicable percentage shall be determined in 
     accordance with the following table:

``In the case of any plan year beginning The applicable percentage is--
      2001.........................................................160 
      2002.........................................................165 
      2003......................................................170.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 1242. MAXIMUM CONTRIBUTION DEDUCTION RULES MODIFIED AND 
                   APPLIED TO ALL DEFINED BENEFIT PLANS.

       (a) In General.--Subparagraph (D) of section 404(a)(1) 
     (relating to special rule in case of certain plans) is 
     amended to read as follows:
       ``(D) Special rule in case of certain plans.--
       ``(i) In general.--In the case of any defined benefit plan, 
     except as provided in regulations, the maximum amount 
     deductible under the limitations of this paragraph shall not 
     be less than the unfunded termination liability (determined 
     as if the proposed termination date referred to in section 
     4041(b)(2)(A)(i)(II) of the Employee Retirement Income 
     Security Act of 1974 were the last day of the plan year).
       ``(ii) Plans with less than 100 participants.--For purposes 
     of this subparagraph, in the case of a plan which has less 
     than 100 participants for the plan year, termination 
     liability shall not include the liability attributable to 
     benefit increases for highly compensated employees (as 
     defined in section 414(q)) resulting from a plan amendment 
     which is made or becomes effective, whichever is later, 
     within the last 2 years before the termination date.
       ``(iii) Rule for determining number of participants.--For 
     purposes of determining whether a plan has more than 100 
     participants, all defined benefit plans maintained by the 
     same employer (or any member of such employer's controlled 
     group (within the meaning of section 412(l)(8)(C))) shall be 
     treated as 1 plan, but only employees of such member or 
     employer shall be taken into account.
       ``(iv) Plans established and maintain by professional 
     service employers.--Clause (i) shall not apply to a plan 
     described in section 4021(b)(13) of the Employee Retirement 
     Income Security Act of 1974.''.
       (b) Conforming Amendment.--Paragraph (6) of section 4972(c) 
     is amended to read as follows:
       ``(6) Exceptions.--In determining the amount of 
     nondeductible contributions for any taxable year, there shall 
     not be taken into account so much of the contributions to 1 
     or more defined contribution plans which are not deductible 
     when contributed solely because of section 404(a)(7) as does 
     not exceed the greater of--
       ``(A) the amount of contributions not in excess of 6 
     percent of compensation (within the meaning of section 
     404(a)) paid or accrued (during the taxable year for which 
     the contributions were made) to beneficiaries under the 
     plans, or
       ``(B) the sum of--
       ``(i) the amount of contributions described in section 
     401(m)(4)(A), plus
       ``(ii) the amount of contributions described in section 
     402(g)(3)(A).
     For purposes of this paragraph, the deductible limits under 
     section 404(a)(7) shall first be applied to amounts 
     contributed to a defined benefit plan and then to amounts 
     described in subparagraph (B).''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 1244. EXCISE TAX RELIEF FOR SOUND PENSION FUNDING.

       (a) In General.--Subsection (c) of section 4972 (relating 
     to nondeductible contributions) is amended by adding at the 
     end the following new paragraph:
       ``(7) Defined benefit plan exception.--In determining the 
     amount of nondeductible contributions for any taxable year, 
     an employer may elect for such year not to take into account 
     any contributions to a defined benefit plan except to the 
     extent that such contributions exceed the full-funding 
     limitation (as defined in section 412(c)(7), determined 
     without regard to subparagraph (A)(i)(I) thereof). For 
     purposes of this paragraph, the deductible limits under 
     section 404(a)(7) shall first be applied to amounts 
     contributed to defined contribution plans and then to amounts 
     described in this paragraph. If an employer makes an election 
     under this paragraph for a taxable year, paragraph (6) shall 
     not apply to such employer for such taxable year.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1245. EXCISE TAX ON FAILURE TO PROVIDE NOTICE BY DEFINED 
                   BENEFIT PLANS SIGNIFICANTLY REDUCING FUTURE 
                   BENEFIT ACCRUALS.

       (a) In General.--Chapter 43 of subtitle D (relating to 
     qualified pension, etc., plans) is amended by adding at the 
     end the following new section:

     ``SEC. 4980F. FAILURE OF APPLICABLE PLANS REDUCING BENEFIT 
                   ACCRUALS TO SATISFY NOTICE REQUIREMENTS.

       ``(a) Imposition of Tax.--There is hereby imposed a tax on 
     the failure of any applicable pension plan to meet the 
     requirements of subsection (e) with respect to any applicable 
     individual.
       ``(b) Amount of Tax.--
       ``(1) In general.--The amount of the tax imposed by 
     subsection (a) on any failure with respect to any applicable 
     individual shall be $100 for each day in the noncompliance 
     period with respect to such failure.
       ``(2) Noncompliance period.--For purposes of this section, 
     the term `noncompliance period' means, with respect to any 
     failure, the period beginning on the date the failure first 
     occurs and ending on the date the failure is corrected.
       ``(c) Limitations on Amount of Tax.--
       ``(1) Overall limitation for unintentional failures.--In 
     the case of failures that are due to reasonable cause and not 
     to willful neglect, the tax imposed by subsection (a) for 
     failures during the taxable year of the employer (or, in the 
     case of a multiemployer plan, the taxable year of the trust 
     forming part of the plan) shall not exceed $500,000. For 
     purposes of the preceding sentence, all multiemployer plans 
     of which the same trust forms a part shall be treated as 1 
     plan. For purposes of this paragraph, if not all persons who 
     are treated as a single employer for purposes of this section 
     have the same taxable year, the taxable years taken into 
     account shall be determined under principles similar to the 
     principles of section 1561.
       ``(2) Waiver by secretary.--In the case of a failure which 
     is due to reasonable cause and not to willful neglect, the 
     Secretary may waive part or all of the tax imposed by 
     subsection (a) to the extent that the payment of such tax 
     would be excessive relative to the failure involved.
       ``(d) Liability for Tax.--The following shall be liable for 
     the tax imposed by subsection (a):
       ``(1) In the case of a plan other than a multiemployer 
     plan, the employer.
       ``(2) In the case of a multiemployer plan, the plan.
       ``(e) Notice Requirements for Plans Significantly Reducing 
     Benefit Accruals.--

[[Page 17178]]

       ``(1) In general.--If an applicable pension plan is amended 
     to provide for a significant reduction in the rate of future 
     benefit accrual, the plan administrator shall provide written 
     notice to each applicable individual (and to each employee 
     organization representing applicable individuals).
       ``(2) Notice.--The notice required by paragraph (1) shall 
     be written in a manner calculated to be understood by the 
     average plan participant and shall provide sufficient 
     information (as determined in accordance with regulations 
     prescribed by the Secretary) to allow applicable individuals 
     to understand the effect of the plan amendment.
       ``(3) Timing of notice.--Except as provided in regulations, 
     the notice required by paragraph (1) shall be provided within 
     a reasonable time before the effective date of the plan 
     amendment.
       ``(4) Designees.--Any notice under paragraph (1) may be 
     provided to a person designated, in writing, by the person to 
     which it would otherwise be provided.
       ``(5) Notice before adoption of amendment.--A plan shall 
     not be treated as failing to meet the requirements of 
     paragraph (1) merely because notice is provided before the 
     adoption of the plan amendment if no material modification of 
     the amendment occurs before the amendment is adopted.
       ``(f) Applicable Individual; Applicable Pension Plan.--For 
     purposes of this section--
       ``(1) Applicable individual.--The term `applicable 
     individual' means, with respect to any plan amendment--
       ``(A) any participant in the plan, and
       ``(B) any beneficiary who is an alternate payee (within the 
     meaning of section 414(p)(8)) under an applicable qualified 
     domestic relations order (within the meaning of section 
     414(p)(1)(A)),
     who may reasonably be expected to be affected by such plan 
     amendment.
       ``(2) Applicable pension plan.--The term `applicable 
     pension plan' means--
       ``(A) any defined benefit plan, or
       ``(B) an individual account plan which is subject to the 
     funding standards of section 412,
     which had 100 or more participants who had accrued a benefit, 
     or with respect to whom contributions were made, under the 
     plan (whether or not vested) as of the last day of the plan 
     year preceding the plan year in which the plan amendment 
     becomes effective.''
       (b) Clerical Amendment.--The table of sections for chapter 
     43 of subtitle D is amended by adding at the end the 
     following new item:

``Sec. 4980F. Failure of applicable plans reducing benefit accruals to 
              satisfy notice requirements.''
       (c) Effective Dates.--
       (1) In general.--The amendments made by this section shall 
     apply to plan amendments taking effect on or after the date 
     of the enactment of this Act.
       (2) Transition.--Until such time as the Secretary of the 
     Treasury issues regulations under sections 4980F(e)(2) and 
     (3) of the Internal Revenue Code of 1986 (as added by the 
     amendment made by subsection (a)), a plan shall be treated as 
     meeting the requirements of such section if it makes a good 
     faith effort to comply with such requirements.
       (3) Special rule.--The period for providing any notice 
     required by the amendments made by this section shall not end 
     before the date which is 3 months after the date of the 
     enactment of this Act.

                Subtitle E--Reducing Regulatory Burdens

     SEC. 1251. REPEAL OF THE MULTIPLE USE TEST.

       (a) In General.--Paragraph (9) of section 401(m) is amended 
     to read as follows:
       ``(9) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary to carry out the purposes of 
     this subsection and subsection (k), including regulations 
     permitting appropriate aggregation of plans and 
     contributions.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1252. MODIFICATION OF TIMING OF PLAN VALUATIONS.

       (a) In General.--Section 412(c)(9) (relating to annual 
     valuation) is amended--
       (1) by striking ``For purposes'' and inserting the 
     following:
       ``(A) In general.--For purposes'', and
       (2) by adding at the end the following:
       ``(B) Election to use prior year valuation.--
       ``(i) In general.--Except as provided in clause (ii), if, 
     for any plan year--

       ``(I) an election is in effect under this subparagraph with 
     respect to a plan, and
       ``(II) the assets of the plan are not less than 125 percent 
     of the plan's current liability (as defined in paragraph 
     (7)(B)), determined as of the valuation date for the 
     preceding plan year,

     then this section shall be applied using the information 
     available as of such valuation date.
       ``(ii) Exceptions.--

       ``(I) Actual valuation every 3 years.--Clause (i) shall not 
     apply for more than 2 consecutive plan years and valuation 
     shall be under subparagraph (A) with respect to any plan year 
     to which clause (i) does not apply by reason of this clause.
       ``(II) Regulations.--Subclause (I) shall not apply to the 
     extent that more frequent valuations are required under the 
     regulations under subparagraph (A).

       ``(iii) Adjustments.--Information under clause (i) shall, 
     in accordance with regulations, be actuarially adjusted to 
     reflect significant differences in participants.
       ``(iv) Election.--An election under this subparagraph, once 
     made, shall be irrevocable without the consent of the 
     Secretary.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 1253. FLEXIBILITY AND NONDISCRIMINATION AND LINE OF 
                   BUSINESS RULES.

       The Secretary of the Treasury shall, on or before December 
     31, 2000, modify the existing regulations issued under 
     section 401(a)(4) and section 414(r) of the Internal Revenue 
     Code of 1986 in order to expand (to the extent that the 
     Secretary determines appropriate) the ability of a pension 
     plan to demonstrate compliance with the nondiscrimination and 
     line of business requirements based upon the facts and 
     circumstances surrounding the design and operation of the 
     plan, even though the plan is unable to satisfy the 
     mechanical tests currently used to determine compliance.

     SEC. 1255. ESOP DIVIDENDS MAY BE REINVESTED WITHOUT LOSS OF 
                   DIVIDEND DEDUCTION.

       (a) In General.--Section 404(k)(2)(A) (defining applicable 
     dividends) is amended by striking ``or'' at the end of clause 
     (ii), by redesignating clause (iii) as clause (iv), and by 
     inserting after clause (ii) the following new clause:
       ``(iii) is, at the election of such participants or their 
     beneficiaries--

       ``(I) payable as provided in clause (i) or (ii), or
       ``(II) paid to the plan and reinvested in qualifying 
     employer securities, or''.

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

     SEC. 1256. NOTICE AND CONSENT PERIOD REGARDING DISTRIBUTIONS.

       (a) Expansion of Period.--
       (1) In general.--Subparagraph (A) of section 417(a)(6) is 
     amended by striking ``90-day'' and inserting ``180-day''.
       (2) Modification of regulations.--The Secretary of the 
     Treasury shall modify the regulations under sections 402(f), 
     411(a)(11), and 417 of the Internal Revenue Code of 1986 to 
     substitute ``180 days'' for ``90 days'' each place it appears 
     in Treasury Regulations sections 1.402(f)-1, 1.411(a)-11(c), 
     and 1.417(e)-1(b).
       (3) Effective date.--The amendments made by paragraph (1) 
     and the modifications required by paragraph (2) shall apply 
     to years beginning after December 31, 2000.
       (b) Consent Regulation Inapplicable to Certain 
     Distributions.--
       (1) In general.--The Secretary of the Treasury shall modify 
     the regulations under section 411(a)(11) of the Internal 
     Revenue Code of 1986 to provide that the description of a 
     participant's right, if any, to defer receipt of a 
     distribution shall also describe the consequences of failing 
     to defer such receipt.
       (2) Effective date.--The modifications required by 
     paragraph (1) shall apply to years beginning after December 
     31, 2000.

     SEC. 1257. REPEAL OF TRANSITION RULE RELATING TO CERTAIN 
                   HIGHLY COMPENSATED EMPLOYEES.

       (a) In General.--Paragraph (4) of section 1114(c) of the 
     Tax Reform Act of 1986 is hereby repealed.
       (b) Effective Date.--The repeal made by subsection (a) 
     shall apply to plan years beginning after December 31, 2000.

     SEC. 1258. EMPLOYEES OF TAX-EXEMPT ENTITIES.

       (a) In General.--The Secretary of the Treasury shall modify 
     Treasury Regulations section 1.410(b)-6(g) to provide that 
     employees of an organization described in section 
     403(b)(1)(A)(i) of the Internal Revenue Code of 1986 who are 
     eligible to make contributions under section 403(b) pursuant 
     to a salary reduction agreement may be treated as excludable 
     with respect to a plan under section 401(k), or section 
     401(m) of such Code that is provided under the same general 
     arrangement as a plan under such section 401(k), if--
       (1) no employee of an organization described in section 
     403(b)(1)(A)(i) of such Code is eligible to participate in 
     such section 401(k) plan or section 401(m) plan, and
       (2) 95 percent of the employees who are not employees of an 
     organization described in section 403(b)(1)(A)(i) of such 
     Code are eligible to participate in such section 401(k) plan 
     or section 401(m) plan.
       (b) Effective Date.--The modification required by 
     subsection (a) shall apply as of the same date set forth in 
     section 1426(b) of the Small Business Job Protection Act of 
     1996.

     SEC. 1259. CLARIFICATION OF TREATMENT OF EMPLOYER-PROVIDED 
                   RETIREMENT ADVICE.

       (a) In General.--Subsection (a) of section 132 (relating to 
     exclusion from gross income) is amended by striking ``or'' at 
     the end of paragraph (5), by striking the period at the end 
     of paragraph (6) and inserting ``, or'', and by adding at the 
     end the following new paragraph:
       ``(7) qualified retirement planning services.''.
       (b) Qualified Retirement Planning Services Defined.--
     Section 132 is amended by redesignating subsection (m) as 
     subsection (n) and by inserting after subsection (l) the 
     following:
       ``(m) Qualified Retirement Planning Services.--
       ``(1) In general.--For purposes of this section, the term 
     `qualified retirement planning services' means any retirement 
     planning service provided to an employee and his spouse by an 
     employer maintaining a retirement plan.
       ``(2) Nondiscrimination rule.--Subsection (a)(7) shall 
     apply in the case of highly compensated employees only if 
     such services are available on substantially the same terms 
     to each member of the group of employees normally

[[Page 17179]]

     provided education and information regarding the employer's 
     pension plan.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to years beginning after December 31, 2000.

     SEC. 1260. PROVISIONS RELATING TO PLAN AMENDMENTS.

       (a) In General.--If this section applies to any plan or 
     contract amendment--
       (1) such plan or contract shall be treated as being 
     operated in accordance with the terms of the plan during the 
     period described in subsection (b)(2)(A), and
       (2) such plan shall not fail to meet the requirements of 
     section 411(d)(6) of the Internal Revenue Code of 1986 by 
     reason of such amendment.
       (b) Amendments to Which Section Applies.--
       (1) In general.--This section shall apply to any amendment 
     to any plan or annuity contract which is made--
       (A) pursuant to any amendment made by this title, or 
     pursuant to any regulation issued under this title, and
       (B) on or before the last day of the first plan year 
     beginning on or after January 1, 2003.
     In the case of a government plan (as defined in section 
     414(d) of the Internal Revenue Code of 1986, this paragraph 
     shall be applied by substituting ``2005'' for ``2003''.
       (2) Conditions.--This section shall not apply to any 
     amendment unless--
       (A) during the period--
       (i) beginning on the date the legislative or regulatory 
     amendment described in paragraph (1)(A) takes effect (or in 
     the case of a plan or contract amendment not required by such 
     legislative or regulatory amendment, the effective date 
     specified by the plan), and
       (ii) ending on the date described in paragraph (1)(B) (or, 
     if earlier, the date the plan or contract amendment is 
     adopted),
     the plan or contract is operated as if such plan or contract 
     amendment were in effect, and
       (B) such plan or contract amendment applies retroactively 
     for such period.

     SEC. 1261. MODEL PLANS FOR SMALL BUSINESSES.

       (a) In General.--Not later than December 31, 2000, the 
     Secretary of the Treasury is directed to issue at least one 
     model defined contribution plan and at least one model 
     defined benefit plan that fit the needs of small businesses 
     and that shall be treated as meeting the requirements of 
     section 401(a) of the Internal Revenue Code of 1986 with 
     respect to the form of the plan. To the extent that the 
     requirements of section 401(a) of such Code are modified 
     after the issuance of such plans, the Secretary of the 
     Treasury shall, in a timely manner, issue model amendments 
     that, if adopted in a timely manner by an employer that has a 
     model plan in effect, shall cause such model plan to be 
     treated as meeting the requirements of section 401(a) of such 
     Code, as modified, with respect to the form of the plan.
       (b) Prototype Plan Alternative.--The Secretary of the 
     Treasury may satisfy the requirements of subsection (a) 
     through the enhancement and simplification of the Secretary's 
     programs for prototype plans in such a manner as to achieve 
     the purposes of subsection (a).

     SEC. 1262. SIMPLIFIED ANNUAL FILING REQUIREMENT FOR PLANS 
                   WITH FEWER THAN 25 EMPLOYEES.

       (a) In General.--In the case of a retirement plan which 
     covers less than 25 employees on the 1st day of the plan year 
     and meets the requirements described in subsection (b), the 
     Secretary of the Treasury shall provide for the filing of a 
     simplified annual return that is substantially similar to the 
     annual return required to be filed by a one-participant 
     retirement plan.
       (b) Requirements.--A plan meets the requirements of this 
     subsection if it--
       (1) meets the minimum coverage requirements of section 
     410(b) of the Internal Revenue Code of 1986 without being 
     combined with any other plan of the business that covers the 
     employees of the business,
       (2) does not cover a business that is a member of an 
     affiliated service group, a controlled group of corporations, 
     or a group of businesses under common control, and
       (3) does not cover a business that leases employees.

     SEC. 1263. IMPROVEMENT OF EMPLOYEE PLANS COMPLIANCE 
                   RESOLUTION SYSTEM.

       The Secretary of the Treasury shall continue to update and 
     improve the Employee Plans Compliance Resolution System (or 
     any successor program) giving special attention to--
       (1) increasing the awareness and knowledge of small 
     employers concerning the availability and use of the program,
       (2) taking into account special concerns and circumstances 
     that small employers face with respect to compliance and 
     correction of compliance failures,
       (3) extending the duration of the self-correction period 
     under the Administrative Policy Regarding Self-Correction for 
     significant compliance failures,
       (4) expanding the availability to correct insignificant 
     compliance failures under the Administrative Policy Regarding 
     Self-Correction during audit, and
       (5) assuring that any tax, penalty, or sanction that is 
     imposed by reason of a compliance failure is not excessive 
     and bears a reasonable relationship to the nature, extent, 
     and severity of the failure.

     SEC. 1264. TREATMENT OF MULTIEMPLOYER PLANS UNDER SECTION 
                   415.

       (a) In General.--Paragraph (11) of section 415(b) (relating 
     to limitation for defined benefit plans) is amended to read 
     as follows:
       ``(11) Special limitation rule for governmental and 
     multiemployer plans.--In the case of a governmental plan (as 
     defined in section 414(d)) or a multiemployer plan (as 
     defined in section 414(f)), subparagraph (B) of paragraph (1) 
     shall not apply.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to years beginning after December 31, 2000.

                  TITLE XIII--MISCELLANEOUS PROVISIONS

         Subtitle A--Provisions Primarily Affecting Individuals

     SEC. 1301. EXCLUSION FOR FOSTER CARE PAYMENTS TO APPLY TO 
                   PAYMENTS BY QUALIFIED PLACEMENT AGENCIES.

       (a) In General.--The matter preceding subparagraph (B) of 
     section 131(b)(1) (defining qualified foster care payment) is 
     amended to read as follows:
       ``(1) In general.--The term `qualified foster care payment' 
     means any payment made pursuant to a foster care program of a 
     State or political subdivision thereof--
       ``(A) which is paid by--
       ``(i) a State or political subdivision thereof, or
       ``(ii) a qualified foster care placement agency, and''.
       (b) Qualified Foster Individuals To Include Individuals 
     Placed by Qualified Placement Agencies.--Subparagraph (B) of 
     section 131(b)(2) (defining qualified foster individual) is 
     amended to read as follows:
       ``(B) a qualified foster care placement agency.''
       (c) Qualified Foster Care Placement Agency Defined.--
     Subsection (b) of section 131 is amended by redesignating 
     paragraph (3) as paragraph (4) and by inserting after 
     paragraph (2) the following new paragraph:
       ``(3) Qualified foster care placement agency.--The term 
     `qualified foster care placement agency' means any placement 
     agency which is licensed or certified by--
       ``(A) a State or political subdivision thereof, or
       ``(B) an entity designated by a State or political 
     subdivision thereof,
     for the foster care program of such State or political 
     subdivision to make foster care payments to providers of 
     foster care.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1302. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS 
                   EXCLUDED FROM GROSS INCOME.

       (A) In General.--Part III of subchapter B of chapter 1 is 
     amended by inserting after section 138 the following new 
     section:

     ``SEC. 138A. MILEAGE REIMBURSEMENTS TO CHARITABLE VOLUNTEERS.

       ``(a) In General.--Gross income of an individual does not 
     include amounts received, from an organization described in 
     section 170(c), as reimbursement of operating expenses with 
     respect to use of a passenger automobile for the benefit of 
     such organization. The preceding sentence shall apply only to 
     the extent that such reimbursement would be deductible under 
     section 274(d) (determined by applying the standard business 
     mileage rate established pursuant to section 274(d)) if the 
     organization were not so described and such individual were 
     an employee of such organization.
       ``(b) No Double Benefit.--Subsection (a) shall not apply 
     with respect to any expenses if the individual claims a 
     deduction or credit for such expenses under any other 
     provision of this title.
       ``(c) Exemption From Reporting Requirements.--Section 6041 
     shall not apply with respect to reimbursements excluded from 
     income under subsection (a).''
       (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 138 the following new items:

``Sec. 138A. Reimbursement for use of passenger automobile for 
              charity.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1303. W-2 TO INCLUDE EMPLOYER SOCIAL SECURITY TAXES.

       (a) In General.--Subsection (a) of section 6051 (relating 
     to receipts for employees) is amended by striking ``and'' at 
     the end of paragraph (10), by striking the period at the end 
     of paragraph (11) and inserting a comma, and by inserting 
     after paragraph (11) the following new paragraphs:
       ``(12) the amount of tax imposed by section 3111(a), and
       ``(13) the amount of tax imposed by section 3111(b).''
       (b) Effective Date.--The amendment made by this section 
     shall apply with respect to remuneration paid after December 
     31, 1999.

     SEC. 1304. CONSISTENT TREATMENT OF SURVIVOR BENEFITS FOR 
                   PUBLIC SAFETY OFFICERS KILLED IN THE LINE OF 
                   DUTY.

       Subsection (b) of section 1528 of the Taxpayer Relief Act 
     of 1997 (Public Law 105-34) is amended by striking the period 
     and inserting `, and to amounts received in taxable years 
     beginning after December 31, 1999, with respect to 
     individuals dying on or before December 31, 1996.''

         Subtitle B--Provisions Primarily Affecting Businesses

     SEC. 1311. DISTRIBUTIONS FROM PUBLICLY TRADED PARTNERSHIPS 
                   TREATED AS QUALIFYING INCOME OF REGULATED 
                   INVESTMENT COMPANIES.

       (a) In General.--Paragraph (2) of section 851(b) (defining 
     regulated investment company)

[[Page 17180]]

     is amended by inserting ``income derived from an interest in 
     a publicly traded partnership (as defined in section 
     7704(b)),'' after ``dividends, interest,''.
       (b) Source Flow-Through Rule Not To Apply.--The last 
     sentence of section 851(b) is amended by inserting ``(other 
     than a publicly traded partnership (as defined in section 
     7704(b)))'' after ``derived from a partnership''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 1312. SPECIAL PASSIVE ACTIVITY RULE FOR PUBLICLY TRADED 
                   PARTNERSHIPS TO APPLY TO REGULATED INVESTMENT 
                   COMPANIES.

       (a) In General.--Subsection (k) of section 469 (relating to 
     separate application of section in case of publicly traded 
     partnerships) is amended by adding at the end the following 
     new paragraph:
       ``(4) Application to regulated investment companies.--For 
     purposes of this section, a regulated investment company (as 
     defined in section 851) holding an interest in a publicly 
     traded partnership shall be treated as a taxpayer described 
     in subsection (a)(2) with respect to items attributable to 
     such interest.''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     2000.

     SEC. 1313. LARGE ELECTRIC TRUCKS, VANS, AND BUSES ELIGIBLE 
                   FOR DEDUCTION FOR CLEAN-FUEL VEHICLES IN LIEU 
                   OF CREDIT.

       (a) In General.--Paragraph (1) of section 30(c) (relating 
     to credit for qualified electric vehicles) is amended by 
     adding at the end the following new flush sentence:
     ``Such term shall not include any vehicle described in 
     subclause (I) or (II) of section 179A(b)(1)(A)(iii).''
       (b) Effective Date.--The amendment made by this section 
     shall apply to property placed in service after December 31, 
     1999.

     SEC. 1314. MODIFICATIONS TO SPECIAL RULES FOR NUCLEAR 
                   DECOMMISSIONING COSTS.

       (a) Repeal of Limitation on Deposits Into Fund Based on 
     Cost of Service.--Subsection (b) of section 468A is amended 
     to read as follows:
       ``(b) Limitation on Amounts Paid Into Fund.--The amount 
     which a taxpayer may pay into the Fund for any taxable year 
     shall not exceed the ruling amount applicable to such taxable 
     year.''
       (b) Clarification of Treatment of Fund Transfers.--
     Subsection (e) of section 468A is amended by adding at the 
     end the following new paragraph:
       ``(8) Treatment of fund transfers.--If, in connection with 
     the transfer of the taxpayer's interest in a nuclear 
     powerplant, the taxpayer transfers the Fund with respect to 
     such powerplant to the transferee of such interest and the 
     transferee elects to continue the application of this section 
     to such Fund--
       ``(A) the transfer of such Fund shall not cause such Fund 
     to be disqualified from the application of this section, and
       ``(B) no amount shall be treated as distributed from such 
     Fund, or be includible in gross income, by reason of such 
     transfer.''
       (c) Transfers of Balances in Nonqualified Funds.--Section 
     468A is amended by redesignating subsections (f) and (g) as 
     subsections (g) and (h), respectively, and by inserting after 
     subsection (e) the following new subsection:
       ``(f) Transfers of Balances in Nonqualified Funds Into 
     Qualified Funds.--
       ``(1) In general.--Notwithstanding subsection (b), any 
     taxpayer maintaining a Fund to which this section applies 
     with respect to a nuclear powerplant may transfer into such 
     Fund amounts held in any nonqualified fund of such taxpayer 
     with respect to such powerplant.
       ``(2) Maximum amount permitted to be transferred.--The 
     amount permitted to be transferred under paragraph (1) shall 
     not exceed the balance in the nonqualified fund as of 
     December 31, 1998.
       ``(3) Deduction for amounts transferred.--
       ``(A) In general.--The deduction allowed by subsection (a) 
     for any transfer permitted by this subsection shall be 
     allowed ratably over the remaining estimated useful life 
     (within the meaning of subsection (d)(2)(A)) of the nuclear 
     powerplant, beginning with the later of the taxable year 
     during which the transfer is made or the taxpayer's first 
     taxable year beginning after December 31, 2001.
       ``(B) Denial of deduction for previously deducted 
     amounts.--No deduction shall be allowed for any transfer 
     under this subsection of an amount for which a deduction was 
     allowed when such amount was paid into the nonqualified fund. 
     For purposes of the preceding sentence, a ratable portion of 
     each transfer shall be treated as being from previously 
     deducted amounts to the extent thereof.
       ``(C) Transfers of qualified funds.--If--
       ``(i) any transfer permitted by this subsection is made to 
     any Fund to which this section applies, and
       ``(ii) such Fund is transferred thereafter,
     any deduction under this subsection for taxable years ending 
     after the date that such Fund is transferred shall be allowed 
     to the transferee and not to the transferor. The preceding 
     sentence shall not apply if the transferor is an organization 
     exempt from tax imposed by this chapter.
       ``(4) New ruling amount required.--Paragraph (1) shall not 
     apply to any transfer unless the taxpayer requests from the 
     Secretary a new schedule of ruling amounts in connection with 
     such transfer.
       ``(5) Nonqualified fund.--For purposes of this subsection, 
     the term `nonqualified fund' means, with respect to any 
     nuclear powerplant, any fund in which amounts are irrevocably 
     set aside pursuant to the requirements of any State or 
     Federal agency exclusively for the purpose of funding the 
     decommissioning of such powerplant.
       ``(6) No basis in qualified funds.--Notwithstanding any 
     other provision of law, the basis of any Fund to which this 
     section applies shall not be increased by reason of any 
     transfer permitted by this subsection.''
       (d) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1315. CONSOLIDATION OF LIFE INSURANCE COMPANIES WITH 
                   OTHER CORPORATIONS.

       (a) In General.--Section 1504(b) (defining includible 
     corporation) is amended by striking paragraph (2).
       (b) Conforming Amendments.--
       (1) Subsection (c) of section 1503 is amended by striking 
     paragraph (2) (relating to losses of recent nonlife 
     affiliates).
       (2) Section 1504 is amended by striking subsection (c) and 
     by redesignating subsections (d), (e), and (f) as subsections 
     (c), (d), and (e), respectively.
       (3) Section 1503(c)(1) (relating to special rule for 
     application of certain losses against income of insurance 
     companies taxed under section 801) is amended by striking 
     ``an election under section 1504(c)(2) is in effect for the 
     taxable year and''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after December 31, 
     2004.
       (d) No Carryback Before January 1, 2005.--To the extent 
     that a consolidated net operating loss is allowed or 
     increased by reason of the amendments made by this section, 
     such loss may not be carried back to a taxable year beginning 
     before January 1, 2005.
       (e) Nontermination of Group.--No affiliated group shall 
     terminate solely as a result of the amendments made by this 
     section.
       (f) Waiver of 5-Year Waiting Period.--Under regulations 
     prescribed by the Secretary of the Treasury or his delegate, 
     an automatic waiver from the 5-year waiting period for 
     reconsolidation provided in section 1504(a)(3) of such Code 
     shall be granted to any corporation which was previously an 
     includible corporation but was subsequently deemed a 
     nonincludible corporation as a result of becoming a 
     subsidiary of a corporation which was not an includible 
     corporation solely by operation of section 1504(c)(2) of such 
     Code (as in effect on the day before the date of enactment of 
     this Act).
            Subtitle C--Provisions Relating to Excise Taxes

     SEC. 1321. CONSOLIDATION OF HAZARDOUS SUBSTANCE SUPERFUND AND 
                   LEAKING UNDERGROUND STORAGE TANK TRUST FUND.

       (a) In General.--Subchapter A of chapter 98 (relating to 
     trust fund code) is amended by striking sections 9507 and 
     9508 and inserting the following new section:

     ``SEC. 9507. ENVIRONMENTAL REMEDIATION TRUST FUND.

       ``(a) Creation of Trust Fund.--There is established in the 
     Treasury of the United States a trust fund to be known as the 
     `Environmental Remediation Trust Fund' consisting of such 
     amounts as may be--
       ``(1) appropriated to the Environmental Remediation Trust 
     Fund as provided in this section,
       ``(2) appropriated to the Environmental Remediation Trust 
     Fund pursuant to section 517(b) of the Superfund Revenue Act 
     of 1986, or
       ``(3) credited to the Environmental Remediation Trust Fund 
     as provided in section 9602(b).
       ``(b) Transfers to Environmental Remediation Trust Fund.--
       ``(1) In general.--There are hereby appropriated to the 
     Environmental Remediation Trust Fund amounts equivalent to--
       ``(A) the taxes received in the Treasury under--
       ``(i) section 59A, 4611, 4661, or 4671 (relating to 
     environmental taxes),
       ``(ii) section 4041(d) (relating to additional taxes on 
     motor fuels),
       ``(iii) section 4081 (relating to tax on gasoline, diesel 
     fuel, and kerosene) to the extent attributable to the 
     Environmental Remediation Trust Fund financing rate under 
     such section,
       ``(iv) section 4091 (relating to tax on aviation fuel) to 
     the extent attributable to the Environmental Remediation 
     Trust Fund financing rate under such section, and
       ``(v) section 4042 (relating to tax on fuel used in 
     commercial transportation on inland waterways) to the extent 
     attributable to the Environmental Remediation Trust Fund 
     financing rate under such section,
       ``(B) amounts recovered on behalf of the Environmental 
     Remediation Trust Fund under the Comprehensive Environmental 
     Response, Compensation, and Liability Act of 1980 
     (hereinafter in this section referred to as `CERCLA'),
       ``(C) all moneys recovered or collected under section 
     311(b)(6)(B) of the Clean Water Act,
       ``(D) penalties assessed under title I of CERCLA,
       ``(E) punitive damages under section 107(c)(3) of CERCLA, 
     and
       ``(F) amounts received in the Treasury and collected under 
     section 9003(h)(6) of the Solid Waste Disposal Act.
       ``(2) Limitation on transfers.--
       ``(A) In general.--Except as provided in subparagraph (B), 
     no amount may be appropriated

[[Page 17181]]

     or credited to the Environmental Remediation Trust Fund on 
     and after the date of any expenditure from any such Trust 
     Fund which is not permitted by this section. The 
     determination of whether an expenditure is so permitted shall 
     be made without regard to--
       ``(i) any provision of law which is not contained or 
     referenced in this title or in a revenue Act, and
       ``(ii) whether such provision of law is a subsequently 
     enacted provision or directly or indirectly seeks to waive 
     the application of this paragraph.
       ``(B) Exception for prior obligations.--Subparagraph (A) 
     shall not apply to any expenditure to liquidate any contract 
     entered into (or for any amount otherwise obligated) in 
     accordance with the provisions of this section.''
       ``(c) Expenditures From Environmental Remediation Trust 
     Fund.--
       ``(1) In general.--Amounts in the Environmental Remediation 
     Trust Fund shall be available, as provided in appropriation 
     Acts, only for purposes of making expenditures--
       ``(A) to carry out the purposes of--
       ``(i) paragraphs (1), (2), (5), and (6) of section 111(a) 
     of CERCLA as in effect on July 12, 1999,
       ``(ii) section 111(c) of CERCLA (as so in effect), other 
     than paragraphs (1) and (2) thereof, and
       ``(iii) section 111(m) of CERCLA (as so in effect), or
       ``(B) to carry out section 9003(h) of the Solid Waste 
     Disposal Act as in effect on July 12, 1999.
       ``(2) Exception for certain transfers, etc., of hazardous 
     substances.--No amount in the Environmental Remediation Trust 
     Fund or derived from the Environmental Remediation Trust Fund 
     shall be available or used for the transfer or disposal of 
     hazardous waste carried out pursuant to a cooperative 
     agreement between the Administrator of the Environmental 
     Protection Agency and a State if the following conditions 
     apply--
       ``(A) the transfer or disposal, if made on December 13, 
     1985, would not comply with a State or local requirement,
       ``(B) the transfer is to a facility for which a final 
     permit under section 3005(a) of the Solid Waste Disposal Act 
     was issued after January 1, 1983, and before November 1, 
     1984, and
       ``(C) the transfer is from a facility identified as the 
     McColl Site in Fullerton, California.
       ``(3) Transfers from trust fund for certain repayments and 
     credits.--
       ``(A) In general.--The Secretary shall pay from time to 
     time from the Environmental Remediation Trust Fund into the 
     general fund of the Treasury amounts equivalent to--
       ``(i) amounts paid under--

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

       ``(ii) credits allowed under section 34,
     with respect to the taxes imposed by section 4041(d) or by 
     sections 4081 and 4091 (to the extent attributable to the 
     Leaking Underground Storage Tank Trust Fund financing rate or 
     the Environmental Remediation Trust Fund financing rate under 
     such sections).
       ``(B) Transfers based on estimates.--Transfers under 
     subparagraph (A) shall be made on the basis of estimates by 
     the Secretary, and proper adjustments shall be made in 
     amounts subsequently transferred to the extent prior 
     estimates were in excess of or less than the amounts required 
     to be transferred.
       ``(d) Liability of United States Limited to Amount in Trust 
     Fund.--
       ``(1) General rule.--Any claim filed against the 
     Environmental Remediation Trust Fund may be paid only out of 
     the Environmental Remediation Trust Fund.
       ``(2) Coordination with other provisions.--Nothing in 
     CERCLA or the Superfund Amendments and Reauthorization Act of 
     1986 (or in any amendment made by either of such Acts) shall 
     authorize the payment by the United States Government of any 
     amount with respect to any such claim out of any source other 
     than the Environmental Remediation Trust Fund.
       ``(3) Order in which unpaid claims are to be paid.--If at 
     any time the Environmental Remediation Trust Fund has 
     insufficient funds to pay all of the claims payable out of 
     the Environmental Remediation Trust Fund at such time, such 
     claims shall, to the extent permitted under paragraph (1), be 
     paid in full in the order in which they were finally 
     determined.''
       (b) Conforming Amendments.--
       (1) Subsections (c) and (d) of section 4611 are each 
     amended by striking ``Hazardous Substance Superfund'' each 
     place it appears and inserting ``Environmental Remediation 
     Trust Fund''.
       (2) Subsection (c) of section 4661 is amended by striking 
     ``Hazardous Substance Superfund'' and inserting 
     ``Environmental Remediation Trust Fund''.
       (3) Sections 4041(d), 4042(b), 4081(a)(2)(B), 4081(d)(3), 
     4091(b), 4092(b), 6421(f), and 6427(l) are each amended by 
     striking ``Leaking Underground Storage Tank'' each place it 
     appears (other than the headings) and inserting 
     ``Environmental Remediation''.
       (4) The heading for subsection (d) of section 4041 is 
     amended by striking ``Leaking Underground Storage Tank'' and 
     inserting ``Environmental Remediation''.
       (5) The headings for subsections (a)(2)(B) and (d)(3) of 
     section 4081 and section 4091(b)(2) are each amended by 
     striking ``Leaking underground storage tank'' and inserting 
     ``Environmental remediation''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect on October 1, 1999.
       (d) Environmental Remediation Trust Fund Treated as 
     Continuation of Old Trust Funds.--The Environmental 
     Remediation Trust Fund established by the amendments made by 
     this section shall be treated for all purposes of law as a 
     continuation of both the Hazardous Substance Superfund and 
     the Leaking Underground Storage Tank Trust Fund. Any 
     reference in any law to the Hazardous Substance Superfund or 
     the Leaking Underground Storage Tank Trust Fund shall be 
     deemed to include (wherever appropriate) a reference to the 
     Environmental Remediation Trust Fund established by such 
     amendments.

     SEC. 1322. REPEAL OF CERTAIN MOTOR FUEL EXCISE TAXES ON FUEL 
                   USED BY RAILROADS AND ON INLAND WATERWAY 
                   TRANSPORTATION.

       (a) Repeal of Leaking Underground Storage Tank Trust Fund 
     Taxes on Fuel Used in Trains.--
       (1) In general.--Paragraph (1) of section 4041(d) is 
     amended by adding at the end the following new sentence: 
     ``The preceding sentence shall not apply to any sale for use, 
     or use, of fuel in a diesel-powered train.''
       (2) Conforming amendments.--
       (A) Paragraph (3) of section 6421(f) is amended by striking 
     ``with respect to--'' and all that follows through ``so much 
     of'' and inserting ``with respect to so much of''.
       (B) Paragraph (3) of section 6427(l) is amended by striking 
     ``with respect to--'' and all that follows through ``so much 
     of'' and inserting ``with respect to so much of''.
       (b) Repeal of 4.3-Cent Motor Fuel Excise Taxes on Railroads 
     and Inland Waterway Transportation Which Remain in General 
     Fund.--
       (1) Taxes on trains.--
       (A) In general.--Subparagraph (A) of section 4041(a)(1) is 
     amended by striking ``or a diesel-powered train'' each place 
     it appears and by striking ``or train''.
       (B) Conforming amendments.--
       (i) Subparagraph (C) of section 4041(a)(1) is amended by 
     striking clause (ii) and by redesignating clause (iii) as 
     clause (ii).
       (ii) Subparagraph (C) of section 4041(b)(1) is amended by 
     striking all that follows ``section 6421(e)(2)'' and 
     inserting a period.
       (iii) Paragraph (3) of section 4083(a) is amended by 
     striking ``or a diesel-powered train''.
       (iv) Section 6421(f) is amended by striking paragraph (3).
       (v) Section 6427(l) is amended by striking paragraph (3).
       (2) Fuel used on inland waterways.--
       (A) In general.--Paragraph (1) of section 4042(b) is 
     amended by adding ``and'' at the end of subparagraph (A), by 
     striking ``, and'' at the end of subparagraph (B) and 
     inserting a period, and by striking subparagraph (C).
       (B) Conforming amendment.--Paragraph (2) of section 4042(b) 
     is amended by striking subparagraph (C).
       (c) Effective Date.--The amendments made by this subsection 
     shall take effect on October 1, 1999 (October 1, 2003, in the 
     case of the amendments made by subsection (b)), but shall not 
     take effect if section 1321 does not take effect.

     SEC. 1323. REPEAL OF EXCISE TAX ON FISHING TACKLE BOXES.

       (a) In General.--Paragraph (6) of section 4162(a) (defining 
     sport fishing equipment) is amended by striking subparagraph 
     (C) and by redesignating subparagraphs (D) through (J) as 
     subparagraphs (C) through (I), respectively.
       (b) Effective Date.--The amendment made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer more than 30 days after the date of the enactment 
     of this Act.

     SEC. 1324. CLARIFICATION OF EXCISE TAX IMPOSED ON ARROW 
                   COMPONENTS.

       (a) In General.--Paragraph (2) of section 4161(b) (relating 
     to bows and arrows, etc.) is amended to read as follows:
       ``(2) Arrows.--
       ``(A) In general.--There is hereby imposed on the sale by 
     the manufacturer, producer, or importer of any shaft, point, 
     article used to attach a point to a shaft, nock, or vane of a 
     type used in the manufacture of any arrow which after its 
     assembly--
       ``(i) measures 18 inches overall or more in length, or
       ``(ii) measures less than 18 inches overall in length but 
     is suitable for use with a bow described in paragraph (1)(A),
     a tax equal to 12.4 percent of the price for which so sold.
       ``(B) Reduced rate on certain hunting points.--Subparagraph 
     (A) shall be applied by substituting `11 percent' for `12.4 
     percent' in the case of a point which is designed primarily 
     for use in hunting fish or large animals.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to articles sold by the manufacturer, producer, 
     or importer after the close of the first calendar month 
     ending more than 30 days after the date of the enactment of 
     this Act.
         Subtitle D--Improvements in Low-Income Housing Credit

     SEC. 1331. INCREASE IN STATE CEILING ON LOW-INCOME HOUSING 
                   CREDIT.

       (a) Increase in State Ceiling.--Clause (i) of section 
     42(h)(3)(C) (relating to State housing credit ceiling) is 
     amended by striking ``$1.25'' and inserting ``the applicable 
     amount under subparagraph (H)''.
       (b) Applicable Amount; Adjustment of State Ceiling for 
     Increases in Cost-of-Living.--Paragraph (3) of section 42(h) 
     (relating to

[[Page 17182]]

     housing credit dollar amount for agencies) is amended by 
     adding at the end the following new subparagraphs:
       ``(H) Initial Amount of State Ceiling.--For purposes of 
     subparagraph (C)(i), the applicable amount shall be 
     determined under the following table:

``For calendar year                            The applicable amount is
  2000...........................................................$1.35 
  2001........................................................... 1.45 
  2002........................................................... 1.55 
  2003........................................................... 1.65 
  2004 and thereafter............................................ 1.75.
       ``(I) Cost-of-living adjustment.--
       ``(i) In general.--In the case of a calendar year after 
     2004 the $1.75 amount in subparagraph (H) 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 2003' for `calendar year 1992' in subparagraph 
     (B) thereof.

       ``(ii) Rounding.--Any increase under clause (i) which is 
     not a multiple of 5 cents shall be rounded to the next lowest 
     multiple of 5 cents.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to calendar years after 1999.

     SEC. 1332. MODIFICATION OF CRITERIA FOR ALLOCATING HOUSING 
                   CREDITS AMONG PROJECTS.

       (a) Selection Criteria.--Subparagraph (C) of section 
     42(m)(1) (relating to certain selection criteria must be 
     used) is amended--
       (1) by inserting ``, including whether the project includes 
     the use of existing housing as part of a community 
     revitalization plan'' before the comma at the end of clause 
     (iii), and
       (2) by striking clauses (v), (vi), and (vii) and inserting 
     the following new clauses:
       ``(v) tenant populations with special housing needs,
       ``(vi) public housing waiting lists,
       ``(vii) tenant populations of individuals with children, 
     and
       ``(viii) projects intended for eventual tenant ownership.''
       (b) Preference for Community Revitalization Projects 
     Located in Qualified Census Tracts.--Clause (ii) of section 
     42(m)(1)(B) is amended by striking ``and'' at the end of 
     subclause (I), by adding ``and'' at the end of subclause 
     (II), and by inserting after subclause (II) the following new 
     subclause:

       ``(III) projects which are located in qualified census 
     tracts (as defined in subsection (d)(5)(C)) and the 
     development of which contributes to a concerted community 
     revitalization plan,''.

     SEC. 1333. ADDITIONAL RESPONSIBILITIES OF HOUSING CREDIT 
                   AGENCIES.

       (a) Market Study; Public Disclosure of Rationale for Not 
     Following Credit Allocation Priorities.--Subparagraph (A) of 
     section 42(m)(1) (relating to responsibilities of housing 
     credit agencies) is amended by striking ``and'' at the end of 
     clause (i), by striking the period at the end of clause (ii) 
     and inserting a comma, and by adding at the end the following 
     new clauses:
       ``(iii) a comprehensive market study of the housing needs 
     of low-income individuals in the area to be served by the 
     project is conducted before the credit allocation is made and 
     at the developer's expense by a disinterested party who is 
     approved by such agency, and
       ``(iv) a written explanation is available to the general 
     public for any allocation of a housing credit dollar amount 
     which is not made in accordance with established priorities 
     and selection criteria of the housing credit agency.''.
       (b) Site Visits.--Clause (iii) of section 42(m)(1)(B) 
     (relating to qualified allocation plan) is amended by 
     inserting before the period ``and in monitoring for 
     noncompliance with habitability standards through regular 
     site visits''.

     SEC. 1334. MODIFICATIONS TO RULES RELATING TO BASIS OF 
                   BUILDING WHICH IS ELIGIBLE FOR CREDIT.

       (a) HOME Assistance Not To Disqualify Building for 
     Additional Credit Available to Buildings in High Cost 
     Areas.--Clause (i) of section 42(i)(2)(E) (relating to 
     buildings receiving HOME assistance) is amended by striking 
     the last sentence.
       (b) Adjusted Basis To Include Portion of Certain Buildings 
     Used by Low-Income Individuals Who Are Not Tenants and by 
     Project Employees.--Paragraph (4) of section 42(d) (relating 
     to special rules relating to determination of adjusted basis) 
     is amended--
       (1) by striking ``subparagraph (B)'' in subparagraph (A) 
     and inserting ``subparagraphs (B) and (C)'',
       (2) by redesignating subparagraph (C) as subparagraph (D), 
     and
       (3) by inserting after subparagraph (B) the following new 
     subparagraph:
       ``(C) Inclusion of basis of property used to provide 
     services for certain nontenants.--
       ``(i) In general.--The adjusted basis of any building 
     located in a qualified census tract (as defined in paragraph 
     (5)(C)) shall be determined by taking into account the 
     adjusted basis of property (of a character subject to the 
     allowance for depreciation and not otherwise taken into 
     account) used throughout the taxable year in providing any 
     community service facility.
       ``(ii) Limitation.--The increase in the adjusted basis of 
     any building which is taken into account by reason of clause 
     (i) shall not exceed 20 percent of the eligible basis of the 
     qualified low-income housing project of which it is a part. 
     For purposes of the preceding sentence, all community service 
     facilities which are part of the same qualified low-income 
     housing project shall be treated as 1 facility.
       ``(iii) Community service facility.--For purposes of this 
     subparagraph, the term `community service facility' means any 
     facility designed to serve primarily individuals whose income 
     is 60 percent or less of area median income (within the 
     meaning of subsection (g)(1)(B)).''.

     SEC. 1335. OTHER MODIFICATIONS.

       (a) Allocation of Credit Limit to Certain Buildings.--
       (1) The first sentence of section 42(h)(1)(E)(ii) is 
     amended by striking ``(as of'' the first place it appears and 
     inserting ``(as of the later of the date which is 6 months 
     after the date that the allocation was made or''.
       (2) The last sentence of section 42(h)(3)(C) is amended by 
     striking ``project which'' and inserting ``project which 
     fails to meet the 10 percent test under paragraph (1)(E)(ii) 
     on a date after the close of the calendar year in which the 
     allocation was made or which''.
       (b) Determination of Whether Buildings Are Located in High 
     Cost Areas.--The first sentence of section 42(d)(5)(C)(ii)(I) 
     is amended--
       (1) by inserting ``either'' before ``in which 50 percent'', 
     and
       (2) by inserting before the period `` or which has a 
     poverty rate of at least 25 percent''.

     SEC. 1336. CARRYFORWARD RULES.

       (a) In General.--Clause (ii) of section 42(h)(3)(D) 
     (relating to unused housing credit carryovers allocated among 
     certain states) is amended by striking ``the excess'' and all 
     that follows and inserting ``the excess (if any) of--

       ``(I) the unused State housing credit ceiling for the year 
     preceding such year, over
       ``(II) the aggregate housing credit dollar amount allocated 
     for such year.''.

       (b) Conforming Amendment.--The second sentence of section 
     42(h)(3)(C) (relating to State housing credit ceiling) is 
     amended by striking ``clauses (i) and (iii)'' and inserting 
     ``clauses (i) through (iv)''.

     SEC. 1337. EFFECTIVE DATE.

       Except as otherwise provided in this subtitle, the 
     amendments made by this subtitle 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 E--Entrepreneurial Equity Capital Formation

 PART I--TAX-FREE CONVERSIONS OF SPECIALIZED SMALL BUSINESS INVESTMENT 
                   COMPANIES INTO PASS-THRU ENTITIES

     SEC. 1341. MODIFICATIONS TO PROVISIONS RELATING TO REGULATED 
                   INVESTMENT COMPANIES.

       (a) In General.--Section 851 (relating to definition of 
     regulated investment company) is amended by adding at the end 
     the following new subsection:
       ``(i) Special Rules for Specialized Small Business 
     Investment Companies.--
       ``(1) In general.--For purposes of determining whether a 
     specialized small business investment company is a regulated 
     investment company for purposes of this subchapter--
       ``(A) income derived from an investment as a limited 
     partner in a partnership shall be treated as qualifying 
     income under subsection (b)(2) if--
       ``(i) the company does not participate in the active 
     management of the normal business operations of the 
     partnership, and
       ``(ii) the company's investment in such partnership is an 
     investment permitted for specialized small business 
     investment companies under the Small Business Investment Act 
     of 1958, and
       ``(B) the requirements of subsection (b)(3) shall be 
     treated as met if, at the close of each quarter of the 
     taxable year, at least 50 percent of the value of its total 
     assets is represented by--
       ``(i) assets described in subsection (b)(3)(A)(i), and
       ``(ii) other investments permitted to be made by a 
     specialized small business investment company under the Small 
     Business Investment Act of 1958.
       ``(2) Coordination of distribution requirements with sbic 
     requirements.--A specialized small business investment 
     company shall be treated as meeting the requirements of 
     section 852(a)(1) if the deduction for dividends paid during 
     the taxable year (as defined in section 561, but without 
     regard to capital gain dividends) equals or exceeds the 
     lesser of the amount required under section 852(a)(1) or 100 
     percent of the maximum amount that the company would be 
     permitted to distribute during such year under the Small 
     Business Investment Act of 1958.
       ``(3) Specialized small business investment company.--For 
     purposes of this subsection, the term `specialized small 
     business investment company' has the meaning given to such 
     term by section 1044(c)(3).
       ``(4) References to 1958 act.--For purposes of this 
     subsection, references to the Small Business Investment Act 
     of 1958 shall be treated as references to such Act as in 
     effect on May 13, 1993.''
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after the date of 
     enactment of this Act.

[[Page 17183]]



     SEC. 1342. TAX-FREE REORGANIZATION OF SPECIALIZED SMALL 
                   BUSINESS INVESTMENT COMPANY AS A PARTNERSHIP.

       (a) In General.--If, within 180 days after the date of the 
     enactment of this Act, a corporation which is a specialized 
     small business investment company transfers substantially all 
     of its assets to a partnership (including its license to 
     operate as a specialized small business investment company) 
     solely in exchange for partnership interests in such 
     partnership, no gain or loss shall be recognized to the 
     corporation on such a transfer if--
       (1) immediately after such exchange, such corporation holds 
     partnership interests in such partnership having a value 
     equal to at least 80 percent of the total value of all 
     partnership interests in such partnership, and
       (2) before the 90th day after such exchange, such 
     corporation transfers all partnership interests held by the 
     corporation in such partnership, and all remaining assets of 
     the corporation, to its shareholders in the complete 
     liquidation of such corporation.
       (b) Nonrecognition of Gain or Loss to Corporation on 
     Distribution of Partnership Interests.--In the case of any 
     distribution of a partnership interest acquired by the 
     liquidating corporation in an exchange to which subsection 
     (a) applies--
       (1) no gain or loss shall be recognized to the liquidating 
     corporation by reason of such distribution, and
       (2) such distribution shall not be treated as a sale or 
     exchange for purposes of section 708(b)(1)(B) of the Internal 
     Revenue Code of 1986.
       (c) Gain Recognized by Shareholders on Receipt of Property 
     Other Than Partnership Interests.--
       (1) In general.--No gain or loss shall be recognized to a 
     shareholder of a corporation on the transfer of such 
     shareholder's stock in such corporation to such corporation 
     solely in exchange for a partnership interest in the 
     partnership referred to in subsection (a)(1).
       (2) Receipt of property.--If paragraph (1) would apply to 
     an exchange but for the fact that there is received, in 
     addition to the partnership interests permitted to be 
     received under paragraph (1), other property or money, then--
       (A) gain (if any) to such recipient shall be recognized, 
     but not in excess of--
       (i) the amount of money received, plus
       (ii) the fair market value of such other property received, 
     and
       (B) no loss to such recipient shall be recognized.
       (d) Basis.--The basis of property received in any exchange 
     to which this section applies shall be determined in 
     accordance with rules similar to the rules of section 358 of 
     the Internal Revenue Code of 1986.
       (e) Additional Requirements.--This section shall not apply 
     to any specialized small business investment company unless--
       (1) such company elects to be subject to tax on its built-
     in gains computed in a manner similar to that provided in 
     section 1374 of such Code (without regard to any recognition 
     period (as defined in subsection (d)(7) thereof)), and
       (2) such company distributes all of its accumulated 
     earnings and profits (in distributions to which section 301 
     of such Code applies) before its liquidation under this 
     section.
     If, after making an election under paragraph (1), a company 
     ceases to be a specialized small business investment company, 
     such company shall be treated as having disposed of all of 
     its assets for purposes of applying paragraph (1).
       (f) Specialized Small Business Investment Company.--For 
     purposes of this section, the term ``specialized small 
     business investment company'' has the meaning given to such 
     term by section 1044(c)(3) of such Code.

  PART II--ADDITIONAL INCENTIVES RELATED TO INVESTING IN SPECIALIZED 
                  SMALL BUSINESS INVESTMENT COMPANIES

     SEC. 1346. EXPANSION OF NONRECOGNITION TREATMENT FOR 
                   SECURITIES GAIN ROLLED OVER INTO SPECIALIZED 
                   SMALL BUSINESS INVESTMENT COMPANIES.

       (a) Extension of Rollover Period.--Paragraph (1) of section 
     1044(a) (relating to nonrecognition of gain) is amended by 
     striking ``60-day period'' and inserting ``180-day period''.
       (b) Increase of Maximum Exclusion.--
       (1) In general.--Paragraphs (1) and (2) of section 1044(b) 
     (relating to limitations) are amended to read as follows:
       ``(1) Limitation on individuals.--In the case of an 
     individual, the amount of gain which may be excluded under 
     subsection (a) for any taxable year shall not exceed--
       ``(A) $750,000, reduced by
       ``(B) the amount of gain excluded under subsection (a) for 
     all preceding taxable years.
       ``(2) Limitation on C corporations.--In the case of a C 
     corporation, the amount of gain which may be excluded under 
     subsection (a) for any taxable year shall not exceed--
       ``(A) $2,000,000, reduced by
       ``(B) the amount of gain excluded under subsection (a) for 
     all preceding taxable years.''
       (2) Conforming amendment.--Subparagraph (A) of section 
     1044(b)(3) (relating to special rules for married 
     individuals) is amended to read as follows:
       ``(A) Separate returns.--In the case of a separate return 
     by a married individual, paragraph (1) shall be applied by 
     substituting `$375,000' for `$750,000'.''
       (c) Extension to Preferred Stock.--Paragraph (1) of section 
     1044(a) is amended by striking ``common''.
       (d) Effective Date.--The amendments made by this section 
     shall apply to sales occurring after the date of the 
     enactment of this Act.

     SEC. 1347. MODIFICATIONS TO EXCLUSION FOR GAIN FROM QUALIFIED 
                   SMALL BUSINESS STOCK.

       (a) In General.--Section 1202 (relating to 50-percent 
     exclusion for gain from certain small business stock) is 
     amended by redesignating subsection (k) as subsection (l) and 
     by inserting after subsection (j) the following new 
     subsection:
       ``(k) Special Rules for Specialized Small Business 
     Investment Companies.--
       ``(1) Increase in exclusion.--In the case of--
       ``(A) the sale or exchange of stock in a specialized small 
     business investment company, and
       ``(B) any amount treated under subsection (g) as gain 
     described in subsection (a) by reason of the sale or exchange 
     of stock in a specialized small business investment company,
     subsection (a) shall be applied by substituting `60 percent' 
     for `50 percent'.
       ``(2) Waiver of active business requirement.--
     Notwithstanding any provision of subsection (e), a 
     corporation shall be treated as meeting the active business 
     requirements of such subsection for any period during which 
     such corporation qualifies as a specialized small business 
     investment company.
       ``(3) Specialized small business investment company.--For 
     purposes of this section, the term `specialized small 
     business investment company' means any eligible corporation 
     (as defined in subsection (e)(4)) which is licensed to 
     operate under section 301(d) of the Small Business Investment 
     Act of 1958 (as in effect on May 13, 1993).''
       (b) Conforming Amendment.--Section 1202(c)(2) is amended to 
     read as follows:
       ``(2) Active business requirement, etc.--Stock in a 
     corporation shall not be treated as qualified small business 
     stock unless, during substantially all of the taxpayer's 
     holding period for such stock, such corporation meets the 
     active business requirements of subsection (e) and such 
     corporation is a C corporation.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales and exchanges occurring after the date 
     of the enactment of this Act.
                      Subtitle F--Other Provisions

     SEC. 1351. INCREASE IN VOLUME CAP ON PRIVATE ACTIVITY BONDS.

       (a) In General.--Subsection (d) of section 146 (relating to 
     volume cap) is amended by striking paragraph (2), by 
     redesignating paragraphs (3) and (4) as paragraphs (2) and 
     (3), respectively, and by striking paragraph (1) and 
     inserting the following new paragraph:
       ``(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.
     Subparagraph (B) shall not apply to any possession of the 
     United States.''.
       (b) Conforming Amendment.--Sections 25(f)(3) and 
     42(h)(3)(E)(iii) are each amended by striking ``section 
     146(d)(3)(C)'' and inserting ``section 146(d)(2)(C)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to calendar years after 1999.

     SEC. 1352. TAX TREATMENT OF ALASKA NATIVE SETTLEMENT TRUSTS.

       (a) In General.--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. ELECTING 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) Beneficiaries of Electing Trust Not Taxed on 
     Contributions.--
       ``(1) In general.--In the case of a Settlement Trust for 
     which an election under paragraph (2) is in effect for any 
     taxable year, no amount shall be includible in the gross 
     income of a beneficiary of the Settlement Trust by reason of 
     a contribution to the Settlement Trust made during such 
     taxable year.
       ``(2) One-time election.--
       ``(A) In general.--A Settlement Trust may elect to have the 
     provisions of this section apply to the trust and its 
     beneficiaries.
       ``(B) Time and method of election.--An election under 
     subparagraph (A) shall be made--
       ``(i) before the due date (including extensions) for filing 
     the Settlement Trust's return of tax for the 1st taxable year 
     of the Settlement Trust ending after December 31, 1999, and
       ``(ii) by attaching to such return of tax a statement 
     specifically providing for such election.
       ``(C) Period election in effect.--Except as provided in 
     paragraph (3), an election under subparagraph (A)--
       ``(i) shall apply to the 1st taxable year described in 
     subparagraph (B)(i) and all subsequent taxable years, and
       ``(ii) may not be revoked once it is made.
       ``(c) Special Rules Where Transfer Restrictions Modified.--
       ``(1) Transfer of beneficial interests.--If, at any time, a 
     beneficial interest in a 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 (b)(2) with 
     respect to such trust, and

[[Page 17184]]

       ``(B) if such an election is in effect as of such time, 
     such election shall cease to apply for purposes of subsection 
     (b)(1) as of the 1st day of the taxable year following the 
     taxable year in which such disposition is first permitted.
       ``(2) Stock in corporation.--If--
       ``(A) the Settlement Common Stock in any Native Corporation 
     which transferred assets to a Settlement Trust making an 
     election under subsection (b)(2) may be disposed of to a 
     person in a 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 such trust,
     subparagraph (B) of paragraph (1) 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).
       ``(c) Tax Treatment of Distributions to Beneficiaries.--
       ``(1) In general.--In the case of a Settlement Trust for 
     which an election under subsection (b)(2) is in effect for 
     any taxable year, any distribution to a beneficiary shall be 
     included in gross income of the beneficiary as ordinary 
     income to the extent such distribution reduces the earnings 
     and profits of any Native Corporation making a contribution 
     to such Trust.
       ``(2) Earnings and profits.--The earnings and profits of 
     any Native Corporation making a contribution to a Settlement 
     Trust shall not be reduced on account thereof at the time of 
     such contribution, but such earnings and profits shall be 
     reduced (up to the amount of such contribution) as 
     distributions are thereafter made by the Settlement Trust 
     which exceed the sum of--
       ``(A) such Trust's total undistributed net income for all 
     prior years during which an election under subsection (b)(2) 
     is in effect, and
       ``(B) such Trust's distributable net income.
       ``(d) Definitions.--For purposes of this section--
       ``(1) 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)).
       ``(2) Settlement trust.--The term `Settlement Trust' means 
     a trust which constitutes a Settlement Trust under section 39 
     of the Alaska Native Claims Settlement Act (43 U.S.C. 
     1629e).''
       (b) Withholding on Distributions by Electing ANCSA 
     Settlement Trusts.--Section 3402 is amended by adding at the 
     end the following new subsection:
       ``(t) Tax Withholding on Distributions by Electing ANCSA 
     Settlement Trusts.--
       ``(1) In general.--Any Settlement Trust (as defined in 
     section 646(d)) for which an election under section 646(b)(2) 
     is in effect (in this subsection referred to as an `electing 
     trust') and which makes a payment to any beneficiary which is 
     includable in gross income under section 646(c) shall deduct 
     and withhold from such payment a tax in an amount equal to 
     such payment's proportionate share of the annualized tax.
       ``(2) Exception.--The tax imposed by paragraph (1) shall 
     not apply to any payment to the extent that such payment, 
     when annualized, does not exceed an amount equal to the 
     amount in effect under section 6012(a)(1)(A)(i) for taxable 
     years beginning in the calendar year in which the payment is 
     made.
       ``(3) Annualized tax.--For purposes of paragraph (1), the 
     term `annualized tax' means, with respect to any payment, the 
     amount of tax which would be imposed by section 1(c) 
     (determined without regard to any rate of tax in excess of 31 
     percent) on an amount of taxable income equal to the excess 
     of--
       ``(A) the annualized amount of such payment, over
       ``(B) the amount determined under paragraph (2).
       ``(4) Annualization.--For purposes of this subsection, 
     amounts shall be annualized in the manner prescribed by the 
     Secretary.
       ``(5) Alternate withholding procedures.--At the election of 
     an electing trust, the tax imposed by this subsection on any 
     payment made by such trust shall be determined in accordance 
     with such tables or computational procedures as may be 
     specified in regulations prescribed by the Secretary (in lieu 
     of in accordance with paragraphs (2) and (3)).
       ``(6) Coordination with other sections.--For purposes of 
     this chapter and so much of subtitle F as relates to this 
     chapter, payments which are subject to withholding under this 
     subsection shall be treated as if they were wages paid by an 
     employer to an employee.''
       (c) Reporting.--Section 6041 is amended by adding at the 
     end the following new subsection:
       ``(f) Application to Alaska Native Settlement Trusts.--In 
     the case of any distribution from a Settlement Trust (as 
     defined in section 646(d)) to a beneficiary which is 
     includable in gross income under section 646(c), this section 
     shall apply, except that--
       ``(1) this section shall apply to such distribution without 
     regard to the amount thereof,
       ``(2) the Settlement Trust shall include on any return or 
     statement required by this section information as to the 
     character of such distribution (if applicable) and the amount 
     of tax imposed by chapter 1 which has been deducted and 
     withheld from such distribution, and
       ``(3) the filing of any return or statement required by 
     this section shall satisfy any requirement to file any other 
     form or schedule under this title with respect to 
     distributive share information (including any form or 
     schedule to be included with the trust's tax return).''
       (d) Clerical Amendment.--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.''
       (e) Effective Date.--The amendments made by this section 
     shall apply to taxable years of Settlement Trusts ending 
     after December 31, 1999, and to contributions to such trusts 
     after such date.

     SEC. 1353. INCREASE IN THRESHOLD FOR JOINT COMMITTEE REPORTS 
                   ON REFUNDS AND CREDITS.

       (a) General Rule.--Subsections (a) and (b) of section 6405 
     are each amended by striking ``$1,000,000'' and inserting 
     ``$2,000,000''.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall take effect on the date of the enactment of this Act, 
     except that such amendment shall not apply with respect to 
     any refund or credit with respect to a report that has been 
     made before such date of enactment under section 6405 of the 
     Internal Revenue Code of 1986.

     SEC. 1354. CLARIFICATION OF DEPRECIATION STUDY.

       Paragraph (1) of section 2022 of the Tax and Trade Relief 
     Extension Act of 1998 (Public Law 105-277; 112 Stat. 2681-
     903) is amended by inserting after ``1986,'' the following: 
     ``including such periods and methods applicable to section 
     1250 property used in connection with a franchise (within the 
     meaning of section 1253) and owned by the franchisee,''.
                    Subtitle G--Tax Court Provisions

     SEC. 1361. TAX COURT FILING FEE IN ALL CASES COMMENCED BY 
                   FILING PETITION.

       (a) In General.--Section 7451 (relating to fee for filing a 
     Tax Court petition) is amended by striking all that follows 
     ``petition'' and inserting a period.
       (b) Effective Date.--The amendment made by this section 
     shall take effect on the date of the enactment of this Act.

     SEC. 1362. EXPANDED USE OF TAX COURT PRACTICE FEE.

       Subsection (b) of section 7475 (relating to use of fees) is 
     amended by inserting before the period at the end ``and to 
     provide services to pro se taxpayers''.

     SEC. 1363. CONFIRMATION OF AUTHORITY OF TAX COURT TO APPLY 
                   DOCTRINE OF EQUITABLE RECOUPMENT.

       (a) Confirmation of Authority of Tax Court To Apply 
     Doctrine of Equitable Recoupment.--Subsection (b) of section 
     6214 (relating to jurisdiction over other years and quarters) 
     is amended by adding at the end the following new sentence: 
     ``Notwithstanding the preceding sentence, the Tax Court may 
     apply the doctrine of equitable recoupment to the same extent 
     that it is available in civil tax cases before the district 
     courts of the United States and the United States Court of 
     Federal Claims.''.
       (b) Effective Date.--The amendments made by this section 
     shall apply to any action or proceeding in the Tax Court with 
     respect to which a decision has not become final (as 
     determined under section 7481 of the Internal Revenue Code of 
     1986) as of the date of the enactment of this Act.
 Subtitle H--Tax-Free Transfer of Bottled Distilled Spirits to Bonded 
                                Dealers

     SEC. 1371. TAX-FREE TRANSFER OF BOTTLED DISTILLED SPIRITS 
                   FROM DISTILLED SPIRITS PLANT TO BONDED DEALER.

       (a) Domestic Bottled Distilled Spirits.--
       (1) In general.--The last sentence of section 5212 is 
     amended by inserting before the period ``and shall not apply 
     to bottled distilled spirits transferred from a distilled 
     spirits plant (other than a bonded dealer) to a bonded dealer 
     if the proprietor of such plant notifies (in such form and 
     manner as the Secretary prescribes by regulations) such 
     bonded dealer of the amount of tax determined on the 
     distilled spirits so transferred''.
       (2) Transfer of liability contingent on furnishing of 
     certain information.--Paragraph (2) of section 5005(c) is 
     amended by adding at the end the following new sentence: ``In 
     the case of a transfer of bottled distilled spirits from a 
     distilled spirits plant to a bonded dealer, the preceding 
     provisions of this subsection shall apply only to the extent 
     of the amount specified by the proprietor of such plant in 
     accordance with the last sentence of section 5212.''
       (b) Comparable Treatment for Imported Bottled Distilled 
     Spirits.--Subsection (a) of section 5232 is amended to read 
     as follows:
       ``(a) Transfer to Distilled Spirits Plant Without Payment 
     of Tax.--
       ``(1) In general.--Distilled spirits imported or brought 
     into the United States in bulk containers may, under such 
     regulations as the Secretary shall prescribe, be withdrawn 
     from customs custody and transferred in such bulk containers 
     or by pipeline to the bonded premises of a distilled spirits 
     plant without payment of the internal revenue tax imposed on 
     such distilled spirits by section 5001.
       ``(2) Imported bottled distilled spirits.--The restriction 
     under paragraph (1) to transfers in bulk or by pipeline shall 
     not apply to bottled distilled spirits transferred from 
     customs custody to a bonded dealer if the proprietor of the 
     customs bonded warehouse notifies (in such form and manner as 
     the Secretary prescribes by regulations) such bonded dealer 
     of the amount of tax determined on the distilled spirits so 
     transferred.
       ``(3) Transfer of liability.--The person operating the 
     bonded premises of the distilled spirits plant to which such 
     spirits are transferred shall become liable for the tax on 
     distilled spirits withdrawn from customs custody under this 
     section upon release of the spirits from customs

[[Page 17185]]

     custody, and the importer, or the person bringing such 
     distilled spirits into the United States, shall thereupon be 
     relieved of his liability for such tax. In the case of a 
     transfer of bottled distilled spirits from a customs bonded 
     warehouse to a bonded dealer, the preceding sentence shall 
     apply only to the extent of the amount specified by the 
     proprietor of such warehouse in accordance with paragraph 
     (2).''
       (c) Penalty for False or Erroneous Information to Bonded 
     Dealers.--
       (1) In general.--Section 5684 is amended by redesignating 
     subsections (b) and (c) as subsections (c) and (d), 
     respectively, and inserting after subsection (a) the 
     following new subsection:
       ``(b) False or Erroneous Information to Bonded Dealers.--
     Any distilled spirits plant or importer which furnishes false 
     or erroneous information to a bonded dealer relating to the 
     amount of tax determined on a product, as required under 
     sections 5212 and 5232, shall, in addition to any other 
     penalty imposed by this title, be liable for a penalty equal 
     to the greater of $1,000 or 5 times the amount of additional 
     tax due on the product.''
       (2) Conforming amendment.--Subsection (c) of section 5684, 
     as redesignated by paragraph (1), is amended by striking 
     ``subsection (a)'' and inserting ``subsections (a) and (b)''.

     SEC. 1372. ESTABLISHMENT OF DISTILLED SPIRITS PLANT.

       Section 5171 is amended--
       (1) by striking from subsection (a) ``or processor'' and 
     inserting ``processor, or bonded dealer'', and
       (2) by striking from subsection (b) ``or both.'' and 
     inserting ``as a bonded dealer, or as any combination 
     thereof.''

     SEC. 1373. DISTILLED SPIRITS PLANTS.

       Section 5178(a) is amended by adding at the end the 
     following new paragraph:
       ``(5) Bonded dealer operations.--Any person establishing a 
     distilled spirits plant to conduct operations as a bonded 
     dealer may, as described in the application for 
     registration--
       ``(A) store distilled spirits in any approved container on 
     the bonded premises of such plant, and
       ``(B) under such regulations as the Secretary shall 
     prescribe, store taxpaid distilled spirits, beer and wine and 
     such other beverages and items (products) not subject to tax 
     or regulation under this title on such bonded premises.''

     SEC. 1374. BONDED DEALERS.

       (a) In General.--Subpart A of part I of subchapter A of 
     chapter 51 (relating to distilled spirits) is amended by 
     adding at the end the following new section:

     ``SEC. 5011. ELECTION TO BE TREATED AS BONDED DEALER.

       ``(a) Election.--
       ``(1) In general.--Any wholesale dealer, or any control 
     State entity, may elect to be treated as a bonded dealer if 
     such wholesale dealer or entity sells bottled distilled 
     spirits exclusively to 1 or more of the following: wholesale 
     dealers in liquor, independent retail dealers, or other 
     bonded dealers.
       ``(2) Election by certain entities not permitted.--
       ``(A) Retail dealers.--Except in the case of a control 
     State entity, the election under paragraph (1) may not be 
     made by a retail dealer in liquor.
       ``(B) Small dealers.--The election under paragraph (1) may 
     not be made by any person who is part of a group treated as a 
     single taxpayer under section 5061(e)(3) if the gross 
     receipts of such group from the sale of distilled spirits 
     during the 12-month period prior to making such election is 
     less than $10,000,000.
       ``(3) Control state entities permitted to sell to related 
     retail dealers.--In the case of a control State entity, 
     paragraph (1) shall be applied by substituting `retail 
     dealers' for `independent retail dealers'.
       ``(b) Independent Retail Dealer.--For purposes of 
     subsection (a), the term `independent retail dealer' means, 
     with respect to a bonded dealer, any retail dealer if--
       ``(1) the bonded dealer does not have a greater than 10 
     percent ownership interest in, or control of, the retail 
     dealer,
       ``(2) the retail dealer does not have a greater than 10 
     percent ownership interest in, or control of, the bonded 
     dealer, and
       ``(3) no person has a greater than 10 percent ownership 
     interest in, or control of, both the bonded and retail 
     dealer.
     For purposes of this subsection, rules similar to the rules 
     of section 318 shall apply.
       ``(c) Inventory Owned at Time of Election.--Any bottled 
     distilled spirits in the inventory of any person electing 
     under this section to be treated as a bonded dealer shall not 
     be subject to additional Federal excise tax on such spirits 
     as a result of the election being in effect to the extent 
     that the bonded dealer establishes that the Federal excise 
     tax previously has been determined and paid at the time the 
     election becomes effective.
       ``(d) Revocation of Election.--The election made under this 
     section may be revoked by the bonded dealer at any time, but 
     once revoked shall not be made again without the consent of 
     the Secretary. When the election is revoked, the bonded 
     dealer shall immediately withdraw the distilled spirits on 
     determination of tax in accordance with a tax payment 
     procedure established by the Secretary.
       ``(e) Approval of Application.--Any application under 
     section 5171(c) submitted by a person electing to be treated 
     as a bonded dealer shall be subject to the same conditions as 
     an application for a basic permit under section 204(a)(2) of 
     title 27 of the United States Code (the Federal Alcohol 
     Administration Act) and shall be accorded notice and hearing 
     as described in section 204(b) of such title 27.
       ``(f) Additional Tax.--
       ``(1) In general.--In addition to any other tax imposed by 
     this chapter, there is hereby imposed on each bonded dealer a 
     tax for each semimonthly period under section 5061(d) for 
     which an election under this section is in effect for such 
     dealer.
       ``(2) Amount of tax.--The tax imposed by this subsection 
     for any semimonthly period shall be equal to 1.5 percent of 
     the liability for tax under sections 5001 and 7652 of such 
     dealer for such semimonthly period.
       ``(3) Payment of tax.--The tax imposed by this subsection 
     shall be paid with the return of tax for such semimonthly 
     period.
       ``(4) Taxpayers not paying on semimonthly basis.--If the 
     taxes referred to in paragraph (2) are not paid on the basis 
     of semimonthly periods, this subsection shall be applied by 
     substituting the time such taxes are required to be paid for 
     such periods.
       ``(5) Termination.--The tax imposed by this subsection 
     shall not apply to any semimonthly period ending after 
     December 31, 2010.''
       (b) Conforming Amendments.--
       (1) Section 5002(a) is amended by adding the end the 
     following new paragraphs:
       ``(16) Bonded dealer.--The term `bonded dealer' means any 
     person who has elected under section 5011 to be treated as a 
     bonded dealer.
       ``(17) Control state entity.--The term `control State 
     entity' means a State or a political subdivision of a State 
     in which only the State or a political subdivision thereof is 
     allowed under applicable law to perform distilled spirit 
     operations, or any instrumentality of such a State or 
     political subdivision.''
       (2) The table of sections of subpart A of part I of 
     subchapter A of chapter 51 and the table of contents of 
     subtitle E are each amended by adding at the appropriate 
     places:

``Sec. 5011. Election to be treated as bonded dealer.''

     SEC. 1375. TIME FOR COLLECTING TAX ON DISTILLED SPIRITS.

       (a) In General.--Section 5061(d) is amended by adding at 
     the end the following new paragraph:
       ``(6) Advanced payment of distilled spirits tax by bonded 
     dealers.--Notwithstanding the preceding provisions of this 
     subsection, in the case of any tax imposed by section 5001, 
     5011(f), or 7652 with respect to a bonded dealer who has an 
     election under section 5011 in effect on September 20 of any 
     year, any payment which would, but for this paragraph, be due 
     in October or November of that year, shall be made on such 
     September 20. No penalty or interest shall be imposed for the 
     period after such September 20 and before the due date for 
     such payment (determined without regard to this paragraph) to 
     the extent that the tax due exceeds the payment which would 
     have been due in such October and November had the election 
     under section 5011 been in effect.''
       (b) Payment by Electronic Fund Transfer.--Section 
     5061(e)(1) is amended by inserting ``and any bonded dealer,'' 
     after ``respectively,''.

     SEC. 1376. EXEMPTION FROM OCCUPATIONAL TAX NOT APPLICABLE.

       Section 5113(a) is amended by adding at the end the 
     following new sentence: ``The exemption under this subsection 
     shall not apply to a proprietor of a distilled spirits plant 
     whose premises are used for operations of a bonded dealer.''

     SEC. 1377. TECHNICAL, CONFORMING, AND CLERICAL AMENDMENTS.

       (a) Technical and Conforming Amendments.--
       (1) Section 5003(3) is amended by striking ``certain''.
       (2) Subsection (a) of section 5214 is amended by inserting 
     ``(other than a bonded dealer)'' after ``distilled spirits 
     plant''.
       (3) Section 5362(b)(5) is amended by adding at the end the 
     following new sentence: ``This term shall not apply to 
     premises used for operations as a bonded dealer.''.
       (4) Section 5551(a) is amended by inserting ``bonded 
     dealer,'' after ``processor,'' each place it appears.
       (5) Section 5601(a) (2), (3), (4), (5), and (b) are amended 
     by inserting ``, bonded dealer'' before ``or processor'' each 
     place it appears.
       (6) Section 5602 is amended--
       (A) by inserting ``, warehouseman, processor, or bonded 
     dealer'' after ``distiller'', and
       (B) by inserting ``or possessed'' after ``distilled''.
       (7) Sections 5180 and 5681 are repealed.
       (b) Clerical Amendments.--
       (1) The table of sections for subchapter B of chapter 51 is 
     amended by striking the item relating to section 5180.
       (2) The table of sections for part IV of subchapter J of 
     chapter 51 is amended by striking the item relating to 
     section 5681.

     SEC. 1378. COOPERATIVE AGREEMENTS.

       (a) Study.--The Secretary of the Treasury shall study and 
     report to Congress concerning possible administrative 
     efficiencies which could inure to the benefit of the Federal 
     Government of cooperative agreements with States regarding 
     the collection of distilled spirits excise taxes. Such study 
     shall include, but not be limited to, possible benefits of 
     the standardization of forms and collection procedures and 
     shall be submitted 1 year after the date of the enactment of 
     this Act.
       (b) Cooperative Agreement.--The Secretary of the Treasury 
     is authorized to enter into such cooperative agreements with 
     States which the

[[Page 17186]]

     Secretary deems will increase the efficient collection of 
     distilled spirits excise taxes.

     SEC. 1379. EFFECTIVE DATE.

       (a) In General.--Except as otherwise provided in this 
     section, the amendments made by this subtitle shall take 
     effect at the beginning of the first calendar quarter that 
     begins after one hundred and twenty days following enactment.
       (b) Authority To Establish Distilled Spirits Plant.--
       (1) In general.--The amendments made by section 1372 of 
     this Act shall take effect on the date of enactment of this 
     Act.
       (2) Deemed qualification in certain cases.--Each wholesale 
     dealer--
       (A) who is required to file an application for registration 
     under section 5171(c) of the Internal Revenue Code of 1986,
       (B) whose operations are required to be covered by a basic 
     permit under the Federal Alcohol Administration Act (27 
     U.S.C. 203 and 204) and who has received such a basic permit 
     as an importer, wholesaler, or both, and
       (C) has obtained a bond required under this subchapter,
     shall be treated as having such application approved as of 
     the first day of the first calendar quarter that begins at 
     least 9 months after the application is filed until such time 
     as the Secretary or the Secretary's delegate takes final 
     action on such application.
       (3) Control state entities.--In the case of a control State 
     entity, paragraph (2) shall be applied without regard to 
     subparagraph (B) thereof.
       (c) Equitable Treatment of Bonded Dealers Using LIFO 
     Inventory.--The Secretary of the Treasury or the Secretary's 
     delegate shall provide such rules as may be necessary to 
     assure that taxpayers using the last-in first-out method of 
     inventory valuation do not suffer a recapture of their LIFO 
     reserve by reason of making the election under section 5011 
     of such Code or by reason of operating a bonded wine cellar 
     as permitted by section 5351 of such Code.

     SEC. 1380. STUDY.

       Not later than June 1, 2002, the Secretary of the Treasury 
     or the Secretary's delegate shall prepare and submit to the 
     Congress a report--
       (1) on the extent to which (if any) there has been a 
     decrease in compliance with the provisions of chapter 51 of 
     the Internal Revenue Code of 1986 by reason of the amendments 
     made by this subtitle, and
       (2) on any particular compliance issues in applying the 
     credit allowable by section 5010 of such Code under the 
     amendments made by this subtitle.
              TITLE XIV--EXTENSIONS OF EXPIRING PROVISIONS

     SEC. 1401. RESEARCH CREDIT.

       (a) Extension.--
       (1) In general.--Paragraph (1) of section 41(h) (relating 
     to termination) is amended--
       (A) by striking ``June 30, 1999'' and inserting ``June 30, 
     2004'', and
       (B) by striking the material following subparagraph (B).
       (2) Technical amendment.--Subparagraph (D) of section 
     45C(b)(1) is amended by striking ``June 30, 1999'' and 
     inserting ``June 30, 2004''.
       (3) Effective date.--The amendments made by this subsection 
     shall apply to amounts paid or incurred after June 30, 1999.
       (b) Increase in Percentages Under Alternative Incremental 
     Credit.--
       (1) In general.--Subparagraph (A) of section 41(c)(4) is 
     amended--
       (A) by striking ``1.65 percent'' and inserting ``2.65 
     percent'',
       (B) by striking ``2.2 percent'' and inserting ``3.2 
     percent'', and
       (C) by striking ``2.75 percent'' and inserting ``3.75 
     percent''.
       (2) Effective date.--The amendments made by this subsection 
     shall apply to taxable years beginning after June 30, 1999.

     SEC. 1402. SUBPART F EXEMPTION FOR ACTIVE FINANCING INCOME.

       (a) In General.--Sections 953(e)(10) and 954(h)(9) are each 
     amended--
       (1) by striking ``the first taxable year'' and inserting 
     ``taxable years'', and
       (2) by striking ``January 1, 2000'' and inserting ``January 
     1, 2005''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1403. TAXABLE INCOME LIMIT ON PERCENTAGE DEPLETION FOR 
                   MARGINAL PRODUCTION.

       (a) In General.--Subparagraph (H) of section 613A(c)(6) is 
     amended by striking ``January 1, 2000'' and inserting 
     ``January 1, 2005''.
       (b) Effective Date.--The amendment made by this section 
     shall apply to taxable years beginning after December 31, 
     1999.

     SEC. 1404. WORK OPPORTUNITY CREDIT AND WELFARE-TO-WORK 
                   CREDIT.

       (a) Temporary Extension.--Sections 51(c)(4)(B) and 51A(f) 
     (relating to termination) are each amended by striking ``June 
     30, 1999'' and inserting ``December 31, 2001''.
       (b) Clarification of First Year of Employment.--Paragraph 
     (2) of section 51(i) is amended by striking ``during which he 
     was not a member of a targeted group''.
       (c) Electronic Filing of Certification.--Not later than 
     July 1, 2001, the Secretary of the Treasury or the 
     Secretary's delegate shall provide an electronic format by 
     which employers may submit requests to designated local 
     agencies (as defined in section 51(d)(11) of the Internal 
     Revenue Code of 1986) for certifications that individuals are 
     members of targeted groups for purposes of section 51 of such 
     Code.
       (d) Effective Date.--The amendments made by this section 
     shall apply to individuals who begin work for the employer 
     after June 30, 1999.
                       TITLE XV--REVENUE OFFSETS

     SEC. 1501. RETURNS RELATING TO CANCELLATIONS OF INDEBTEDNESS 
                   BY ORGANIZATIONS LENDING MONEY.

       (a) In General.--Paragraph (2) of section 6050P(c) 
     (relating to definitions and special rules) is amended by 
     striking ``and'' at the end of subparagraph (B), by striking 
     the period at the end of subparagraph (C) and inserting ``, 
     and'', and by inserting after subparagraph (C) the following 
     new subparagraph:
       ``(D) any organization a significant trade or business of 
     which is the lending of money.''
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to discharges of indebtedness after December 31, 
     1999.

     SEC. 1502. EXTENSION OF INTERNAL REVENUE SERVICE USER FEES.

       (a) In General.--Chapter 77 (relating to miscellaneous 
     provisions) is amended by adding at the end the following new 
     section:

     ``SEC. 7527. INTERNAL REVENUE SERVICE USER FEES.

       ``(a) General Rule.--The Secretary shall establish a 
     program requiring the payment of user fees for--
       ``(1) requests to the Internal Revenue Service for ruling 
     letters, opinion letters, and determination letters, and
       ``(2) other similar requests.
       ``(b) Program Criteria.--
       ``(1) In general.--The fees charged under the program 
     required by subsection (a)--
       ``(A) shall vary according to categories (or subcategories) 
     established by the Secretary,
       ``(B) shall be determined after taking into account the 
     average time for (and difficulty of) complying with requests 
     in each category (and subcategory), and
       ``(C) shall be payable in advance.
       ``(2) Exemptions, etc.--The Secretary shall provide for 
     such exemptions (and reduced fees) under such program as the 
     Secretary determines to be appropriate.
       ``(3) Average fee requirement.--The average fee charged 
     under the program required by subsection (a) shall not be 
     less than the amount determined under the following table:

``Category                                                  Average Fee
  Employee plan ruling and opinion............................$250 ....

  Exempt organization ruling..................................$350 ....

  Employee plan determination.................................$300 ....

  Exempt organization determination...........................$275 ....

  Chief counsel ruling........................................$200.....

       ``(c) Termination.--No fee shall be imposed under this 
     section with respect to requests made after September 30, 
     2009.''
       (b) Conforming Amendments.--
       (1) The table of sections for chapter 77 is amended by 
     adding at the end the following new item:

``Sec. 7527. Internal Revenue Service user fees.''
       (2) Section 10511 of the Revenue Act of 1987 is repealed.
       (c) Effective Date.--The amendments made by this section 
     shall apply to requests made after the date of the enactment 
     of this Act.

     SEC. 1503. LIMITATIONS ON WELFARE BENEFIT FUNDS OF 10 OR MORE 
                   EMPLOYER PLANS.

       (a) Benefits to Which Exception Applies.--Section 
     419A(f)(6)(A) (relating to exception for 10 or more employer 
     plans) is amended to read as follows:
       ``(A) In general.--This subpart shall not apply to a 
     welfare benefit fund which is part of a 10 or more employer 
     plan if the only benefits provided through the fund are 1 or 
     more of the following:
       ``(i) Medical benefits.
       ``(ii) Disability benefits.
       ``(iii) Group term life insurance benefits which do not 
     provide for any cash surrender value or other money that can 
     be paid, assigned, borrowed, or pledged for collateral for a 
     loan.
     The preceding sentence shall not apply to any plan which 
     maintains experience-rating arrangements with respect to 
     individual employers.''
       (b) Limitation on Use of Amounts for Other Purposes.--
     Section 4976(b) (defining disqualified benefit) is amended by 
     adding at the end the following new paragraph:
       ``(5) Special rule for 10 or more employer plans exempted 
     from prefunding limits.--For purposes of paragraph (1)(C), 
     if--
       ``(A) subpart D of part I of subchapter D of chapter 1 does 
     not apply by reason of section 419A(f)(6) to contributions to 
     provide 1 or more welfare benefits through a welfare benefit 
     fund under a 10 or more employer plan, and
       ``(B) any portion of the welfare benefit fund attributable 
     to such contributions is used for a purpose other than that 
     for which the contributions were made,
     then such portion shall be treated as reverting to the 
     benefit of the employers maintaining the fund.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to contributions paid or accrued after June 9, 
     1999, in taxable years ending after such date.

     SEC. 1504. INCREASE IN ELECTIVE WITHHOLDING RATE FOR 
                   NONPERIODIC DISTRIBUTIONS FROM DEFERRED 
                   COMPENSATION PLANS.

       (a) In General.--Section 3405(b)(1) (relating to 
     withholding) is amended by striking `10 percent' and 
     inserting `15 percent'.
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to distributions after December 31, 1999.

     SEC. 1505. CONTROLLED ENTITIES INELIGIBLE FOR REIT STATUS.

       (a) In General.--Subsection (a) of section 856 (relating to 
     definition of real estate investment

[[Page 17187]]

     trust) is amended by striking ``and'' at the end of paragraph 
     (6), by redesignating paragraph (7) as paragraph (8), and by 
     inserting after paragraph (6) the following new paragraph:
       ``(7) which is not a controlled entity (as defined in 
     subsection (l)); and''.
       (b) Controlled Entity.--Section 856 is amended by adding at 
     the end the following new subsection:
       ``(l) Controlled Entity.--
       ``(1) In general.--For purposes of subsection (a)(7), an 
     entity is a controlled entity if, at any time during the 
     taxable year, one person (other than a qualified entity)--
       ``(A) in the case of a corporation, owns stock--
       ``(i) possessing at least 50 percent of the total voting 
     power of the stock of such corporation, or
       ``(ii) having a value equal to at least 50 percent of the 
     total value of the stock of such corporation, or
       ``(B) in the case of a trust, owns beneficial interests in 
     the trust which would meet the requirements of subparagraph 
     (A) if such interests were stock.
       ``(2) Qualified entity.--For purposes of paragraph (1), the 
     term `qualified entity' means--
       ``(A) any real estate investment trust, and
       ``(B) any partnership in which one real estate investment 
     trust owns at least 50 percent of the capital and profits 
     interests in the partnership.
       ``(3) Attribution rules.--For purposes of this paragraphs 
     (1) and (2)--
       ``(A) In general.--Rules similar to the rules of 
     subsections (d)(5) and (h)(3) shall apply.
       ``(B) Stapled entities.--A group of entities which are 
     stapled entities (as defined in section 269B(c)(2)) shall be 
     treated as 1 person.
       ``(4) Exception for certain new reits.--
       ``(A) In general.--The term `controlled entity' shall not 
     include an incubator REIT.
       ``(B) Incubator reit.--A corporation shall be treated as an 
     incubator REIT for any taxable year during the eligibility 
     period if it meets all the following requirements for such 
     year:
       ``(i) The corporation elects to be treated as an incubator 
     REIT.
       ``(ii) The corporation has only voting common stock 
     outstanding.
       ``(iii) Not more than 50 percent of the corporation's real 
     estate assets consist of mortgages.
       ``(iv) From not later than the beginning of the last half 
     of the second taxable year, at least 10 percent of the 
     corporation's capital is provided by lenders or equity 
     investors who are unrelated to the corporation's largest 
     shareholder.
       ``(v) The directors of the corporation adopt a resolution 
     setting forth an intent to engage in a going public 
     transaction.
     No election may be made with respect to any REIT if an 
     election under this subsection was in effect for any 
     predecessor of such REIT.
       ``(C) Eligibility period.--The eligibility period (for 
     which an incubator REIT election can be made) begins with the 
     REIT's second taxable year and ends at the close of the 
     REIT's third taxable year, but, subject to the following 
     rules, it may be extended for an additional 2 taxable years 
     if the REIT so elects:
       ``(i) A REIT cannot elect to extend the eligibility period 
     unless it agrees that, if it does not engage in a going 
     public transaction by the end of the extended eligibility 
     period, it shall pay Federal income taxes for the 2 years of 
     the extended eligibility period as if it had not made an 
     incubator REIT election and had ceased to qualify as a REIT 
     for those 2 taxable years.
       ``(ii) In the event the corporation ceases to be treated as 
     a REIT by operation of clause (i), the corporation shall file 
     any appropriate amended returns reflecting the change in 
     status within 3 months of the close of the extended 
     eligibility period. Interest would be payable but, unless 
     there was a finding under subparagraph (D), no substantial 
     underpayment penalties shall be imposed. The corporation 
     shall, at the same time, also notify its shareholders and any 
     other persons whose tax position is, or may reasonably be 
     expected to be, affected by the change in status so they also 
     may file any appropriate amended returns to conform their tax 
     treatment consistent with the corporation's loss of REIT 
     status. The Secretary shall provide appropriate regulations 
     setting forth transferee liability and other provisions to 
     ensure collection of tax and the proper administration of 
     this provision.
       ``(iii) Clause (i) and (ii) shall not apply if the 
     corporation allows its incubator REIT status to lapse at the 
     end of the initial 2-year eligibility period without engaging 
     in a going public transaction, provided the corporation 
     satisfies the requirements of the closely-held test 
     commencing with its fourth taxable year. In such a case, the 
     corporation's directors may still be liable for the penalties 
     described in subparagraph (D) during the eligibility period.
       ``(D) Special penalties.--If the Secretary determines that 
     an incubator REIT election was filed for a principal purpose 
     other than as part of a reasonable plan to undertake a going 
     public transaction, an excise tax of $20,000 would be imposed 
     on each of the corporation's directors for each taxable year 
     for which an election was in effect.
       ``(E) Going public transaction.--For purposes of this 
     paragraph, a going public transaction means--
       ``(i) a public offering of shares of the stock of the 
     incubator REIT;
       ``(ii) a transaction, or series of transactions, that 
     results in the stock of the incubator REIT being regularly 
     traded on an established securities market and that results 
     in at least 50 percent of such stock being held by 
     shareholders who are unrelated to persons who held such stock 
     before it began to be so regularly traded; or
       ``(iii) any transaction resulting in ownership of the REIT 
     by 200 or more persons (excluding the largest single 
     shareholder) who in the aggregate own at least 50 percent of 
     the stock of the REIT.
     For the purposes of this subparagraph, the rules of paragraph 
     (3) shall apply in determining the ownership of stock.
       ``(F) Definitions.--The term `established securities 
     market' shall have the meaning set forth in the regulations 
     under section 897.''
       (c) Conforming Amendment.--Paragraph (2) of section 856(h) 
     is amended by striking ``and (6)'' each place it appears and 
     inserting ``, (6), and (7)''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after July 12, 1999.
       (2) Exception for existing controlled entities.--The 
     amendments made by this section shall not apply to any entity 
     which is a controlled entity (as defined in section 856(l) of 
     the Internal Revenue Code of 1986, as added by this section) 
     as of July 12, 1999, which is a real estate investment trust 
     for the taxable year which includes such date, and which has 
     significant business assets or activities as of such date.

     SEC. 1506. TREATMENT OF GAIN FROM CONSTRUCTIVE OWNERSHIP 
                   TRANSACTIONS.

       (a) In General.--Part IV of subchapter P of chapter 1 
     (relating to special rules for determining capital gains and 
     losses) is amended by inserting after section 1259 the 
     following new section:

     ``SEC. 1260. GAINS FROM CONSTRUCTIVE OWNERSHIP TRANSACTIONS.

       ``(a) In General.--If the taxpayer has gain from a 
     constructive ownership transaction with respect to any 
     financial asset and such gain would (without regard to this 
     section) be treated as a long-term capital gain--
       ``(1) such gain shall be treated as ordinary income to the 
     extent that such gain exceeds the net underlying long-term 
     capital gain, and
       ``(2) to the extent such gain is treated as a long-term 
     capital gain after the application of paragraph (1), the 
     determination of the capital gain rate (or rates) applicable 
     to such gain under section 1(h) shall be determined on the 
     basis of the respective rate (or rates) that would have been 
     applicable to the net underlying long-term capital gain.
       ``(b) Interest Charge on Deferral of Gain Recognition.--
       ``(1) In general.--If any gain is treated as ordinary 
     income for any taxable year by reason of subsection (a)(1), 
     the tax imposed by this chapter for such taxable year shall 
     be increased by the amount of interest determined under 
     paragraph (2) with respect to each prior taxable year during 
     any portion of which the constructive ownership transaction 
     was open. Any amount payable under this paragraph shall be 
     taken into account in computing the amount of any deduction 
     allowable to the taxpayer for interest paid or accrued during 
     such taxable year.
       ``(2) Amount of interest.--The amount of interest 
     determined under this paragraph with respect to a prior 
     taxable year is the amount of interest which would have been 
     imposed under section 6601 on the underpayment of tax for 
     such year which would have resulted if the gain (which is 
     treated as ordinary income by reason of subsection (a)(1)) 
     had been included in gross income in the taxable years in 
     which it accrued (determined by treating the income as 
     accruing at a constant rate equal to the applicable Federal 
     rate as in effect on the day the transaction closed). The 
     period during which such interest shall accrue shall end on 
     the due date (without extensions) for the return of tax 
     imposed by this chapter for the taxable year in which such 
     transaction closed.
       ``(3) Applicable federal rate.--For purposes of paragraph 
     (2), the applicable Federal rate is the applicable Federal 
     rate determined under 1274(d) (compounded semiannually) which 
     would apply to a debt instrument with a term equal to the 
     period the transaction was open.
       ``(4) No credits against increase in tax.--Any increase in 
     tax under paragraph (1) shall not be treated as tax imposed 
     by this chapter for purposes of determining--
       ``(A) the amount of any credit allowable under this 
     chapter, or
       ``(B) the amount of the tax imposed by section 55.
       ``(c) Financial Asset.--For purposes of this section--
       ``(1) In general.--The term `financial asset' means--
       ``(A) any equity interest in any pass-thru entity, and
       ``(B) to the extent provided in regulations--
       ``(i) any debt instrument, and
       ``(ii) any stock in a corporation which is not a pass-thru 
     entity.
       ``(2) Pass-thru entity.--For purposes of paragraph (1), the 
     term `pass-thru entity' means--
       ``(A) a regulated investment company,
       ``(B) a real estate investment trust,
       ``(C) an S corporation,
       ``(D) a partnership,
       ``(E) a trust,
       ``(F) a common trust fund,
       ``(G) a passive foreign investment company (as defined in 
     section 1297),
       ``(H) a foreign personal holding company, and
       ``(I) a foreign investment company (as defined in section 
     1246(b)).

[[Page 17188]]

       ``(d) Constructive Ownership Transaction.--For purposes of 
     this section--
       ``(1) In general.--The taxpayer shall be treated as having 
     entered into a constructive ownership transaction with 
     respect to any financial asset if the taxpayer--
       ``(A) holds a long position under a notional principal 
     contract with respect to the financial asset,
       ``(B) enters into a forward or futures contract to acquire 
     the financial asset,
       ``(C) is the holder of a call option, and is the grantor of 
     a put option, with respect to the financial asset and such 
     options have substantially equal strike prices and 
     substantially contemporaneous maturity dates, or
       ``(D) to the extent provided in regulations prescribed by 
     the Secretary, enters into 1 or more other transactions (or 
     acquires 1 or more positions) that have substantially the 
     same effect as a transaction described in any of the 
     preceding subparagraphs.
       ``(2) Exception for positions which are marked to market.--
     This section shall not apply to any constructive ownership 
     transaction if all of the positions which are part of such 
     transaction are marked to market under any provision of this 
     title or the regulations thereunder.
       ``(3) Long position under notional principal contract.--A 
     person shall be treated as holding a long position under a 
     notional principal contract with respect to any financial 
     asset if such person--
       ``(A) has the right to be paid (or receive credit for) all 
     or substantially all of the investment yield (including 
     appreciation) on such financial asset for a specified period, 
     and
       ``(B) is obligated to reimburse (or provide credit for) all 
     or substantially all of any decline in the value of such 
     financial asset.
       ``(4) Forward contract.--The term `forward contract' means 
     any contract to acquire in the future (or provide or receive 
     credit for the future value of) any financial asset.
       ``(e) Net Underlying Long-Term Capital Gain.--For purposes 
     of this section, in the case of any constructive ownership 
     transaction with respect to any financial asset, the term 
     `net underlying long-term capital gain' means the aggregate 
     net capital gain that the taxpayer would have had if--
       ``(1) the financial asset had been acquired for fair market 
     value on the date such transaction was opened and sold for 
     fair market value on the date such transaction was closed, 
     and
       ``(2) only gains and losses that would have resulted from 
     the deemed ownership under paragraph (1) were taken into 
     account.
     The amount of the net underlying long-term capital gain with 
     respect to any financial asset shall be treated as zero 
     unless the amount thereof is established by clear and 
     convincing evidence.
       ``(f) Special Rule Where Taxpayer Takes Delivery.--Except 
     as provided in regulations prescribed by the Secretary, if a 
     constructive ownership transaction is closed by reason of 
     taking delivery, this section shall be applied as if the 
     taxpayer had sold all the contracts, options, or other 
     positions which are part of such transaction for fair market 
     value on the closing date. The amount of gain recognized 
     under the preceding sentence shall not exceed the amount of 
     gain treated as ordinary income under subsection (a). Proper 
     adjustments shall be made in the amount of any gain or loss 
     subsequently realized for gain recognized and treated as 
     ordinary income under this subsection.
       ``(g) Regulations.--The Secretary shall prescribe such 
     regulations as may be necessary or appropriate to carry out 
     the purposes of this section, including regulations--
       ``(1) to permit taxpayers to mark to market constructive 
     ownership transactions in lieu of applying this section, and
       ``(2) to exclude certain forward contracts which do not 
     convey substantially all of the economic return with respect 
     to a financial asset.''
       (b) Clerical Amendment.--The table of sections for part IV 
     of subchapter P of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 1260. Gains from constructive ownership transactions.''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to transactions entered into after July 11, 1999.

     SEC. 1507. TRANSFER OF EXCESS DEFINED BENEFIT PLAN ASSETS FOR 
                   RETIREE HEALTH BENEFITS.

       (a) Extension.--Paragraph (5) of section 420(b) (relating 
     to expiration) is amended by striking ``in any taxable year 
     beginning after December 31, 2000'' and inserting ``made 
     after September 30, 2009''.
       (b) Application of Minimum Cost Requirements.--
       (1) In general.--Paragraph (3) of section 420(c) is amended 
     to read as follows:
       ``(3) Minimum cost requirements.--
       ``(A) In general.--The requirements of this paragraph are 
     met if each group health plan or arrangement under which 
     applicable health benefits are provided provides that the 
     applicable employer cost for each taxable year during the 
     cost maintenance period shall not be less than the higher of 
     the applicable employer costs for each of the 2 taxable years 
     immediately preceding the taxable year of the qualified 
     transfer.
       ``(B) Applicable employer cost.--For purposes of this 
     paragraph, the term `applicable employer cost' means, with 
     respect to any taxable year, the amount determined by 
     dividing--
       ``(i) the qualified current retiree health liabilities of 
     the employer for such taxable year determined--

       ``(I) without regard to any reduction under subsection 
     (e)(1)(B), and
       ``(II) in the case of a taxable year in which there was no 
     qualified transfer, in the same manner as if there had been 
     such a transfer at the end of the taxable year, by

       ``(ii) the number of individuals to whom coverage for 
     applicable health benefits was provided during such taxable 
     year.
       ``(C) Election to compute cost separately.--An employer may 
     elect to have this paragraph applied separately with respect 
     to individuals eligible for benefits under title XVIII of the 
     Social Security Act at any time during the taxable year and 
     with respect to individuals not so eligible.
       ``(D) Cost maintenance period.--For purposes of this 
     paragraph, the term `cost maintenance period' means the 
     period of 5 taxable years beginning with the taxable year in 
     which the qualified transfer occurs. If a taxable year is in 
     2 or more overlapping cost maintenance periods, this 
     paragraph shall be applied by taking into account the highest 
     applicable employer cost required to be provided under 
     subparagraph (A) for such taxable year.''
       (2) Conforming amendments.--
       (A) Clause (iii) of section 420(b)(1)(C) is amended by 
     striking ``benefits'' and inserting ``cost''.
       (B) Subparagraph (D) of section 420(e)(1) is amended by 
     striking ``and shall not be subject to the minimum benefit 
     requirements of subsection (c)(3)'' and inserting ``or in 
     calculating applicable employer cost under subsection 
     (c)(3)(B)''.
       (c) Effective Date.--The amendments made by this section 
     shall apply to qualified transfers occurring after the date 
     of the enactment of this Act.

     SEC. 1508. MODIFICATION OF INSTALLMENT METHOD AND REPEAL OF 
                   INSTALLMENT METHOD FOR ACCRUAL METHOD 
                   TAXPAYERS.

       (a) Repeal of Installment Method for Accrual Basis 
     Taxpayers.--
       (1) In general.--Subsection (a) of section 453 (relating to 
     installment method) is amended to read as follows:
       ``(a) Use of Installment Method.--
       ``(1) In general.--Except as otherwise provided in this 
     section, income from an installment sale shall be taken into 
     account for purposes of this title under the installment 
     method.
       ``(2) Accrual method taxpayer.--The installment method 
     shall not apply to income from an installment sale if such 
     income would be reported under an accrual method of 
     accounting without regard to this section. The preceding 
     sentence shall not apply to a disposition described in 
     subparagraph (A) or (B) of subsection (l)(2).''
       (2) Conforming amendments.--Sections 453(d)(1), 453(i)(1), 
     and 453(k) are each amended by striking ``(a)'' each place it 
     appears and inserting ``(a)(1)''.
       (b) Modification of Pledge Rules.--Paragraph (4) of section 
     453A(d) (relating to pledges, etc., of installment 
     obligations) is amended by adding at the end the following: 
     ``A payment shall be treated as directly secured by an 
     interest in an installment obligation to the extent an 
     arrangement allows the taxpayer to satisfy all or a portion 
     of the indebtedness with the installment obligation.''
       (c) Effective Date.--The amendments made by this section 
     shall apply to sales or other dispositions occurring on or 
     after the date of the enactment of this Act.

     SEC. 1509. 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. 1510. EXCLUSION OF LIKE-KIND EXCHANGE PROPERTY FROM 
                   NONRECOGNITION TREATMENT ON THE SALE OF A 
                   PRINCIPAL RESIDENCE.

       (a) In General.--Subsection (d) of section 121 (relating to 
     the exclusion of gain from the sale of a principal residence) 
     is amended by adding at the end the following new paragraph:
       ``(9) Like-kind exchanges.--Subsection (a) shall not apply 
     to any sale or exchange of a residence if such residence was 
     acquired by the taxpayer during the 5-year period ending on 
     the date of such sale or exchange in an exchange in which any 
     amount of gain was not recognized under section 1031.''

[[Page 17189]]

       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to any sale or exchange of a principal residence 
     after the date of the enactment of this Act.
                    TITLE XVI--TECHNICAL CORRECTIONS

     SEC. 1601. AMENDMENTS RELATED TO TAX AND TRADE RELIEF 
                   EXTENSION ACT OF 1998.

       (a) Amendment Related to Section 1004(b) of the Act.--
     Subsection (d) of section 6104 is amended by adding at the 
     end the following new paragraph:
       ``(6) Application to nonexempt charitable trusts and 
     nonexempt private foundations.--The organizations referred to 
     in paragraphs (1) and (2) of section 6033(d) shall comply 
     with the requirements of this subsection relating to annual 
     returns filed under section 6033 in the same manner as the 
     organizations referred to in paragraph (1).''
       (b) Amendments Related to Section 4003 of the Act.--
       (1) Subsection (b) of section 4003 of the Tax and Trade 
     Relief Extension Act of 1998 is amended by inserting 
     ``(7)(A)(i)(II),'' after ``(5)(A)(ii)(I),''.
       (2) Subparagraph (A) of section 9510(c)(1) is amended by 
     striking ``August 5, 1997'' and inserting ``October 21, 
     1998''.
       (c) Vaccine Tax and Trust Fund.--Sections 1503 and 1504 of 
     the Vaccine Injury Compensation Program Modification Act (and 
     the amendments made by such sections) are hereby repealed.
       (d) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the Tax 
     and Trade Relief Extension Act of 1998 to which they relate.

     SEC. 1602. AMENDMENTS RELATED TO INTERNAL REVENUE SERVICE 
                   RESTRUCTURING AND REFORM ACT OF 1998.

       (a) Amendment Related to 1103  of the Act.--Paragraph (6) 
     of section 6103(k) is amended--
       (1) by inserting ``and an officer or employee of the Office 
     of Treasury Inspector General for Tax Administration'' after 
     ``internal revenue officer or employee'', and
       (2) by striking ``internal revenue'' in the heading and 
     inserting ``certain''.
       (b) Amendment Related to Section 3509 of the Act.--
     Subparagraph (A) of section 6110(g)(5) is amended by 
     inserting ``, any Chief Counsel advice,'' after ``technical 
     advice memorandum''.
       (c) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Internal Revenue Service Restructuring and Reform Act of 1998 
     to which they relate.

     SEC. 1603. AMENDMENTS RELATED TO TAXPAYER RELIEF ACT OF 1997.

       (a) Amendment Related to Section 302 of the Act.--The last 
     sentence of section 3405(e)(1)(B) is amended by inserting 
     ``(other than a Roth IRA)'' after ``individual retirement 
     plan''.
       (b) Amendments Related to Section  1072 of the Act.--
       (1) Clause (ii) of section 415(c)(3)(D) and subparagraph 
     (B) of section 403(b)(3) are each amended by striking 
     ``section 125 or'' and inserting ``section 125, 132(f)(4), 
     or''.
       (2) Paragraph (2) of section 414(s) is amended by striking 
     ``section 125, 402(e)(3)'' and inserting ``section 125, 
     132(f)(4), 402(e)(3)''.
       (c) Amendment Related to Section  1454 of the Act.--
     Subsection (a) of section 7436 is amended by inserting before 
     the period at the end of the first sentence ``and the proper 
     amount of employment tax under such determination''.
       (d) Effective Date.--The amendments made by this section 
     shall take effect as if included in the provisions of the 
     Taxpayer Relief of 1997 to which they relate.

     SEC. 1604. OTHER TECHNICAL CORRECTIONS.

       (a) Affiliated Corporations in Context of Worthless 
     Securities.--
       (1) Subparagraph (A) of section 165(g)(3) is amended to 
     read as follows:
       ``(A) the taxpayer owns directly stock in such corporation 
     meeting the requirements of section 1504(a)(2), and''.
       (2) Paragraph (3) of section 165(g) is amended by striking 
     the last sentence.
       (3) The amendments made by this subsection shall apply to 
     taxable years beginning after December 31, 1984.
       (b) Reference to Certain State Plans.--
       (1) Subparagraph (B) of section 51(d)(2) is amended--
       (A) by striking ``plan approved'' and inserting ``program 
     funded'', and
       (B) by striking ``(relating to assistance for needy 
     families with minor children)''.
       (2) The amendment made by paragraph (1) shall take effect 
     as if included in the amendments made by section 1201 of the 
     Small Business Job Protection Act of 1996.
       (c) Amount of IRA Contribution of Lesser Earning Spouse.--
       (1) Clause (ii) of section 219(c)(1)(B) is amended by 
     striking ``and'' at the end of subclause (I), by 
     redesignating subclause (II) as subclause (III), and by 
     inserting after subclause (I) the following new subclause:

       ``(II) the amount of any designated nondeductible 
     contribution (as defined in section 408(o)) on behalf of such 
     spouse for such taxable year, and''.

       (2) The amendment made by paragraph (1) shall take effect 
     as if included in section 1427 of the Small Business Job 
     Protection Act of 1996.
       (d) Modified Endowment Contracts.--
       (1) Paragraph (2) of section 7702A(a) is amended by 
     inserting ``or this paragraph'' before the period.
       (2) Clause (ii) of section 7702A(c)(3)(A) is amended by 
     striking ``under the contract'' and inserting ``under the old 
     contract''.
       (3) The amendments made by this subsection shall take 
     effect as if included in the amendments made by section 5012 
     of the Technical and Miscellaneous Revenue Act of 1988.
       (e) Lump-Sum Distributions.--
       (1) Clause (ii) of section 401(k)(10)(B) is amended by 
     adding at the end the following new sentence: ``Such term 
     includes a distribution of an annuity contract from--

       ``(I) a trust which forms a part of a plan described in 
     section 401(a) and which is exempt from tax under section 
     501(a), or
       ``(II) an annuity plan described in section 403(a).''

       (2) The amendment made by paragraph (1) shall take effect 
     as if included in section 1401 of the Small Business Job 
     Protection Act of 1996.
       (f) Tentative Carryback Adjustments of Losses From Section 
     1256 Contracts.--
       (1) Subsection (a) of section 6411 is amended by striking 
     ``section 1212(a)(1)'' and inserting ``subsection (a)(1) or 
     (c) of section 1212''.
       (2) The amendment made by paragraph (1) shall take effect 
     as if included in the amendments made by section 504 of the 
     Economic Recovery Tax Act of 1981.

     SEC. 1605. CLERICAL CHANGES.

       (1) Subsection (f) of section 67 is amended by striking 
     ``the last sentence'' and inserting ``the second sentence''.
       (2) The heading for paragraph (5) of section 408(d) is 
     amended to read as follows:
       ``(5) Distributions of excess contributions after due date 
     for taxable year and certain excess rollover contributions.--
     ''.
       (3) The heading for subparagraph (B) of section 529(e)(3) 
     is amended by striking ``under guaranteed plans''.
       (4)(A) Subsection (e) of section 678 is amended by striking 
     ``an electing small business corporation'' and inserting ``an 
     S corporation''.
       (B) Clause (v) of section 6103(e)(1)(D) is amended to read 
     as follows:
       ``(v) if the corporation was an S corporation, any person 
     who was a shareholder during any part of the period covered 
     by such return during which an election under section 1362(a) 
     was in effect, or''.
       (5) Subparagraph (B) of section 995(b)(3) is amended by 
     striking ``the Military Security Act of 1954 (22 U.S.C. 
     1934)'' and inserting ``section 38 of the International 
     Security Assistance and Arms Export Control Act of 1976 (22 
     U.S.C. 2778)''.
       (6) Subparagraph (B) of section 4946(c)(3) is amended by 
     striking ``the lowest rate of compensation prescribed for GS-
     16 of the General Schedule under section 5332'' and inserting 
     ``the lowest rate of basic pay for the Senior Executive 
     Service under section 5382''.
               TITLE XVIII--COMMITMENT TO DEBT REDUCTION

     SEC. 1701. COMMITMENT TO DEBT REDUCTION.

       (a) Findings.--The Congress finds that--
       (1) the national debt of the United States held by the 
     public is $3.619 trillion as of fiscal year 1999,
       (2) the Federal budget is projected to produce a surplus 
     each year in the next 10 fiscal years, and
       (3) refunding taxes and reducing the national debt held by 
     the public will assure continued economic growth and 
     financial freedom for future generations.
       (b) Sense of Congress.--It is the sense of the Congress 
     that the national debt held by the public shall be reduced 
     from $3.619 trillion to a level below $1.61 trillion by 
     fiscal year 2009.
                    TITLE XVIII--BUDGETARY TREATMENT

     SEC. 1801. EXCLUSION OF EFFECTS OF THIS ACT FROM PAYGO 
                   SCORECARD.

       Upon the enactment of this Act, the Director of the Office 
     of Management and Budget shall not make any estimate of 
     changes in direct spending outlays and receipts under section 
     252(d) of the Balanced Budget and Emergency Deficit Control 
     Act of 1985 resulting from the enactment of this Act.
  The SPEAKER pro tempore. After 2 hours of debate on the bill, as 
amended, it shall be in order to consider the further amendment printed 
in Part B of that report if offered by the gentleman from New York (Mr. 
Rangel) or his designee, which shall be considered read and debatable 
for 1 hour, equally divided and controlled by the proponent and an 
opponent.
  Pursuant to Section 2 of the resolution, the Chair may postpone 
further consideration of the bill until the following legislative day, 
when consideration shall resume at a time designated by the Speaker.
  The gentleman from Texas (Mr. Archer) and the gentleman from New York 
(Mr. Rangel) each will control 1 hour.
  The Chair recognizes the gentleman from Texas (Mr. Archer).


                             General Leave

  Mr. ARCHER. Mr. Speaker, I ask unanimous consent that all Members may 
have 5 legislative days within which to revise and extend their remarks 
and to include extraneous material on H.R. 2488.

[[Page 17190]]

  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Texas?
  There was no objection.
  Mr. ARCHER. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I am proud of the Financial Freedom Act of 1999 because 
it returns a portion of the tax overcharge to American families and 
individuals whose income taxes, and I repeat that, whose income taxes 
have created this historic surplus.
  After all, it is their money, they earned it, and we should give it 
back to them or it will surely be spent by the politicians in 
Washington.
  The American people are caught in a tax trap. The harder they work, 
the longer they work, the more they pay. And that is wrong.
  We should be rewarding success, not punishing it, not punishing the 
American dream. And the evidence is overwhelming that taxpayers are 
simply paying too much.
  Consider these statistics. Americans are paying the highest taxes as 
they are a percentage of their productivity since World War II. The 
typical American family pays more than 38 percent of its income in 
total taxes. That is more than it spends on food, shelter, and clothing 
combined.
  The average household paid $9,445 in Federal income taxes alone last 
year. Mr. Speaker, that is twice as much as they paid in 1985. Is it 
any wonder that Americans are working harder and longer just to pay 
their household bills?
  The strongest evidence of all that Americans are paying too much is 
that the Treasury is overflowing with piles and piles of their hard-
earned cash. Believe it or not, Americans are sending so much money to 
Washington that there is actually more money, far more money, than the 
Government needs to operate.
  Now, if the power company or the phone company overbilled their 
customers, the customers would rightfully be irate. If a local grocery 
store charged $5 for a gallon of milk, people would shop somewhere 
else. But the exact same thing is happening in Washington, and the 
American people have the right to a refund.
  Today we should take a major step in that direction. The Financial 
Freedom Act is based on the principle of fairness. All American income 
taxpayers created this surplus, and it is only fair to return it to 
those who sent it here.
  So the biggest component of our bill is an evenhanded 10 percent 
across-the-board rate reduction. That is fair. That means an average 
family with an income of about $55,000 will get $1,000 in tax relief, 
money that can be used however that family sees fit.

                              {time}  0020

  A single person making about $25,000 will get $380 to help with a car 
payment or a student loan. And a senior with income of $30,000 would 
have an extra $510 for prescription drugs or other health care costs or 
whatever they need to sustain life.
  We also help fix the marriage penalty that makes about 42 million 
Americans pay higher taxes just because they are married. And our bill 
gives relief of $250 per couple.
  We also help parents and students with the cost of education. We keep 
student loan interest payments tax deductible, we expand education 
savings accounts, and we make prepaid college tuition plans tax-free 
for both public colleges and private colleges. We include a national 
public school construction initiative to help build and renovate public 
schools.
  In the health area, we make health insurance more affordable and 
accessible for all Americans because we have a 100 percent deduction 
for people who buy their own health insurance. And to help with the 
growing need for long-term care, we provide an additional tax exemption 
for people who care for their own elderly in their own homes. Where 
they prefer to look after their own elderly rather than place them in a 
retirement home, today they get no tax benefit, this bill for the first 
time will give them that.
  This plan also strengthens and simplifies our pension systems, so 
that more American workers, particularly women, have access to a 
pension plan, portability and greater retirement security.
  To deal with our historically low personal savings rate, and that is 
right, in this country today we have the lowest savings rate in all 
history. It is negative. So what do we do? We reduce capital gains 
taxes which protects existing savings and gives incentive for more. Up 
to 100 million Americans today are investing in the stock market and 
will take advantage of this to save their savings. We repeal the death 
tax which is a dollar-for-dollar tax on savings, and the losers when 
someone dies are those who are employed by family farms and family 
businesses that have to be sold. And we include tax breaks for 
Americans with small savings accounts.
  Finally, we simplify the tax code, long overdue. We get rid of 240 
pages of the tax code in this bill, including repealing the tax hike 
time bomb on middle-income Americans that is known as the alternative 
minimum tax.
  Today we will hear a lot about priorities, and I look forward to that 
debate, because the Republican agenda is based on securing America's 
future for our children and our grandchildren. We will save Social 
Security for all time without cutting benefits and without raising 
taxes, and we have a precise, comprehensive plan to do that. We will 
strengthen Medicare and include prescription drug benefits for older 
Americans. We will pay down the public debt. And we provide tax relief 
for the people who created our surplus in the first place.
  We will also hear a lot of predictions about the future. Like a 
circus palm reader, we will hear dire claims that the government cannot 
afford this tax cut, that we have other needs, that we should save this 
money to pay off the debt. And that will all sound very good to very 
many people. But just as no one knows what the future holds, everyone 
watching this debate knows one thing for certain, if the money is left 
in Washington, politicians will spend it most certainly, every dime of 
it. What we seem to learn from history is that we never seem to learn 
from history, and that has been true throughout the halls of history. 
Government will get bigger and our children and grandchildren will be 
forced to sustain a government structure that takes the largest 
percentage of their productivity and work in all history.
  Mr. Speaker, today's debate is about choices. We are committed to 
saving Social Security, strengthening Medicare and paying down the 
public debt, but once we have done that, Republicans believe it is a 
matter of principle to return excess tax money in Washington to the 
families and workers who sent it here in the first place. Republicans 
believe that Americans have the right to keep more of what they earn, 
and we are starting today to give it back.
  Mr. Speaker, I reserve the balance of my time.
  Mr. RANGEL. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, the majority has said that if this surplus is not 
returned to the taxpayers, that the politicians in Washington would 
surely spend it. I have not heard language like this since it would 
grab these mad criminals who seem like they want to get caught and they 
say, ``Stop me before I kill again.''
  Who are these politicians in Washington? Who will be spending the 
money? Now, I know that Republicans have a leadership problem, but 
still, you have the majority. All we are saying is, take some of this 
money and pay down the Federal debt. We borrowed the money, and we are 
asking that you join with us in giving a smaller tax cut and save 
Medicare and save Social Security. Since when have you been so afraid 
that the trillion dollars, that one-third of it, two-thirds of it goes 
to the top 10 percent of the highest paid people in the United States, 
but what is all this business about you do not trust yourselves, that 
you have to give it back before you do something crazy and spend it?
  If you want to have a real tax bill that is going to be signed into 
law, for openers you try to have it as a bipartisan thing. But if you 
want a political

[[Page 17191]]

statement, then God knows that you and the Committee on Rules have 
worked that out and it has been an ever-changing so-called tax bill. It 
is hard to know every hour what other changes are being made.
  And so all we can say is that we may not be on the side of the 
angels, but we certainly are on the side of Chairman Greenspan who told 
our committee, who told the Congress, who told the American people, 
``If you don't trust the Republican politicians in Washington that they 
will spend the money, then pay down the debt.'' And he asked that we 
consider doing that. He also when asked about the 10 percent across-
the-board tax cut suggested that we not do this, that it was not in the 
best interest of our economy and our country.
  And so whatever you decide to do, it just surprises me that you would 
have a rule that would make the tax cut conditional on the amount of 
increase in the interest on our national debt. Now, I know the 
Committee on Rules are expert in tax law and interest and all those 
other things. They are expert in everything. But constitutionally the 
Committee on Ways and Means is the tax-writing committee. And if you 
cannot do it with Democrats and you cannot do it with Republicans, for 
God sake, do not turn it over to the Committee on Rules.
  So if we want to know whether or not the wealthy supporters of your 
party are going to get an across-the-board tax cut, we cannot even go 
to the IRS anymore. We have to now go to the Federal Reserve Board 
Chairman and ask, ``What does it look like for a tax cut for our 
friends?''
  Well, the only thing I can say in justification of doing this in the 
middle of the night is that I know that you know it is not on the 
level.

                              {time}  0030

  I know that this is a salvo for campaign 2000. If my Republican 
colleagues can live with it; I do not think the American people can.
  Mr. Speaker, I reserve the balance of my time.
  Mr. ARCHER. Mr. Speaker, I yield 3 minutes to the gentleman from 
Texas (Mr. Sam Johnson), a true American hero and a Member of the 
Committee on Ways and Means.
  Mr. SAM JOHNSON of Texas. Mr. Speaker, I just want to say to the 
previous speaker and to all of those in New York, my Democratic 
colleague is going to deny about $3,823 per capita to the taxpayers in 
his State of New York if he votes against this bill. That is not fair. 
We ought to return that money to the people of New York, and I think 
you New Yorkers ought to have it, just so Washington cannot spend it on 
more government programs.
  For too long the American tax system has been punished the very 
virtues that we live by in America: hard work, marriage, savings, 
entrepreneurship, and freedom. Let us look at what happens when we play 
by the rules. If you get married, the government punishes you. You pay 
more in taxes than an unmarried couple. If you save and invest money 
for your family's future, you pay capital gains taxes on the earnings 
from those savings. If you work hard to earn more, you end up paying 
what is called an alternative minimum tax or AMT and lose your family 
tax credits.
  Finally, if you build a successful business and try to leave it to 
your kids, they may have to sell it just in order to pay off Uncle Sam 
when you die. That is an assault on American values, and there are so 
many examples, and the consequences are devastating.
  Our sons and daughters cannot afford to marry and thus never truly 
make a lifelong commitment to God, each other, and their children. 
Families give up on trying to save and invest because they see it is 
cheaper to spend their money than pay taxes on their savings and 
investments. My Republican colleagues and I are committed to ending 
this assault on our values of family, investing, savings, hard work, 
entrepreneurship, and freedom. This bill is one giant step forward for 
freedom and removing the greedy hand of government from your lives.
  Mr. Speaker, 88 percent of nearly $800 billion of tax relief over 10 
years goes to families. Let us give America's families a break and vote 
for freedom.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentlewoman from 
Florida (Mrs. Meek).
  Mrs. MEEK of Florida. Mr. Speaker, I thank the gentleman for yielding 
me this time.
  Mr. Speaker, I rise at this late hour and early morning to support 
the Rangel substitute and in strong opposition to the Republicans 
financial reckless and fiscally irresponsible tax cut proposal. The 
Republican tax cut proposal fails to protect Medicare. I care about 
Medicare; and Social Security, I care about Social Security. Instead of 
paying off the national debt, it would explode the deficit, as I 
understand it in 10 years, and by the year 2009 it would require 
massive cuts in education, housing, and other programs for our 
citizens.
  Mr. Speaker, Republicans have produced a very strong bill for Wall 
Street, not main street, not for Joe Lunch Bucket, but for the rich and 
the middle class. Their bill cuts taxes for the rich, while leaving 
crumbs for an average American family. Republicans seem to think that 
the welfare of the Nation means giving rich people welfare-like tax 
breaks and write off office. A more appropriate name for the Republican 
tax cut proposal would be the ``Financial Freedom Act for the Rich.'' 
Mr. Speaker, 45 percent of the benefits of the Republican tax cut will 
go to the top 1 percent of taxpayers, and 65 percent will go to the 
wealthiest 10 percent. Such tax relief for the rich today means trouble 
for the country in the years to come.
  Mr. Speaker, I have been around long enough to know what happened 
back in the 1980s. The Republicans tried to sell us a bill of goods 
with supply-side economics which tripled the national debt. The country 
learned the hard way the error of this approach. It never trickled 
down. But while the country changed, the Republicans did not. Instead 
of at a time when the Nation is at its strongest militarily, 
economically and internationally, the Republicans are still trying to 
do supply-side economics. It is time that we defeat the Republican tax 
cut bill.
  But the American people are not buying it! The investments that we 
have made in the past seven years have placed our economy in the strong 
position that it is today. We need to continue our policies of making 
prudent investments that will maintain the strength and economic 
vitality of this great country.
  What we need is a tax cut that will help middle class Americans save 
for college and for retirement. We need a tax cut that would provide 
tax relief to lower and middle income people and not only to the rich. 
We need to use the rest of the surplus to reduce our national debt, 
shore up Social Security and Medicare, and make needed investments in 
education, national defense and infrastructure--improvements that we 
know America will need to continue as the world's leader in the next 
century.
  The Rangel substitute is a common-sense approach that will allow us 
to preserve Medicare and Social Security. It is a bill for the middle 
class and the poor; for all Americans, not just the rich. Let's 
maintain fiscal responsibility and keep faith with the American people. 
Reject the Republicans' welfare bill for the rich. Support the Rangel 
substitute.
  Mr. ARCHER. Mr. Speaker, I yield 3\1/2\ minutes to the gentleman from 
Arizona (Mr. Hayworth), a respected Member of the Committee on Ways and 
Means.
  Mr. HAYWORTH. Mr. Speaker, I thank the chairman for yielding me this 
time.
  Mr. Speaker, I would simply point out to the previous speaker that in 
attempting to deny this legislation for tax fairness and tax equity, my 
colleague will deny about $3,299 per capita to the taxpayers in the 
State of Florida if, in fact, my colleague chooses to vote against this 
bill.
  Mr. Speaker, despite all of the talk of the dead of night, it is 
prime time in Arizona, and it is high time that the American people 
finally get more of their hard-earned money back in their pocket.
  My colleagues will hear a lot of mistaken impressions tonight from my 
friend on the left, one of them being that somehow we want to sacrifice 
Social Security and Medicare.

[[Page 17192]]

  Mr. Speaker, my friends on the left are mistaken. Because they should 
recall that we voted to install a lockbox, to save 100 percent of the 
Social Security surplus for Social Security and Medicare. Mr. Speaker, 
so often we talk about trillions of dollars, but at times it seems all 
of our eyes glaze over.
  Let us put it in simple perspective. When we talk about the surplus 
that will exist over the next 10 years, think about it in terms of $3 
billions right here. And this is what our common sense majority 
proposes. That we save about 2 of those to go to save and strengthen 
Social Security and Medicare. But then the question remains about the 
remaining money, the overcharge that has been charged America's 
taxpayers.
  What should we do with this? Our friends on the left would say, spend 
it. We say, that is not what people want. The American people gave this 
money to run this government, but it is not needed, so the money should 
be returned to the American people.
  Mr. Speaker, with reference to the alleged saviors of Social 
Security, I would point out that the President of the United States 
came to this podium, Mr. Speaker, and in his State of the Union message 
he said, now, listen Mr. Speaker, he said he proposed to save 62 
percent of the surplus for Social Security.
  Hello. The remaining 38 percent, almost 40 percent was going to be 
spent on new programs. And then the next day, the President of the 
United States went to Buffalo, New York and in a rare moment of candor 
said to the people of Buffalo and the people of America, Mr. Speaker, 
now, we could give that surplus back to you and trust you to spend it 
right.
  Mike Ritter of the Mesa Tribune remembered that remark from the 
President of the United States, and he offered this cartoon. The 
headline: No tax cut, says Pres. Americans won't spend their wages 
correctly. And then the stick-up artist saying, I agree with the 
President. You'd just waste it anyway, as he sticks up the American 
people. It is high time to strike a blow for tax fairness and for the 
American people, the people of Florida, the people of Arizona. Yes to 
tax fairness; yes to this bill.
  Mr. RANGEL. Mr. Speaker, I yield myself such time as I may consume.
  I was about to challenge the figures that the gentleman from Oklahoma 
was citing and substitute it with the figures from the Joint Committee 
on Taxation, but now that I see that he is using cartoons to make his 
point, I assume he is using the comics for his statistics.
  Mr. Speaker, I yield 4 minutes to the gentleman from Wisconsin (Mr. 
Kleczka).

                              {time}  0040

  Mr. KLECZKA. Mr. Speaker, I think the debate tonight is a little more 
important than cartoons and bogey figures. We are going to hear time 
after time the per capita tax savings in the States. That is per 
capita. That is not per individual. So in Wisconsin, it might come out 
to $3,000 but the working person in my district will get on average, 
according to Joint Committee on Taxation, about $400, and the most 
wealthy individuals from Wisconsin, in Menomonee Falls, will get the 
balance. Do not give me this $3,000 per capita because that is not by 
individual.
  Let me respond for a moment to a couple of points that were made, one 
by my good friend, the chairman of the committee, the gentleman from 
Texas (Mr. Archer).
  He indicates that the Treasury is bursting with piles and piles of 
money. He knows and I know and we all know that is totally false. As we 
close out this fiscal year, the nonSocial Security surplus is actually 
a $5 billion deficit. There is no bursting of money here. What we are 
looking at is a possibility, a hope and a prayer that over the next 10 
years we are going to have a trillion dollars available to provide for 
tax cuts.
  What does that assume? Fourteen years of unprecedented economic 
growth.
  I would say to the gentleman from Texas (Mr. Archer), I hope and pray 
that will occur, but chances are it will not. I have a better chance to 
win the lottery than that happening, but what they are proposing to do 
is give that away today.
  We did that once and it did not work. In 1981, we did the same thing. 
We bet it would come and we bet wrong.
  There is no way that we are going to have a trillion dollars over the 
next 10 years available. Clearly, it is not here today. So what are we 
doing? Oh, there has been a lot of criticism on rewarding the rich. Two 
years ago, we provided capital gains tax relief, an 8 percent cut to 
those who make money buying and selling stocks, a noble, nonsweating 
profession. I respect them, and those who make their earnings and 
millions in capital gains should pay at least as much as the worker in 
my district working 40 hours a week at Alan Bradley, but that is gone. 
That was 2 years ago.
  What are we doing today? We are knocking off another 5 percent, 
because it is unearned income and not earned income. That is not fair.
  That one tax policy change will cost the Treasury over the next 10 
years $52 billion that we do not have tonight. Where do those dollars 
go? Eighty-eight percent of those $52 billion go to the wealthiest 
eighth percent of our population.
  I do not represent a wealthy district, and the chairman in all 
sincerity says let us return it to those who sent it here, but one half 
of this tax bill goes to everyone else: Oil and gas leases, forestry, 
ATM for corporations, a reduction of 10 percent in the capital gains 
for corporations.
  Wait a minute. I thought we were going to give it to the people who 
sent it here, the hard workers, the middle income families, the ones we 
wanted to have an extra buck to go buy a gallon of milk. This bill is 
so slanted, unfairly.
  Mr. Speaker, the only way I can term this is Christmas in July. We 
know the bill is going to be vetoed this fall. Let us do a more 
credible project, a more credible tax bill.
  Mr. ARCHER. Mr. Speaker, I yield myself such time as I may consume.
  Mr. Speaker, I would simply respond to the gentleman from Wisconsin 
(Mr. Kleczka), all of the jobs that are created in the United States of 
America that increase productivity, better pay for workers, occur 
because of capital savings.
  Today, America saves at the lowest rate in its history. We depend 
upon foreigners to give us their savings to create the jobs for his 
workers in Wisconsin so that they can have more productivity and higher 
pay.
  The government does not employ those people, but every time capital 
gains are taxed, it takes away from the savings pool. Taxes have 
already been paid once. The result is invested to create jobs, and only 
through that investment can workers progress, and he wants to take it 
away and have the government spend it wastefully on many, many programs 
in Washington, because Washington is wasteful and the American people 
know it.
  Every dollar that is taken reduces the opportunity for those workers 
to have better jobs. That money is not spent in Washington for 
productivity or better jobs. So let us take it away and spend it.
  Mr. Speaker, I yield 3 minutes to the gentleman from California (Mr. 
Herger), another respected Member of the Committee on Ways and Means.
  Mr. HERGER. Mr. Speaker, I rise in strong support of this balanced 
tax relief proposal, the Financial Freedom Act of 1999, because I 
believe the time has come to allow hard-working Americans to keep more 
of what they earn.
  Mr. Speaker, it is estimated that over the next 10 years, the Federal 
Government will overtax to the tune of almost $3 trillion. This plan 
reserves two-thirds of this amount for retirement security, saving this 
money for Social Security and Medicare.
  Moreover, this House recently passed, by an overwhelming vote, 416 to 
12, my Social Security lockbox legislation which would protect every 
penny in the Social Security trust fund, and I am hopeful that the 
Senate will soon follow suit.

[[Page 17193]]

  Now we must take the next step, by recognizing that American 
taxpayers, not Washington, have created our current economic 
prosperity, and it is taxpayers, not Washington, who should reap the 
benefits.
  By almost any measure, Americans are currently overtaxed. In fact, 
Americans now pay more in taxes than they spend on food, on clothing, 
and on shelter combined. This is simply wrong. The legislation before 
us today reduces taxes by $792 billion over the next decade. This is 
$792 billion in the pockets of taxpayers rather than in Washington.
  Specifically, this legislation provides all taxpayers with broad-
based tax relief by reducing tax rates 10 percent across the board. 
Additionally, this legislation grants relief to married couples by 
reducing the marriage tax penalty through the Herger-Weller provision; 
makes it easier to save for education expenses by expanding education 
savings accounts; makes long-term health care more affordable and 
accessible; encourages investment by reducing capital gains taxes; and 
completely phases out the unfair and destructive death tax so that 
parents and grandparents will be able to pass on their hard-earned 
savings to their children and grandchildren.
  Mr. Speaker, our choice today is clear. We can side with the American 
taxpayer or we can side with bigger government and more Washington 
bureaucracy.
  I commend the gentleman from Texas (Mr. Archer) for his leadership on 
this proposal, and I urge all of my colleagues on both sides of the 
aisle to seize this opportunity to provide the American people with 
much needed and well deserved tax relief.
  Mr. RANGEL. Mr. Speaker, I yield 3 minutes to the gentlewoman from 
Florida (Mrs. Thurman).
  Mrs. THURMAN. Mr. Speaker, I would like to thank the gentleman from 
New York (Mr. Rangel) for yielding me this time.
  Mr. Speaker, I am not sure where these numbers are floating around 
from on this per capita issue, but we need to go back and refer to what 
the Joint Committee on Taxation had put. In my district, the average 
income is around $15,000. According to this particular chart, it tells 
me that my folks are going to get $14 is what they get in 2004.
  Now, if I had folks that were making $200,000 and over, which I do 
not, about 4,000 people out of 600,000, according to the almanac, they 
might get $4,835; $100,000 to $200,000 about $818.

                              {time}  0050

  So you can see that this really is a distribution that goes to the 
very top level, which brings me to my point. In 1993, we asked all 
Americans, every American to give up something so that we could get 
this deficit under control. Do my colleagues know what? They said, ``I 
am willing to do this for my grandchildren. I am willing to do this for 
my children. I want you to make sure you pay down this deficit.''
  So it is hard for me to believe that Republicans want to thank these 
men and women who gave up things, COLAs on their veterans groups. Our 
Federal employees, they gave up $6 billion towards this. What thanks do 
we give them? We give them a distribution schedule where they might get 
$14. They want that to go to the deficit.
  I do not want to say thank you for this kind of a tax bill. I want to 
give back to the people like we did in 1997. We did a bipartisan bill. 
We did what we are talking about here today. We gave interest on 
student loans. We reduced the capital gains. We provided child care tax 
credit. We expanded IRAs. We created scholarships for college students.
  Now we find ourselves in, again, a fortunate position of still being 
able to do more for the country. Let us not take that money away. Let 
us do the issues with Social Security. Let us do our issues with 
Medicare. Let us listen to the ones we want to give the power to 
tonight, to the Federal Reserve chairman's advice, and wipe away our 
debt. That will allow us to lower interest rates and strengthen Social 
Security and Medicare. Doing that will help everyone. Let us just say 
no.
  Mr. ARCHER. Mr. Speaker, I yield 3\1/2\ minutes to the gentleman from 
Illinois (Mr. Weller), another respected member of the Committee on 
Ways and Means.
  Mr. WELLER. Mr. Speaker, let me begin by saluting the leadership of 
the gentleman from Texas (Mr. Archer), our distinguished chairman, 
putting together a common sense package of tax relief for working 
families and those who create jobs.
  This is an opportunity to celebrate. I look back over the last 4\1/2\ 
years. I remember what it was like when I came here, massive deficits, 
high taxes. Of course, now we have a great opportunity thanks to 
Republican fiscal responsibility. We now not only have the third 
balanced budget that we are working on in 30 years, but we have a 
massive surplus of extra tax revenue of almost $3 trillion over the 
next 10 years.
  The Republican budget this year takes several steps and common sense 
steps with what to do with that extra money. Of course, step number one 
is we lock away the Social Security surplus, which means that two out 
of three dollars of that surplus goes for retirement security and 
strengthening Medicare and Social Security. Number two, by voting for 
the rule, and those who voted for the rule voted to pay down the 
national debt by $2 trillion. Of course, step number three is provide 
tax relief for working families and the middle class.
  Let me just take a moment to introduce to my colleagues Shad and 
Michelle Hallihan of Joliet, Illinois. Shad and Michelle are 
schoolteachers in the Joliet public schools. They, like 21 million 
married working couples, suffer the marriage tax penalty. Of course, 
those 21 million married taxed couples, under our current tax code, 
these couples pay higher taxes just because they are married.
  Thanks to legislation that was offered by myself and the gentleman 
from California (Mr. Herger) and others, we have a key provision in 
this package of tax relief which helps people like Michelle and Shad, 
providing tax relief for 21 million American working couples who are 
going to see at least $250 in tax relief. That is a car payment for 
many. Of course, we simplify the tax code by providing marriage tax 
relief.
  I would also point out that Michelle and Shad are due to have a baby 
any day now. Of course they may choose to send their child to an 
Illinois school, and they may want to take advantage of Illinois' 
prepaid college tuition programs.
  This package of tax relief will help Michelle and Shad Hallihan pay 
for college, if they choose the prepaid college tuition program, at a 
public or private school. The benefit for them is, the growth of that 
package that they buy will be tax exempt. That is good. If their child 
goes to a public school, the school construction provisions will help 
the Joliet public schools fix leaky roofs and also help the Joliet 
public schools add on classrooms. That will help Michelle and Shad 
because they are school teachers, but their children will probably 
attend the local public schools.
  Last, I would like to mention that because Michelle may take a few 
years off from teaching to be home with her new baby, that we provide 
for the opportunity for catch-up to allow Michelle, when she goes back 
into the workforce in the later years and her income is higher, to make 
up missed contributions to retirement savings.
  This package helps people like Michelle and Shad Hallihan, 
schoolteachers back in Joliet, Illinois. It deserves bipartisan 
support. I urge an aye vote.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Mississippi (Mr. Taylor).
  Mr. TAYLOR of Mississippi. Mr. Speaker, let me pose a question to my 
Republican colleagues. What is it that they are so ashamed of that they 
have to wait until the middle of the night to tell the American people 
about?
  We have been in session for 7 months. They have to wait until the 
middle of the night in the third week of July to do this. What are they 
so ashamed of?

[[Page 17194]]

  For 3 years, they have flatlined the Veterans Administration budget. 
Zero increase. The guys who saved this country in World War II, they 
get nothing. The defense budget is $30 billion less than it was just 10 
years ago, $30 billion less.
  They have controlled the budget process in both Houses of Congress 
for 5 years, and what have they done? This is a Marine lance corporal. 
His name is Harry Sheen. He works two part-time jobs to make ends meet. 
We have 12,000 soldiers, sailors, airmen, and Marines on food stamps. 
What do they get out of this? They get nothing.
  This is the wife of a United States Marine picking up used furniture 
on the curb at the Marine base at Quantico because there is not enough 
money for her friends to buy furniture. What do they do for them? They 
do nothing.
  But this $400 billion in this bill is for the fat cats of America, 
the people who make $800,000 a year or more. These people risk their 
lives. They risk their lives for $10,000 to $20,000 a year. They are 
away from their families from anywhere between 120 to 180 days a year 
away from their family. My colleagues tell them there is not enough to 
go around. They send them out in 30-year-old helicopters. The newest 
CH-46s and 47s in the inventory were built in 1972. What have they done 
for them? Nothing. They ought to be ashamed of themselves.
  Mr. ARCHER. Mr. Speaker, I yield 1 minute to the gentleman from 
Arizona (Mr. Hayworth).
  Mr. HAYWORTH. Mr. Speaker, I thank the gentleman from Texas, the 
Chairman of the Committee on Ways and Means, for yielding me this time.
  In fact, the shame should belong to those who failed to accurately 
point out the full story. Of course there is a Commander in Chief, the 
nominal head of the opposition party, who has repeatedly been AWOL when 
it comes to providing for the needs of America's military.
  I am sure the gentleman from Mississippi (Mr. Taylor) joined with us 
in voting a short time ago in this House to raise the pay of military 
officers and enlisted men. I am sure that the gentleman understands 
full well that the President's budget is so woefully inadequate for 
veterans. We added $1 billion to the President's budget on the 
Committee on Veterans' Affairs on which I serve.
  I know the gentleman knows full well that the paradox of this 
administration is that this President has put the men and women in 
uniform of this country in harm's way and deployed to more theaters of 
operation than all of his post-World War II predecessors combined, even 
as he cuts the budget. That is the fact.

                              {time}  0100

  Mr. RANGEL. Mr. Speaker, I yield 30 seconds to the gentleman from 
Mississippi (Mr. Taylor).
  Mr. TAYLOR of Mississippi. Mr. Speaker, unlike the gentleman from 
Arizona, and unlike every single Member of the Republican leadership, I 
served in the armed forces. I enlisted when I was 17. I know what it is 
like to try to live on an enlisted salary. When we give someone 4.8 
percent of nothing, it is still nothing. There are 12,000 enlisted 
people right now on food stamps.
  Now, we can fix that for less than $100 million. We can provide for 
health care for our military retirees for less than $1.2 billion, but 
the other side wants to give away $400 billion to the fat cats while 
they do nothing for them.
  Mr. ARCHER. Mr. Speaker, I yield myself 30 seconds.
  The gentleman from Mississippi, I am sure, does not intend to preach 
to Republicans and claim that we have not served our country. I served 
our country. I served during the Korean War, and I am proud of it.
  And I am proud that our Republican majority has added back, over the 
last 5 years, $40 billion to the Defense Department. We did that over 
and above what the President has been recommending to downsize and to 
starve the Defense Department.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Wisconsin (Mr. Kind).
  Mr. KIND. Mr. Speaker, the average family in my Congressional 
District in western Wisconsin will get roughly, well, less than 1 buck, 
$1 a day, under this tax cut proposal. And that is why it is not 
difficult for me to rise at 1 a.m. here in the morning, Washington 
time, and strongly oppose the most fiscally irresponsible and reckless 
piece of legislation that I have encountered here in Congress.
  This is the wrong tax cut, at the wrong time, for the wrong reason. 
It is the wrong tax cut, because it relies on projected future 
surpluses that may never materialize, and it would give us the double 
economic whammy of higher inflation in the short-term, because of over 
stimulation of the economy, and higher interest rates in the long term 
because of the Federal Reserve's response to that stimulation.
  It is also the wrong time for a tax cut. There is a lot of focus and 
talk about this $100 billion tax cut over the next 10 years, but what 
the supporters of the bill do not want the rest of us to know is that 
that tax cut explodes to $3 trillion during the years 2010 and 2020, 
the peak retirement years for the baby boom generation.
  The fiscally prudent decision is to do what families in western 
Wisconsin do when they run into some good times, and that is to take 
care of existing obligations first. That means shoring up Social 
Security, Medicare, and paying down the $5.7 trillion debt first. This 
tax cut plan makes it more difficult rather than easier to reduce the 
debt burden for our children.
  Finally, it is the wrong reason for a tax cut. This is just 
Washington doing it again in the middle of the night, taking the easy 
path for short-term political gain instead of making tough decisions 
for future generations.
  Not me. Not tonight. My vote is for the future of my two little boys.
  One would think, with the current excitement about projected 
surpluses, that the end of our fiscal problems is at hand. But this is 
not the case--it is only the beginning of the hard work ahead given the 
impending baby boomer retirement.
  For thirty years, our Nation has spent beyond its means, both in good 
times and bad. We were able to cover this spending by going into debt, 
constantly reaching for the `national credit card'. But now the 
circumstances have changed.
  We are now enjoying the longest peacetime expansion in our history, 
and our goal of balancing the budget is becoming a reality.
  But our thirty years of deficit spending has left us with an enormous 
debt burden of 5.7 trillion dollars. During that time, we borrowed 
$1.76 trillion from the Social Security Trust Fund. We have a 
tremendous opportunity to begin correcting this situation.
  Knowing the financial hole you dug in the past, how would you handle 
an increase in your family income? Would you immediately promise large 
gifts to other family members? Would you commit yourself to a large, 
expensive project? That's the approach this bill takes.
  Or would you take care of existing obligations and pay off old debts? 
How about saving for your retirement? Or investing in your children's 
education? Or setting aside money for the cost of health care? That's 
the approach this bill ignores.
  These are the tough choices we face. Any budget plan that does not 
take these into account abrogates our responsibility to our national 
family and our children.
  I urge my colleagues to vote against this tax cut.
  Mr. Speaker, I would encourage my colleagues to vote against this 
reckless tax cut bill.
  Mr. ARCHER. Mr. Speaker, I yield 3 minutes to the gentlewoman from 
Connecticut (Mrs. Johnson), another respected Member of the Committee 
on Ways and Means.
  Mrs. JOHNSON of Connecticut. Mr. Speaker, I rise in strong support of 
this legislation. This is not a bill about numbers. The numbers will 
change as the budget process moves forward, both the budget and the tax 
bill processes. This is a bill about policy.
  For the first time in my many years here in Congress and my many 
years as a member of the Committee on Ways and Means, this is the very 
first tax

[[Page 17195]]

bill that lays out a policy that looks to the future: How can America 
create the high-paying jobs her kids will need in the 21st century.
  This bill answers that question. It reforms the complicated rules 
governing foreign income of our global companies. It will stop Daimler-
Chryslers and create Chrysler-Daimlers. We have many, many American 
companies merging with foreign companies, and when they become Daimler-
Chryslers, then they create a power shift over those very high-paying 
jobs that we need.
  We heard testimony directly to that effect, and we know if we do not 
make these changes, we will not have the strong companies we need to 
create the high-paying jobs our kids will depend on.
  Secondly, we know every single one of those high-paying jobs now 
requires a greater investment in technology than ever in history, and 
that will be true in the 21st century. This Tax Code will enable us to 
create the capital to invest in those jobs.
  So if we care about high-paying jobs, we have to plan now to create 
those. We cannot look at just next year. We have to do a tax bill that 
lays out the policy we need to create a strong economy and high-paying 
jobs in the 21st century.
  But this bill also looks at personal security. For the first time, it 
creates pension opportunities for the 50 percent of American people who 
do not work for employers that offer pensions. Pension opportunities, 
personal savings opportunities, long-term care premium deductibility, 
so that people can be not only economically secure in their retirement 
but they can be personally secure against the catastrophic costs of 
long-term health care.
  Job creation, personal security, and, yes, tax relief and fairness. I 
am proud to support a bill that creates an across-the-board cut in 
personal income taxes; relieves the marriage penalty; provides 
deductions for those who have to pay their own health insurance, 
thereby reducing the number of uninsureds in our country; provides a 
small savers deduction; the deduction of student loans, making that 
permanent.
  It is the poorest students who have the biggest loans and the biggest 
interest payments. This is important if we want an educated work force 
for the 21st century. I urge support of a sound, thoughtful plan for 
the future of America.
  Mr. RANGEL. Mr. Speaker, I yield 3 minutes to the gentlewoman from 
Texas (Ms. Jackson-Lee).
  Ms. JACKSON-LEE of Texas. Mr. Speaker, I too am an American, and as I 
listened to my good friend and colleague, the gentleman from Texas (Mr. 
Archer), whose district and mine are neighboring districts, I imagined 
that just like me he believes in the working people of our Nation, and 
the working people in our respective districts, and the working people 
in our great State of Texas.
  But when I look at the Republican tax plan, the only thing I can see, 
Mr. Speaker, is red. I see the $3 trillion that pops up in the second 
10 years. I see the $1.4 trillion that results by the tendering of the 
debt. And I think, Mr. Speaker, if we begin to look at what working 
Americans understand, they understand red, deficit, and no money. They 
understand what I am facing in my district.
  And, Mr. Speaker, I wonder about the capital gains investment. A 
major plant in my district, 400 employees, is being closed in the next 
15 days, even in this economy, and they ask me what we are going to do 
about it? And we are now casting a vote for red, for deficit, for 
spending money and not helping working Americans.
  Working Americans understand many words, Mr. Speaker, but they 
understand three words, in particular: inflation, interest rates going 
up, and deficit. Inflation means that working Americans cannot buy the 
durable goods that they need to keep them living the quality of life 
that we have told them they should expect.
  Higher interest rates mean that the young married couple cannot go 
out and buy that first affordable home. They will have to wait a couple 
years, or maybe not have the opportunity at all. They understand 
interest rates.
  And deficit they understand, because the tax bill that is on the 
table will result in a deficit of $47 billion.

                              {time}  0110

  I thank my good friend from Florida (Ms. Thurman) for indicating that 
the reason why we are in such a good economy is the 1993 tax or budget 
vote by Democrats only. That is why this economy is good. But I rise to 
oppose, on behalf of the working people of my district and this Nation, 
the Republican tax plan and support the substitute of the gentleman 
from New York (Mr. Rangel).
  Because he understands and we Democrats understand working people. We 
understand that the State of Texas does not have an income tax, but yet 
the substitute is going to provide for deductions for retail and sales 
taxes. The working people need that.
  My school superintendent begged me, begged me, can we get school 
construction modernization bonds? And the substitute has that. I am 
standing up for the working people so that schools will be built for 
our children to be able to go to and the crumbling schools in my 
district can be repaired.
  When I see the tax plans for the Republicans, I see red. I, too, am 
an American and I am going to stand up for the working people of 
America and fight against inflation.
  Mr. Speaker, I rise in strong opposition to the passage of this bill, 
which calls for tax cuts that would injure the people of the United 
States for the next decade and beyond.
  When there were initial reports of a budget surplus, there was much 
rejoicing in and around Capitol Hill. There was also a sigh of relief 
around the United States, as the American people were finally able to 
see that this Congress, with the help of the Administration, balanced 
the budget. But as many are quick to point out, part of that surplus is 
not a surplus at all--it is residue from the population spike caused by 
the Baby-Boom. As a result, we cannot treat this like a true surplus. 
We must treat it with the responsibility of a debtor, who must live up 
to their end of an agreed-upon bargain.
  Now my friends on the other side of the aisle will tell you that the 
way we repay the debt to the American people, the way to live up to our 
end of the bargain, is through tax breaks. But that simply ignores our 
commitments to the American people, the commitments that they have been 
paying into for decades. As a result, we should not begin to make 
irresponsible tax cuts until we know that Social Security and Medicare 
will be there for this and future generations.
  Medicare is threatened with insolvency within the next 20 years. It 
is simply irresponsible for us to enact tax cuts at a time when we are 
trying to improve this system. We should not let Medicare simply fall 
away in the night.
  Like Social Security, Medicare dutifully serves the American people, 
and we should prolong its life. This bill, as written, does not put one 
penny towards Medicare. In fact, it leaves Medicare to die an untimely 
death. We would do a disservice to the American people by taking away 
one of our most precious safety nets.
  At a time when the American people are clamoring for a more-robust 
Medicare, a more-responsive Medicare, this Republican-led Congress is 
ready to take this country in exactly the opposite direction. Just a 
few weeks ago, thousands of people in my district were relieved to see 
the President's initiative to add a prescription drug benefit to 
Medicare. It was exciting news--and many have approached me asking when 
we could get this done. How can I tell them that this Congress, that 
Republicans, have instead chosen to give tax cuts to the wealthy rather 
than to enact this measure that can, literally, mean the difference 
between life and death. Seniors and others dependent on Medicare should 
not have to choose between food and medicine!
  Furthermore, the tax cuts in this bill are based on optimistic 
speculation of where this country will be in ten years. It is true, 
that many of our decisions on the budget must often be based on 
projections, but we must do so in disciplined fashion. Chairman Alan 
Greenspan, recently commented that we should allow ``the surpluses to 
run for a while and unwind a good deal of public debt''. Enacting large 
tax cuts at this junction, therefore, is premature, especially in light 
of the stability and solvency of Medicare and Social Security.
  At a time where this government is just beginning to get its head 
above water with the stable tax base that we have, we should not be 
eviscerating our streams of revenue, thereby sending us back into 
deficit. We should not

[[Page 17196]]

be touching our capital gains taxes--at least not at this time. This 
bill is based on a 10-year plan, yet it makes decisions that would last 
far longer than 10 years. And remember, at the end of those 10 years, 
we will start to see the first baby-boomers reach the age of retirement 
and remove themselves from our tax base--making this set of large tax 
cuts even more dangerous in the future than it is now. We cannot afford 
to put this tax burden, without capital gains, without an estate tax, 
completely on the shoulders of our next generation--it is simply not 
fair. We will be creating a new inheritance tax, a tax from one 
generation to the other, created by our ineffective and irresponsible 
fiscal policy. I ask this House not to do this.
  Let me remind you, there are reasonable tax cuts that have bipartisan 
support. For instance, just about everyone agrees that we ought to 
extend the research and development (R&D) tax credit. As a Member of 
the Committee on Science, I know that this credit provides valuable 
technology to our economy in a time when that sector drives our 
economy, and creates high paying jobs.
  Members on both sides of the aisle agree that we ought to get rid of 
the marriage penalty. We ought not let our tax structure dissuade 
people from getting married, and we ought not to penalize those 
families who have two roughly co-equal earners because they want to do 
right by their children.
  Similarly, I believe that we also have bipartisan support for tax 
relief for families who must rely on childcare so that both mother and 
father can work. If we are to support our families, we ought to enact 
these reasonable and responsible measures, and quit trying to sell them 
on tax cuts for the wealthy. In fact, under this tax proposal, most 
families would receive a tax cut of less than $100 total over 10 years! 
At the same time, those earning more than $300,000 would save over 
$20,000. If we are going to be pro-family, we should make sure that our 
cuts go to the families that need tax relief!
  Let us do right by the American people, let us do right by the 
American family, let us do right for posterity. Vote against the Archer 
plan, and vote for the Rangel substitute.
  Mr. ARCHER. Mr. Speaker, may I inquire as to the remaining time on 
each side?
  The SPEAKER pro tempore (Mr. Thornberry). The gentleman from Texas 
(Mr. Archer) has 32\1/2\ minutes remaining. The gentleman from New York 
(Mr. Rangel) has 38\1/2\ minutes remaining.
  Mr. ARCHER. Mr. Speaker, am I correct that we will only use 30 
minutes of our time on each side tonight?
  The SPEAKER pro tempore. The gentleman is correct.
  Mr. ARCHER. Mr. Speaker, then I will reserve the 2\1/2\ minutes to 
close the debate for tonight.
  Mr. RANGEL. Mr. Speaker, I yield 2 minutes to the gentleman from 
Oregon (Mr. DeFazio).
  Mr. DeFAZIO. Mr. Speaker, I thank the gentleman for yielding me the 
time.
  Mr. Speaker, there is no surplus in this year's budget. We are still 
running a deficit. On top of it, we have got a $5.6-trillion debt, 
$17,000 for every American from the tiniest baby to the oldest senior 
citizen in a nursing home. But here we are after midnight talking about 
a $1-trillion dollar tax cut.
  Now, this is based on this future and possibly elusive surplus. That 
is based on an improbably rosy economic scenario. We have done this 
mistake before. Are we going to do it again?
  Now, it is also, and listen up, it is predicated upon further cuts in 
veterans' health care, further cuts in education and student loans, 
cuts in Medicare, and it puts Social Security at risk. Yet the 
Republicans say it is their money, they earned it, and we should give 
it back.
  Well, who is ``they''? That is the key question. Who is the ``they'' 
to whom we are giving the money back? Let us look at that.
  Well, ``they'' happens to be the top one percent of income earners in 
this country. The people earning a minimum of $300,000 a year and up, 
they are going to get a $54,000 tax cut on average. That is where those 
wonderful high numbers come out. Those people, well, they are going to 
have to get a Brinks truck to handle theirs.
  Now, they do not have to worry about veterans' health care. They are 
not very worried about student loans. Their kids are not eligible. They 
are not worried about cuts in Medicare, and they do not care about 
Social Security.
  Now, the families who have to make up for the cuts in veterans' 
health care and in student loans and in Medicare and are worried about 
Social Security, that is 80 percent of the taxpaying Americans. Every 
family that earns $63,000 a year or less, what will they get? They will 
get $310 on average, 90 cents a day.
  Now, can we replace those benefits with that? No.
  Mr. RANGEL. Mr. Speaker, I yield 4 minutes to the gentleman from 
California (Mr. Sherman).
  Mr. SHERMAN. Mr. Speaker, after 15 years of practice as a tax lawyer 
and a CPA, I thought I knew what tax fraud was. But I have seen tax 
fraud here tonight.
  When they talk about the marriage penalty, they do not tell us that 
the Republican proposal does not eliminate even half of the marriage 
penalty. The Rangel proposal does more to eliminate or reduce the 
marriage penalty than does the extremely expensive Republican proposal.
  All the wedding pictures in the world will not hide it. And that is 
why the Christian right around this country, other pro-family groups, 
are calling the Republicans and saying, why have you done so little to 
reduce the marriage penalty? Why is it that the Democrats, with a much 
smaller bill, are able to do more?
  We are told that the Republican bill will provide for school 
construction. But what does it really contain? An arbitrage provision, 
an invitation to school districts around this country to go bet on 
interest rates the way Orange County did before they went bankrupt. The 
only help they give school districts is an invitation to arbitrage 
betting.
  The Rangel bill, instead, provides interest-free loans for real 
school construction, just as it provides for the R&D tax credit to be 
permanent and for employer provided education to be tax free.
  Now, there has been a lot of talk about numbers. The Democrats have 
pointed out that two-thirds of the benefits of this bill go to the top 
10 percent. But it is worse than that. We did not talk about the 
corporate tax benefit.
  Eighty percent of the benefits of this bill go to the wealthiest 10 
percent of Americans and to giant corporations. And what kind of 
incentives do we give those giant corporations? Well, take a look at 
the interest allocation rules. Tens of billions of dollars of our money 
being spent to reward corporations for closing down factories here in 
the United States and investing equity capital and moving jobs to 
foreign countries.
  This is not a bill to create jobs in America. Perhaps it will create 
a few overseas.
  But it is worse than that. Because we take that last little 20 
percent of the benefits that go to middle-class Americans, and not just 
middle-class, everybody in the bottom 90 percent, and we say their 
benefit is contingent, the interest allocation provisions for the giant 
corporations, they are guaranteed, the huge loopholes for the wealthy, 
they are guaranteed.
  But if the interest costs of the United States go up, even if it is 
just a Social Security trust fund earning more interest on its 
investment, then we take away the 10 percent tax cut, which is one of 
the few things that is available to middle-class taxpayers.
  Finally, in talking about the money, often when a Democratic speaker 
speaks the response is to stand up and say, people in your State will 
save $3,500 under this bill. Why are you against it? Well, let me tell 
my colleagues. Yes, it might be $3,000 per person in my State, but that 
is over 10 years. So it is less than $30 a month. But that is not $30 a 
month for the average family in my State. That, instead, means $20 for 
the richest and $10 for the average family in my State.
  Let us not ruin the economy.
  Mr. RANGEL. Mr. Speaker, I yield myself the remaining time.
  The SPEAKER pro tempore. The gentleman is recognized for 2\1/2\ 
minutes.
  Mr. RANGEL. Mr. Speaker, we are here at 1:20 in the morning talking 
about a bill that no one has seen in its

[[Page 17197]]

final form. The last time I saw this bill it was a $864 billion tax 
cut. But that was two days ago.
  I can see why the Republicans really do not trust the politicians, 
because just overnight they lost $72 billion. And from what they have 
in the rules change, they may lose the whole 10-percent tax cut 
depending on how Alan Greenspan feels.
  But since this thing is not just smoke and mirrors but cartoons and 
photographs but no bill, then I guess all we are doing is just saying 
what is it that the Republican party really stands for?

                              {time}  0120

  Now, I do not know how many people you can afford to lose, I do not 
know how many we want to take. But the truth of the matter is that if 
the chairman of the committee truly believes that what makes America 
great is how much trickle down to the people on the bottom that they 
may not have income tax and they cannot get a cut, but you know 
something? The people who work hard every day and take home less than 
their gross pay because they have payroll taxes, they feel that. I know 
you do not have time to really get down and talk about them, because 
the air is different when you are dealing with the top 1 percent of 
those that have high incomes, or those that cut coupons. But one thing 
is clear. Even though it is 1:20 in the morning, the reporters are gone 
and you really think you got away with something, take my word for it. 
The Joint Committee on Taxation will still have these reports tomorrow 
morning. We will still distribute the reports. And figures do not lie. 
We know how much you are giving away, we know who you are giving it 
away to, and you can try to change the formulas all you want to get 
some votes to pass the rule, but I would not go to sleep this morning 
thinking that you have enough to pass this bill. And there is one thing 
that I can guarantee, that you certainly will not have enough votes to 
override the President's veto.
  What I would suggest is this: Why do we not come together as 
Republicans and Democrats and put together a bill that the President of 
the United States can really sign?
  Mr. ARCHER. Mr. Speaker, I yield the balance of my time to the 
gentleman from Michigan (Mr. Camp), another respected member of the 
Committee on Ways and Means.
  The SPEAKER pro tempore (Mr. Thornberry). The gentleman from Michigan 
is recognized for 2\1/2\ minutes.
  Mr. CAMP. I thank the gentleman for yielding me this time.
  Mr. Speaker, I think it is important to point out that we are here 
talking about tax reduction only after we have balanced the budget, 
have a surplus and passed legislation to save the Social Security 
surplus. We have locked the Social Security surplus away in a lockbox 
and we are now talking about what is left.
  It is also important to point out that the average American family 
today pays double in taxes what it did back in 1985. Today's tax burden 
is the highest ever in peacetime history.
  The key question is, should your hard-earned tax dollars stay here in 
Washington to be spent on new Federal programs? Or should they be 
returned to you, the taxpayer, who sent them here in the first place? 
The answer is clear. You deserve the money.
  At a time when we have nearly $1 trillion in non-Social Security 
surplus, we absolutely must return the taxpayers' money to the people 
who sent it here. Why should married couples pay more just because they 
are married? Our bill provides 42 million taxpayers with relief from 
the marriage penalty. Our bill means that Michigan's farmers and 
family-owned businesses will not be forced to sell the farm or business 
just to pay the death tax, and we allow our farmers and other small 
businesses to take a 100 percent deduction on health insurance costs 
which are one of the toughest expenses for the self-employed.
  Our bill means that a Michigan factory worker and his family will 
save $1,000 in income taxes. Our across-the-board tax reduction will 
save the seniors who live in my district over $500 on income taxes, 
and, if that same senior has a mutual fund, will cut her investment tax 
rate so more of her savings can stay with her, not the government.
  Mr. Speaker, tax relief is needed. There is no doubt about that. We 
have balanced the budget and set aside the money for Social Security 
which pays down the debt. Now is the time for the American people to 
keep the rewards of their hard work. I urge the adoption of this 
landmark tax relief legislation.
  I want to honor the chairman of the Committee on Ways and Means who 
has worked so hard to bring it forward.
  Mr. RYUN of Kansas. Mr. Speaker, I rise today in support of tax 
relief for all Americans. I also rise today to support American seniors 
and I applaud this Congress for the decision it made to protect the 
Social Security Trust Fund. The members of this House are committed to 
ensuring that not one penny of tax relief will come from our seniors' 
hard-earned Social Security benefits.
  Fortunately, America is working well. Our economy is booming, and 
Washington is finally showing some fiscal restraint. The result is that 
over the next 10 years, the federal government will take in enough 
revenue to fund all federal programs including Social Security and 
Medicare while setting-aside every penny of the Social Security Trust 
Fund. Still, there will be nearly one trillion dollars in surplus.
  I believe we should give that money back to the taxpayers. The hard 
working men and women of this country have paid more than their fair 
share and created the surplus; we in Washington should not spend it.
  The tax relief found in the Financial Freedom Act goes a long way to 
promote prosperity and savings so that more Americans will be able to 
retire comfortably, rather than living from one Social Security check 
to another.
  Among its many provisions, this legislation reduces income tax rates 
by 10 percent and provides 100 percent deductability of health 
insurance premiums. It also phases out the estate tax so that families 
will be able to pass family homes, farms and businesses on to their 
children and grandchildren.
  Mr. Speaker, I encourage my colleagues to support this reasonable 
approach to tax relief that protects our seniors' health and 
retirement.
  Mr. PACKARD. Mr. Speaker, I rise in strong support of H.R. 2488, The 
Financial Freedom Act of 1999.
  Americans are clearly over-taxed. Over the next ten years, the 
average family will pay $5,307 more in taxes than the government needs 
to operate. This overpayment has created a projected $3 trillion 
surplus. H.R. 2488 simply refunds this overpayment so hardworking 
taxpayers can spend their money as they see fit.
  The Financial Freedom Act will provide a 10 percent across the board 
tax reduction for every American. H.R. 2488 will also reduce the 
Marriage Penalty and Capital Gains tax, and eliminate the Death Tax. I 
can't think of anything more absurd than penalizing people for 
investing in our economy, getting married, or even dying. In addition, 
H.R. 2488 leaves more than $2 trillion for Social Security and Debt 
Reduction.
  Mr. Speaker, it is time we offer meaningful tax relief to the hard 
working people of this nation. I urge my colleagues to support The 
Financial Freedom Act and reimburse Americans for their overpayment to 
the government.
  Mr. DAVIS of Illinois. Mr. Speaker, I rise in opposition to this 
Robin Hood in Reverse, this Marie Antoinette inspired bill, this 
Voltarian tax package, H.R. 2488, The Financial Freedom Act.
  My father always told us that there is nothing new under the sun and 
I think he was absolutely correct, because Billie Holiday pegged this 
bill perfectly when she sang:

     Them that's got shall get, Them that's not shall lose,
     So the Bible says and that still is the rule,
     Mamma may have, Papa may have, But God Bless the child that's 
           got his own.

  The French philosopher Voltaire is supposed to have once said that 
the purpose of politics is to take as much money as you can from one 
group of people and give it to another. The Archer Tax Plan is out of 
touch with the American People and seems to be more in line with the 
thinking of Voltaire.
  The Treasury Department has estimated that this tax bill will cost 
the American people almost $300 billion per year.
  Who are the people that it will cost? It will cost senior citizens 
who need Medicare help with their prescription drugs. It will cost 
children and teachers who need lower class sizes.
  It will cost hospitals and medical schools who train doctors and 
treat poor people. It will

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cost communities who need to reduce crime. It will cost homeless people 
who need a place to stay. It will cost victims of AIDS who need to be 
cured.
  It will cost retirees who need social security; and it will cost 
hungry people who need to be fed.
  I can just see Robin Hood turning over in his grave, I can feel 
Franklin Delano Roosevelt grimace in pain and I can hear Jesus the 
Christ saying, as you do unto the least of these my brethren, so have 
you done unto me.
  Can you imagine a tax plan where close to half the benefits would go 
to the richest 1 percent of the taxpayers, to the average tune of 
$54,000.
  Yes, under this plan, them that's got are the ones who get. Corporate 
welfare, their Martini lunches, capital gains tax reduction are all 
protected, while we can look for cuts in Head Start, money for students 
with disabilities, after school programs and meals for the elderly 
would all face serious cuts.
  Under this plan roads, bridges and streets could crumble, the 43 
million people with no health insurance remain uninsured, the over 5 
million in severe need of housing receive no relief and the 34 million 
people who are labeled as moderately or severely hungry and where 
parents skip meals so that children can eat will get no help. I can 
hear Marie Antoinette or someone who does not know the impact or 
consequences of these cuts saying, let them eat cake.
  They cannot eat cake; because there will be none, and if there is, it 
certainly will not be sweet. But we can vote like the representatives a 
majority of the people want us to be.
  We can vote these cuts down and stand up for the people. I thank you 
Mr. Speaker and yield back the balance of my time.
  The SPEAKER pro tempore. Pursuant to section 2 of House Resolution 
256, further consideration of the bill will be postponed until the next 
legislative day.

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